What to Do About Economic Perversity

I agree with the Providence Journal that it is “perverse” for the CEO of a health insurance company to make one-and-a-half times the entire payroll of a 2,000-employee hospital. Considering how often Republicans and conservatives are saddled with the ideological blame for these supposed excesses of the free market, that admission may surprise some readers. We’re not talking an ideological paradox — or even run-of-the-mill self-contradiction — though.
Such stark comparisons should actually lead one to question whether we’re seeing evidence of capitalism unbound or capitalism unwisely bounded. The fundamental differences between modern economic philosophies (e.g., between Keynesianism and supply-side economics) sometimes seem to come down to conflicting opinions about how to get the rich to keep their money moving (e.g., as corporate profits or as private income) — indicating a general understanding that those who control wealth will tend to try to take as much as possible for themselves. It is reasonable to suggest, therefore, that the encouragement of competition is perhaps the most effective means of placing natural, market-driven limits on the amount of wealth that it is reasonable for the rich to siphon away from productive ends. Try to grab a $100 bill from somebody, and he’ll hold it out of reach, dodge left, dodge right, and run you in circles; offer somebody else a profitable opportunity while the first guy is hoarding his cache, and that $100 bill might not be so difficult to liberate.
The healthcare industry is plainly not an example of a free market, what with regulations, coverage dictat’s, and the insurer/customer relationship’s being all tangled up with the customers’ unrelated careers. as much money as $124 million might be, throwing it away is apparently not a competitive handicap in the face of high barriers to entry and high costs of doing business once a company has entered the industry.
So no, I don’t support a system of such gargantuan inequalities. I support a system in which competition puts the avaricious in danger of eating themselves.

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Michael
14 years ago

I found it strange that the Journal ran an editorial critisizing the CEO’s unbalanced pay on the same page as former CEO Governor Carcieri’s endorsement of another former CEO’s run for the White House.

klaus
klaus
14 years ago

Sorry, guys. The market for hiring CEOs is not even close to “free.” It’s a clubby atmosphere, where CEOs sit on the boards that compensate other CEOs. As such, the game is thoroughly rigged from the get-go, in favor of–you guessed it–CEOs.
How else to explain the huge packages given to guys like Nardelli (Home Depot), Waggoner at GM, the new guy at Ford, Whitacre from BellSouth…the list is endless.
Back in the 70s, the average CEO made like 40 times the average worker’s salary; now the ratio is 400 times, or more. You’re telling me that the value of the CEO has increased by 1000% in 30 years, while the wage of the average worker has stagnated?
Please.
The growing disparity in incomes is directly attributable to supply-side economics. Reagan lowered the top tax bracket to 50%, and it’s come down even more since then. There’s the real reason for growing income disparity. Which, is theoretically supposed to trickle down, but it hasn’t. The evidence of the last 30 years just leads to the conclusion that supply-side econ simply results in the rich getting richer.
And the real killer? All these corporate profits have NOT been re-invested. They’ve been siphoned off in exec salaries, or they’ve been used to buy back shares–which benefits, mainly, people who get large blocks of stock options, who just happen to be execs. Prudential is going to buy back $3 billion worth this year. That could give an awful lot of people raises.
And even better, the execs have been using insider information to backdate the exercise to maximize their profit.
Man, is that a sweet deal or what?
Oh, you can verify most of this in BusinessWeek.
So, right. Free market. Only in some fantasy world.

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