Its puzzling to me, tell me why?

Why is it that many Americans are concerned about CEO pay (S&P 500 median compensation $10.8M in 2015), but are not concerned that Taylor Swift made $170M last year? Or that LeBron James made $77M?

Why is it that people are concerned about an explosion in the price hikes of monopolist producers of EpiPen, but are virtually silent on the FDAs squashing of EpiPen’s foreign competition?

Why is it that people are concerned about the cost of higher education, but state schools are paying football coaches ~$5M+ and Ohio State University had 1200+ people making over $200k (with clinical professors making just shy of $1M, and even economists making almost $400k!)?*

Why is it that we’re concerned with producer’s salaries and yet little concern over Hillary Clinton making $16M in 2014 (primarily from speaking)?  What was it that she produced?

Why is it that the people with the most to lose by paying CEOs too much (the shareholder), who have the highest incentive to monitor performance, are not considered wise enough to determine CEO pay?  Yet people with almost no knowledge of business (politicians), who have demonstrably shown they are incapable of managing other peoples’ money, are seriously considered as able to arbitrate salaries?

Aren’t you curious?  Part of the answer is found in how you answer this question:  Is income distributed or is it produced?  I await your wisdom in the comments.

HT to Thomas Sowell, for his years of economic wisdom

*Don’t worry CU student readers; we’re not squandering your money this way!

 

26 thoughts on “Its puzzling to me, tell me why?”

  1. People are concerned with the amount of money football couches make. There’s a graphic going around that shows which states the highest paid government employee is a football coach.

    As for the rest. Because of reasons.

  2. Jeff this is one of the more common sense postings about how out of sync pay scales are in the US/world in many instances. Taxpayers ought to be screaming at the over paid professors in public higher education and the “gods” of sports in coaching and among players. They should really be more concerned over a person running for President receiving the kind of pay as Hillsry did/does for pay while serving the taxpayers that are suffering under government corruption and getting paid plus all the high expenses for traveling the world.

    We know that professors at Cedarville do not get over compensated but teach and administer for a higher reason than Monet.

  3. In my opinion, income is produced, not distributed. When it comes to economics I am solidly in the “non-zero-sum” camp. The liberal notion that a CEO making lots of money somehow means that there is less money for the so-called “little guy” is, to me, rather absurd.

    That said, there are some specific cases, as mentioned above, such as college athletics, where exorbitant salaries do have a negative effect on specific groups like students in areas like tuition.

  4. Challenging questions. Thanks.

    (And I also salute Thomas Sowell for his wisdom and insight over many decades.)

  5. Perhaps I’m wrong, but I would guess it’s a question of perspective and scapegoating. More specifically, people don’t think Taylor Swift or football coaches are lynchpins of the economy, and certainly don’t believe that these people are pulling the strings and manipulating policy. This may be too gracious on the part of the average person, but I actually think the reason for the difference is precisely BECAUSE of the producer/entertainer dichotomy you point out.

    People believe that banks and corporations control things- not just actively, through manipulation, but that their success and failure affects everyone. If Taylor Swift declares bankruptcy, we feel bad, but she’s just an entertainer. If Lehman Brothers or AIG suddenly and dramatically fails, we believe (perhaps because of media narratives?) that they’re taking us all down with them. Couple with that the unspoken, but widely held, belief that money has a corrupting tendency, and people are very nervous when the people ‘behind the wheel’ of our economy are given the kind of money that might encourage people to abuse the power they have.

    So I would suggest that people are afraid of CEOs. They think a greedy CEO can make them pay more for medicine or cause them to lose their homes and jobs. They do not think Taylor Swift can do that, and are less afraid of her having money.

  6. It seems to me a business with many employees, all making a contribution, produce and then sell a product for a profit. The business with all its employees has produced this profit. Then someone discerns, based on what I don’t know, how much of the profit goes to employees in the form of wages, benefits and bonus. After other expenses then those that supplied capital, share holders and or owners, share in the profits. If the board thinks an individual has made a major contribution they are the ones that distribute to the CEO, etc. What he or she contributed is subjective.

    In the case of a movie star, football player or some other celebrity, they are the product that is sold, thus it is easy to see they have produced the income. Not so clear with the CEO.

    The question should be, why have CEO and other top earners wages gone up while others have not? Have we suddenly created a group of geniuses that we didn’t have before? Or, have the learned a better way to cook the system?

  7. Income is generally produced. If CEO’s are not worth multimillion dollar salaries, then the market would adjust and pay them what they are actually worth. The companies that are paying the CEO’s this money feel that the CEO is worth more than $10 million in value, or else they wouldn’t pay him/her that much.

    When it comes to college coaches, it does seem that that the income is being distributed. If Ohio State football was awful, they still would sell out the stands, sell jerseys and make a lot of money. Will they make more money with their excellent coach, probably, but I don’t know they make back more than they pay the coach.

      1. Yeah, it’s actually very analogous. Couches in my mind produce more than a CEO does. No human I think is worth tens of millions, but the same arguments could be made in any case.

      2. I realized I said couches instead of coaches. But my statement still stands. I would not pay millions of dollars for a football couch.

  8. Back when Exxon-Mobile and the other oil companies were being “invited” to testify at Congress, they were asked why they made so much money. I so wish the answer had been “I make what I make because I make others more!” We all benefit when a company does well. We hope they are in our portfolio. Jamie Dimon of JP Morgan is the only one who is willing to tell Congress they don’t know what they are talking about.

    Average prices for Ohio State football tickets is $114 (face value) this year. Attendance will be about 751,000 so the revenue will be something like $85.6M. That doesn’t count the TV revenues or what a happy alumni association will provide.

    I wish people would spend more time figuring out how to produce and make more rather than worrying about what others make.

  9. I would have to say money is more produced than it is distributed. It blows my mind knowing how much money people like Taylor Swift, Lebron James, and college football coaches make. I often think how much more professors who are changing the lives of students should be paid. Not only professors in college but even teachers of children who are inspiring them to be whoever they want to be in the world and yet they get paid so little.

  10. In my opinion, income is both produced and distributed. Because everything is worth a different amount to different people, the goal is to distribute what people want the most to those people, and in that sense, income is produced. But on the flip side, not everyone can be involved on the macro scale to distribute what everyone wants to everyone, so there has to be someone (or something) that determines where the produced income goes. Sometimes it’s fairly, sometimes it’s not. As a culture, we have no problem with T.Swift making $170 Million, because that is in direct relation to how we value her talent. But when someone has no value in paying a CEO $x million, we feel that there is an issue. Just because we don’t personally see the value, doesn’t mean it’s not there.

  11. My understanding is that people are upset with income distribution/production because CEO salaries have increased at a faster rate than other workers’. While this may very well be justified, it is hard to tell why the increase would be necessary and whether extreme cases of added bonuses to CEO positions are fair allocations of company profits. It’s not so much the CEO pay that has people concerned, but its rate of growth.

    1. I think you’re absolutely right. But your answer gets to the heart of the issue–why is it anyone else’s business besides the shareholders how much the CEO is paid? I can’t help but think about the Parable of the Laborers in the field (Matt 20)–don’t the shareholders have the right to pay a CEO a higher rate if they think he/she is worth it?
      13 “But he answered one of them, ‘I am not being unfair to you, friend. Didn’t you agree to work for a denarius? 14 Take your pay and go. I want to give the one who was hired last the same as I gave you. 15 Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?’

      1. When it comes to income “redistribution” or “production” the parable I think of is the one in Matt. 25 where the master left on a trip and gave his three servants charge of money. The first servant with five talents invested and made five more, the second with two talents made two more, the third, with one talent, buried his in the ground. When the master returned he praised the first two servants for producing additional wealth. He rebuked the one who had hid his talent and took it from him and gave it to the… gasp… one with 10 talents instead of the one with only 4. He didn’t say “oh, you poor man. Here is what I will do to make this fair. I will take 5 talents from the man with 10 and give you four and the second servant one that way all three of you will have 5 each”.

      2. HA! The parable you cite has nothing to do with Christian thought on wages and employment; it has to do with the justice of God, and more specifically the inclusion of Gentiles so “late” in God’s plan. Wow. Yikes.

  12. When people complain about one thing and not another, I feel like it has to do with what side the media takes a stand on. People are riled up easily, especially for things that concern them. EpiPen, for example, is well know for their outrageously high prices, but at the same time the competition had major deficiencies. Neither option is preferred by people, but since the defective “EpiPen” was pulled off the market, that leaves only the high priced EpiPen to worry about.
    It also has to do with what people favor. For example, more people probably like Taylor Swift than the CEO. The same is true for colleges and the pay of coaches. While some people love sports and would consider the high pay for a good coach to be worth lots of money, others think they are not.

  13. People do not mind paying for what they want. While people do not stop supporting such luxuries (even though they may grumble about them) the costs will slowly rise out of greed. People continue to “purchase” the good of entertainment at such prices because it is still worth it to them. This entertainment continuously goes up in price because the team owners (or entertainers) wish to have a well performing team (or the next “hit”), one which will make headlines and allow them to tuck a gold trophy on their wall. If prices continued to rise to the point where people said that it was no longer worth the benefits, they would stop purchasing the tickets, merchandise, etc. for those teams and interest groups which would drive prices back down. CEOs on the other hand offer no value to most people they suppose (even though they are important to the economy in reality). People are not willing to pay for what they do not want, or at least what they think they do not want. In short, people want and are willing to pay for the entertainment, but are unwilling to invest in what they do not understand or do not care about.

  14. I think that income is produced more than it is distributed. All these statistics of how much people make are so crazy. I had no idea that professors at Ohio State were making that much money. The question is very interesting though.

  15. I believe income is produced more than it is distributed. If people believe that a CEO, football coach, or entertainer should be paid a huge amount of money than that is what is going to happen. The interest of the public and how we as citizens value their company or performance will direct how much they are making. On the other side however is these people are making to much. This is in direct correlation to people not valuing their talents and abilities as much as others. It is an opinion oriented question and I believe it could go both ways, however leaning in the produced more than distributed side.

  16. My opinion is a lame one because I’m gonna say it’s both ways. It’s sad that we allow more important to the entertainment and sports industry than the education and social welfare. Taylor Swift and football coaches/players/staffs don’t need that much money for themselves. I think income is distributed unwisely and that it is produced too much.

  17. I think income is produced. No one is concerned with Taylor Swift or sports figures making millions of dollars because they are entertainers. The public has almost turned a blind eye to the media and how monstrous their realm is, and this goes back to Amusing Ourselves to Death. CEO’s play a more essential role in our economy, producing things of necessity while entertainers are there purely for personal benefit. Therefore, their large incomes aren’t of major concern because if their income ceases, the next most popular person or athlete takes their place.

  18. As we talked about in Micro, I think that the free market is the best allocator of resources rather than a central planner. Supply and demand is the most efficient way to ensure that the most willing buyers get to buy and the most efficient sellers get to sell. As for the public’s view on the wages of entertainers vs. CEOs, I think that it is somewhat popular for people to view CEOs as the bad guys that are exploiting their innocent workers. In reality, entertainers are making just as much and more, and there is little public outcry.

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