Wednesday, September 24, 2008

The Executive is Always Right

Amidst the tempers flaring now about the current state of the economy, and failing mortgage firms, I pulled up a video discussion about outrageous executive pay from 2002 on PBS's News Hour with Jim Lehrer.

George Akerlof (him again!) says in the video,

"The public thinks that this is an issue of left versus right. We should have either free markets or regulated markets."

I think Paul Solman makes a good point against the market enthusiasts who say, as does minarchist philosopher Robert Nozick, that the market chose to pay these CEOs exorbitant amounts of money because it values what they do. Solmon shows that while the firm the CEOs work for may be valued in the market, the CEOs themselves choose their own pay. They're only accountable to themselves. It's the firm as a whole that is valued by the market. Moreover, CEO pay has no easy correlation with stock performance or firm performance.

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