Monthly Archive for January, 2012

Why CEO Pay Is Rising

Atleast part of the reason is a dwindling supply:

In tech circles, the C-suite at a publicly traded company is no longer the be-all and end-all. Just look at the troubles Yahoo! (YHOO) and Hewlett-Packard (HPQ) have recently had finding new leaders. HP canned former SAP (SAP) Chief Executive Officer Léo Apotheker after just 11 months—then faced a barrage of criticism for replacing him with HP director and former EBay (EBAY) CEO Meg Whitman without bothering to look beyond its own boardroom.

Industry consolidation has created a small number of very large technology companies such as HP, Cisco (CSCO), and Microsoft (MSFT). They’ve stumbled in recent years as disruptive developments like the mobile revolution and the dash to the cloud shake the entire sector. As the job of leading these companies gets tougher, there are fewer talented leaders with the skills—and inclination—to do it. Rather than wait for high-profile CEOs such as Cisco’s John Chambers, Microsoft’s Steve Ballmer, and Research In Motion’s (RIMM) Mike Lazaridis and Jim Balsillie to step down, many potential replacements have decamped for more exciting, and potentially more lucrative, gigs at startups or as investors. “This is the first time in tech history that you have this many companies with CEOs approaching 60 that don’t have any obvious successors,” says John Thompson, vice-chairman of recruiting firm Heidrick & Struggles (HSII).

Full story here.

Obama’s Nostalgianomics

Megan McArdle on President Obama’s speech:

I think the speech made it even clearer that other speeches have that the president’s vision of the world is a lightly updated 1950s technocracy without the social conservatism, and with solar panels instead of rocket ships. Government and labor and business working in tightly controlled concert, with nice people like Obama at the reins–all the inventions coming out of massive government or corporate labs, and all the resulting products built by a heavily unionized workforce that knows no worry about the future.There are obviously a lot of problems with this vision. The first is that this is not what the fifties and sixties were actually like–the government and corporate labs sat on a lot of inventions until upstart companies developed them, and the union goodies that we now think of as typical were actually won pretty late in the game (the contracts that eventually killed GM were written in the early 1970s).

And to the extent that the fifties and sixties were actually like this, we should remember, as Max Boot points out, that this was not actually the day of the little guy. Big institutions actually had a great deal more power than they do now; it was just distributed somewhat differently–you had to worry less about big developers slapping a high-rise next to your single-family neighborhood, and a whole lot more about Robert Moses deciding he wanted to run a freeway through the spot where your house happened to be.

The military model of society–employed by both Obama, and a whole lot of 1950s good government types–was actually a kind of creepy way to live. As Boot says, “America today is far more individualistic and far more meritocratic with far less tolerance for rank prejudice and far less willingness to blindly follow the orders of rigid bureaucracies.” If you want the 1950s except without the rigid conformity and the McCarthyism, then you fundamentally misunderstand what made the 1950s tick.

Finally, there’s the fact that the 1950s ended in the 1970s. In the 1950s, American products were envied all over the world; by 1980, they were a joke. This is not some radical disconnect; it is the beginning and end of the same process. The technocratic American institutions became sclerotic agents of inertia. Bosses whose pay was capped poured their energy into building personal empires instead of personal fortunes. Unions like the UAW began making demands on their companies so heavy that even the UAW president who had negotiated these amazing pay increases began to fear that his members had lost their minds.

Full post here.

Quote Of The Day

“On the historical evidence, practically the only time the federal government runs a surplus is when one party holds Congress and the other the White House. While it is probably true that Obama is, as one commenter put it, not a Kenyan but a Swede, that his ideal is to make the U.S. into something more like a European welfare state, he is also a Chicago politician, unlikely to let his principles get in the way of his politics. Faced with a congress controlled by the other party, a substantial minority of it in favor of a sharp reduction in government expenditure and regulation, he might well decide that his best strategy is to outflank the Republicans on the right. He has already made a few gestures in that direction, in rhetoric if not yet in substance.” — David Friedman, answering “Who is the Least Bad Candidate?”

The Argument For Zero Capital Gains Taxes

If you care about maximizing government revenue that is:

Most of the discussion by economists of the appropriate capital gains tax rate is about a very narrow criterion: the effect of capital gains tax rates on capital gains tax revenues. But in a 2009 study done for the Institute for Research on the Economics of Taxation (IRET), Ohio State University economist Paul D. Evans considers a broader criterion: the effect of capital gains tax rates on overall federal tax revenues.

What’s the difference? Because capital gains taxes discourage capital formation, they also cause other tax revenues to be lower. If there’s less capital formation, workers have less capital to work with and, therefore, are less productive. If they’re less productive, the government collects less tax revenue from them.

Professor Evans looks at data from the overall economy from 1976 to 2004, a period in which there was a lot of variation in the marginal tax rate on capital gains. He concludes that in 2004, the tax rate on capital gains that would have maximized overall federal government revenues was 9.69 percent. But if the government taxes to maximize revenues, the deadweight loss from the last epsilon of tax increase is infinity. Therefore, if the revenue-maximizing capital gains tax rate was 9.69 percent, the optimal tax rate was even lower. So a greedy, grasping government that wants to maximize tax revenues should cut the marginal tax rate on capital gains and if that government cares at all about taxpayers, it should cut the rate even further.

David Henderson On John Stossel Discussing Ron Paul And Foreign Policy

It makes me think my friend Jon is more right on foreign policy than I give him credit for. Video can be found here. David Henderson discusses it here and in the comments.

The Rationale Behind Low Capital Gains Taxes

University Of Chicago economist John Cochrane writes:

Intuitively, this is related to the theorem that you shouldn’t tax intermediate goods, or have tariffs for moving goods around the country.  Romney’s income was taxed once, when he made it. It’s not efficient to tax it again, because he chose to save it rather than spend it immediately on an orgy of houses, private jets, and a big vacation for his extended family.

If you made money in dollars, paid taxes, then went to Canada and got $1.20 Canadian, it would make no sense to say “you made 20 cents of income, we’ll tax it.” It makes no more sense to pay taxes again on money that is moved over time. We decry that Americans don’t save enough, the Chinese, the trade deficit and so on. Well, if you want people to save more, stop taxing it.

For this reason, the U.S. Tax code has been slowly reducing the taxation of rates of return. Capital gains and dividends are now taxed less than ordinary income. IRAs, 401(k), 526, and a welter of other devices allow people to save and invest without paying taxes on the rates of return. (It would be much simpler to just eliminate taxes on rates of return, but then the lawyers and accountants would have nothing to do.) Dividends are finally taxed at the same rate as capital gains. Estate taxes have been slowly and chaotically lowered. 

Full post can be found here.

Hans Rosling On John Stossel


A worthwhile clip.

Quote Of The Day

“Conservatives will also find that Europe is much less open to immigration than the United States, that Europe generally has much lighter taxation of investment income, that few European countries uphold American-style strong separation of church and state, that European countries generally afford accused criminals fewer procedural rights, and that Europe has much less in the way of product liability and class action lawsuits. What’s more, though there are a few exceptions (Sweden comes to mind), Europe as a whole is more conservative in its gender norms in many ways. Women’s workforce participation rates are lower, fewer children are born to single parents, and there are many more legal restrictions on abortion. ” — Matthew Yglesias, on the important difference between Europe that conservatives would find surprising

Quote Of The Day

What about life expectancy statistics — a favorite of the critics, since Americans don’t score very high? It turns out that when you remove outcomes doctors have almost no impact on — death from fatal injuries (car accidents, violent crime, etc.) — U.S. life expectancy jumps from 19th in the world to number one!John Goodman, answering the question, Do We Really Spend More and Get Less with regard to Healthcare?

John Cochrane Blog

University Of Chicago economics professor, and Paul Krugman nemisis, John Cochrane is now blogging. For those interested, add his blog to your blogroll.

Why Ron Paul Annoys Liberals/Progressives

Glenn Greenwald nails it:

The parallel reality — the undeniable fact — is that all of these listed heinous views and actions from Barack Obama have been vehemently opposed and condemned by Ron Paul: and among the major GOP candidates, only by Ron Paul. For that reason, Paul’s candidacy forces progressives to face the hideous positions and actions of their candidate, of the person they want to empower for another four years. If Paul were not in the race or were not receiving attention, none of these issues would receive any attention because all the other major GOP candidates either agree with Obama on these matters or hold even worse views.

Progressives would feel much better about themselves, their Party and their candidate if they only had to oppose, say, Rick Perry or Michele Bachmann. That’s because the standard GOP candidate agrees with Obama on many of these issues and is even worse on these others, so progressives can feel good about themselves for supporting Obama: his right-wing opponent is a warmonger, a servant to Wall Street, a neocon, a devotee of harsh and racist criminal justice policies, etc. etc. Paul scrambles the comfortable ideological and partisan categories and forces progressives to confront and account for the policies they are working to protect. His nomination would mean that it is the Republican candidate — not the Democrat — who would be the anti-war, pro-due-process, pro-transparency, anti-Fed, anti-Wall-Street-bailout, anti-Drug-War advocate (which is why some neocons are expressly arguing they’d vote for Obama over Paul). Is it really hard to see why Democrats hate his candidacy and anyone who touts its benefits?

Full post can be found here.

Quote Of The Day

“Take housing, for example. The cheapest form of housing is small, prefabricated homes for zero-lot developments. However, zoning regulations in most cities outlaw them — an act that effectively doubles the price of the cheapest housing. There are also other expensive restrictions on new housing, such as forcing builders to build on bigger lots and mandating specific types of materials and construction methods. Regulations vary widely across the United States. In Houston, a less restrictive city, regulatory costs add about $13,200 to the price of an average home. In San Diego, a multitude of regulations add $240,000. These cost-increasing regulations have essentially priced many low-income residents out of the market for a private home, forcing them to turn to public housing instead.” — John Goodman, arguing that the left’s entire approach to poverty is to segregate the poor into inferior public provision, while the rest of society enjoys the benefits of quasi-private provision.