Friday, February 6, 2009

Limits on Executive Pay?

Check out this article in the WSJ 1-6-2009 in favor of federal limits for executive pay.

Top corporate managers are a scarce resource, just like other factors of production. What are their services worth? Neither you nor I know, and compensation committees at corporations don't know either. What anything is "worth" must be discovered through voluntary exchange in markets.

Anytime someone purports to "know" what something is worth, they should be prepared to buy it (with their own money; not taxpayers money) or if they already own it, sell it for that amount. If they are not, their claims of special knowledge about worth can be safely ignored as hubris and special pleading.

Shareholders of public corporations have an easy remedy if they think the top executive officers of the corporation are overpaid. They can sell their shares and buy companies that don't overpay their executives. If shareholders are satisfied with the return on investment they get from owning shares of a company, they hold on to their shares and are not the least bit concerned about what the CEO or other top officers are paid.

Once again, I come down on the side of voluntary exchange. It works (to generate human prosperity), and it's moral. Coercion, which is what Obama and the author of the cited article above argue for, doesn't value scarce factors of production well, and worse still, it's immoral. That's right; immoral. Anytime a person or group of person coerces another person or group of person, it's immoral. Think about it.

In the article cited above, we see how the camel's nose in the tent works. First, the feds buy equity in companies. Next, the feds tell the companies what they must do, since they are recipients of public money. If you think federal control of the factors of production is a good idea, I recommend that you read the history of the world. History makes it completely clear that government ownership and control of the means of production leads to human misery and deprivation. It's a convenient and interesting side bar that government coercion is also immoral.

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