As Economic Inequality Grows: the "NBA Star" rationalization.

== Are super-compensated CEOs “mutant-NBA level” worth it? ==

Nobel Prize willing economist Joseph Stiglits makes a point in cogent and clear terms that I have been trying to get across for a decade - that members of our CEO-golf-buddy caste are utter hypocrites for claiming that their skyrocketing bonuses and compensation packages are immune to the laws of supply and demand: 

"Competitive forces should limit outsize profits, but if governments do not ensure that markets are competitive, there can be large monopoly profits. Competitive forces should also limit disproportionate executive compensation, but in modern corporations, the CEO has enormous power—including the power to set his own compensation, subject, of course, to his board—but in many corporations, he even has considerable power to appoint the board, and with a stacked board, there is little check. Shareholders have minimal say. Some countries have better “corporate governance laws,” the laws that circumscribe the power of the CEO, for instance, by insisting that there be independent members in the board or that shareholders have a say in pay. If the country does not have good corporate governance laws that are effectively enforced, CEOs can pay themselves outsize bonuses."   

Let me make this absurd situation plain to you. In any rational labor market, skyrocketing pay levels would have the natural market effect of attracting geniuses from other fields of human endeavor, drawing competitors and new talent until the supply of talent met demand and compensation packages settled back down to more historically normal levels. That isn't capitalism 101.  It is Capitalism 1.

Yet, members of the steadily narrowing and increasingly incestuous CEO Caste have strenuously avoided discussion of this simple fact of economics, while shouting their fealty to market forces in every other way. (Hence the hypocrisy.) 

On those rare occasions when they do address this issue, they use what I call the Mutant Basketballer argument… that they are like the very top athletes on championship ball teams, so mutant-good that they are beyond any thought of replacement and worth any salary they demand. (See my earlier posting: The Syndrome of the Essential Man.)

Of course, there is an inconvenient flaw to that incantation. NBA stars are subject to fiercely rigorous statistical and scientific appraisal of their objective performance, more closely tracked and scrutinized - in fact - than any other professional clade on Earth. (I've made this same point more extensively before.)

Moreover, those sports stars do not appoint buddies to the committees that evaluate them. NBA athletes compete with each other, instead of participating in an oligarchic circle-jerk.

Stiglitz (author of The Price of Inequality: How Today's Divided Society Endangers Our Future) makes this point amid a larger context, describing how Adam Smith himself prescribed government actions to compensate for inevitable aristocratic cheating. Indeed, the doyen of right wing economics, Friedrich Hayek, also maintained that governments should act to maximize the number of skilled and confident citizen-consumer-producers who are well-equipped to compete with one another in flat-open-fair markets.

Continueth Stiglitz:

"Our political system has increasingly been working in ways that increase the inequality of outcomes and reduce equality of opportunity. This should not come as a surprise: we have a political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor, and to extract from the public what can only be called large “gifts.” Economists have a name for these activities: they call them rent seeking, getting income not as a reward to creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort. Those at the top have learned how to suck out money from the rest in ways that the rest are hardly aware of—that is their true innovation."

To be clear, many of our current crop of billionaires have made their wealth the way Smith and Hayek and all believers in flat-fair-creative market systems know is best, by fostering teams of bright engineers to create new and better good and services. This is the type of entrepreneurs that Supply Side economics was supposedly designed to encourage! 

Only then comes the irony — that Supply Side never helped any of these "productive" billionaires. Indeed, nearly all of them today are democrats (with some deep libertarians) who despise the blatant crony raid and rent-seeking subsidy called Supply Side.

Read this article by one of the smartest economists of our era.

== Economics ==

A fascinating political-economic piece on the Evonomics site has a terrible title: Stop Crying About the Size of Government; Start Caring About Who Controls It. It is worth a look... as are a majority of things appearing on that bold new site, whose contribution is to prove that creative-productive market enterprise is not the same thing as plutocratic oligarchy.  They are, in fact, opposites.

The White House's common sense idea to protect retirement accounts. Regarding brokers and managers of the millions of IRAs and other retirement saving accounts that have mostly taken over from old-style corporate pension plans, , the administration wants to impose a legally enforceable duty to act in the “best interest” of clients, similar to the fiduciary duty lawyers and other professionals already owe. Now what could be controversial about that?  Well, these brokers currently are allowed to churn those accounts to maximize their own commissions and the GOP led Congress has stalled for 7 years doing anything about it. Yep, on the side of the little guy. 

A  fascinating piece on why it has been so hard to establish the “rule of law” in most crony-corrupt developing states.  

== The threat of North Korea ==

Internationally, headline-grabbing North Korea claimed to have set off a Hydrogen Bomb, a technological feat that most western experts view with suspicion and doubt. But I'll not opine on that, except to say there is one and only one potential solution to this ongoing canker sore on humanity’s lip.

That solution is North Korea’s lifetime partner and subsidizing neighbor to the north and west.  Sure, many have tried to get that neighbor to apply pressure – which they could easily do, getting Kim Jong Un’s regime to settle down and stop chewing the carpet. 

So far, all normal means of persuasion have failed, because that giant neighbor likes pointing at North Korea as an object lesson. Moreover it does not want to see a united, prosperous Korea next door. Also, to be fair, a collapse of the NK regime could send millions of refugees crossing the Yalu River. None of which excuses this refusal to act.

Hence, the U.S. government has decided to take a tougher line: “In a striking public rebuke of China, Secretary of State John Kerry warned Beijing on Thursday that its effort to rein in North Korea had been a failure and that something had to change in its handling of the isolated country it has supported for the past six decades.” 

Among the discussed options, getting from the UN a partial ban on permitting North Korean ships to enter ports around the world – including Chinese ports - an effort to cut off more of the country’s trade. But China has vetoed such resolutions in the past. 

Well, well. There is one thing the West and others have not tried… tort law.  

Tort law? Yes, simple assignment of liability. Before leaving office, President Obama should declare that - if the North Korea ever does anything truly nasty, the victims of that nastiness - yes even in war - will have recourse to courts everywhere, seeking compensation from the deep-pocketed power who neglected to do much, across 60 years, to prevent the harm. 


Watch how that gets a reaction! Why? Because Rule-of-Law is a concept that both boggles and awes powerful men, when they see it actually functioning. They know, deep-down, that it is the sole source of actual legitimacy. And they have found it incomprehensible, yet transfixing, how an increasingly independent world judiciary has the power to impose accountability outside of the international (and easily bullied) political caste. The notion that individual citizens of Seoul might - after say an NK artillery barrage, or far worse - file suit against much deeper pockets... that could raise a chill up certain spines.

And I have said enough about that.