Two Views of the Greed Factor
How much is too much greed?
We hear a lot of talk these days about growing economic inequality in America in recent years. Senator Jim Webb pointed out in his response to President Bush's state-of-the-union address that CEO compensation has grown from 40 times to 400 times that of the average worker in recent years. Other commentators have pointed to envy by the rich for the super-rich. Bush administration capital gains, income and inheritance tax cuts have increased inequality in this country already growing due to globalization and freer trade.
In the past couple of days I happened to read two different takes on these issues--one in today's NY Times (1-28-07) by Ben Stein, financial writer for the NY Times and entertainer and the other by conservative African American columnist, Thomas Sowell of Stanford's Hoover Institute. I will endeavor to link both articles below. Unless you are a subscriber to TimesSelect you may not be able to access Stein's article so here are a few quotations that will give you a good idea of his position as a supporter and critic of our free enterprise solution. [The parentheticals are mine.]
THE HARD RAIN THAT'S FALLING ON CAPITALISM by Ben Stein
"The system of capitalism is wide open. If you have an idea you can turn it into capital.
"But...in capitalism the most fundamental building block is trust.
"When yeoman farmers sent their savings to banks in London and Glasgow and Paris, they had to be able to count on it not being stolen. That was what allowed capital to be accumulated and deployed, and for the entire world economy to take off.
[Compare that trust with the conflicts, shady practices and illegal actions of many if not most of our country's blue ribbon household name financial institutions that have come to light in the past several years--after market trading and day-trading allowed by mutual funds, lavish entertaining of mutual fund traders by fund brokers, recommendation of inappropriate types of mutual fund shares to maximize commissions, double billing cycles and other "tricks and traps" which contribute more than half the earnings of credit card companies, bid rigging by our biggest insurance companies and the like.]
"When I see what the top dogs at all too many corporations are now doing to that trust, I feel queasy. Outrageous--yes, obscene--pay. Greedy backdating of stock options, which in my opinion is straight-up theft. Managers buying assets from their trustors, the stockholders, at pennies on the dollar, then forestalling competing bids with lockups and insane breakup fees.
"These misdeeds and many, many more are hammer blows at the granite foundation of trust we built in the 1940s and '50s. How long democratic capitalism can survive these blows before it gives in and gives birth to revolution or to an out-and-out aristocracy, I am not sure.
"Empires come and go. Economic systems come and go. There is no heavenly guarantee that capitalism will last forever as we know it.
"It's built on man's notion that he can trust his neighbor with his money, and that if the neighbor misbehaves, the law will chase him and catch him, and that the ladder of law has no top and no bottom, that even the nobles get properly handled once they have been caught.
"If that trust disappears--if the system is no longer a system for the ordinary citizen but only for the tough guys--how much longer can the miracle last?
"Each day's newspaper, it seems, brings more tidings of unrestrained selfishness and self-dealing and rafts of powerful people saying it's good for us to be robbed if only we truly understood the system." [This is essentially what Thomas Sowell argues in his column linked below.]
The problem is, we're getting to understand it all to well. And there is no one in Washington--absolutely no one to help. [Not sure I'd go quite that far.]
Here's a link to Ben Stein's op-ed http://www.nytimes.com/2007/01/28/business/yourmoney/28every.html?_r=1&adxnnl=1&oref=slogin&adxnnlx=1170004166-kdxM+hUOohzsAcRCeWIpdg
Unfortunately I was unable to link the Sowell article. Suffice it to say that his take on greed was quite different from that of Ben Stein, closer to that of Gordon Gekko's infamous "greed is good' soliloquy in "Wall Street" or Ivan Boesky in his speech at U California, Berkeley Business School's 1987 commencement. Here's a quote from Sowell's article pooh poohing claims that CEO's are over-compensated:
"Today there are adults -- including educated adults -- who explain multimillion-dollar corporate executives' salaries as being due to "greed."
"Think about it: I could become so greedy that I wanted a fortune twice the size of Bill Gates' -- but this greed would not increase my income by one cent.
If you want to explain why some people have astronomical incomes, it cannot be simply because of their own desires -- whether "greedy" or not -- but because of what other people are willing to pay them.
The real question, then, is: Why do other people choose to pay corporate executives so much?
"One popular explanation is that executive salaries are set by boards of directors who are spending the stockholders' money and do not care that they are overpaying a CEO, who may be the one responsible for putting them on the board of directors in the first place.
"It makes a neat picture and may even be true in some cases. What deals a body blow to this theory, however, is that CEO compensation is even higher in corporations owned by a few giant investment firms, as distinguished from corporations owned by thousands of individual stockholders..."