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Contentions

An Old Idea, Still as Dumb as Ever

The New York Times has an op-ed this morning whose very title gives away its bias, “A New Way to Rein in Fat Cats.” “Fat cats,” of course, is a highly pejorative term designating people who have large incomes. In this case it refers not to people who inherited lots of money and spend their lives yacht racing and polo playing, not to Hollywood stars pulling down $20 million a picture, but specifically to corporate executives.

The author of this op-ed, Douglas K. Smith, wants to limit the compensation of the executives of corporations who do business with the federal government to 20 times the pay of its lowest-paid workers. If President Obama’s executive order requiring a minimum wage of $10.10 is issued, then the highest paid worker in a company paying someone the minimum wage would, assuming a forty-hour work week, earn $420,160. But CEO’s are not paid wages, they are paid a salary and they work far more than 40 hours a week. Like the president, they get 3 a.m. phone calls. They have to testify before Congress. They travel a lot. They make tough decisions that can cost or earn billions. It takes years of on-the-job training to be ready for the top job in a huge corporation. (If you’d like an example of what happens when an unqualified person tries to run a large organization, I refer you to 1600 Pennsylvania Avenue.)

So corporate CEOs may be overpaid, they may underachieve, but no one off the editorial pages of the Times can argue that they don’t work hard. Running a multi-billion-dollar organization is a very time-consuming, demanding, high-stress task that very, very few people have the skills and talents to handle.

So corporate CEOs are highly paid because market forces dictate that they be so. If someone has rare skills and talents that are in high demand, they will earn lots of money. For instance, there are only a handful of people in the country who can throw a baseball 60 feet 6 inches through a strike zone at 95 miles per hour. But Cliff Lee of the Philadelphia Phillies can. That’s why he was paid about $7,500 per pitch last season to do so.

So Mr. Smith’s bright idea is nothing more than a price-fixing scheme to stick it to a group that’s perennially unpopular on the left. I doubt he advocates that Cliff Lee be paid no more than 20 times what the janitors at Citizens Bank Park are paid. I equally doubt that President Obama’s Hollywood friends, who bankroll him so generously at $50,000-a-plate dinners, would be willing to settle for a lousy $400,000 a year in income. Private jets are expensive. So are $50,000-a-plate dinners.

Besides, this nonsense has been tried before. In 1993, Congress and President Clinton limited the deductibility of corporate executive salaries to $1 million. What happened? Nothing. Corporations quickly found ways around the salary cap in order to get the executive talent they felt they needed.

So the government can dictate price controls. The editorial board of the New York Times can write glowing editorials about “fairness.” And market forces will work their inevitable way regardless.


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