Great article.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
- Friedrich A. Hayek
While I still believe Home Depot's board was wrong to give hundreds of millions of dollars to a CEO they were firing, I nonetheless believe Gordon Gekko was right. Greed is good. It's what gets successful people out of bed and onto the job every morning.
Should computer experts tell brain surgeons how to do their job? Or horse trainers tell either of them what to do?
Of course not. Actors are the only people who know everything.
All too often, the highest paid CEO is the bringer of the "miracle turnaround", taking a company from losing money to making big bucks in a matter of months, then moving on to the next job and an even higher salary.
But it is easy to turn a company around in the short run: Fire a bunch of employees and sell of a bunch of assetts. Overnight you have positive income and lots of cash.
Eventually though, these guys start believing their own BS and stick around a little too long. The next morning when the party is over the hangover starts. They haven't solved the fundamental problem, they have just kicked it down the road. Their products still aren't selling, and now they have fired all the employees who were working on the next big thing and liquidated all the assetts they would have used to manufacture them. Then they get the golden parachute at precisely the time the company can least afford it.
Even worse, before they take the jump out of the plane they are flying into the ground they take all that cash they generated firing employees and selling assets and buy another failing business and repeat the process. What you have is not productivity but a cycle of destruction akin to a pyramid scheme.
These big companies are not sources of wealth, they are sinks. What keeps them afloat is the truly innovative products produced by the smaller businesses they sometimes purchase.
Would the stockholders of Home Depot be worse off with the CEO of Costco at the helm? Hardly. Not only would they have a competent CEO, they would have one whose salary doesn't resemble a pirate raid on the company's books.
Liberal economic ignoramuses (I know, I'm being redundant) just can't understand how someone who has no direct interest in your wellbeing can help you. In lib world someone must intentionally say they want to help someone and not make a cent off it to count as help. So according to libs, that "greedy" boss who gives you a job because he's forced to is not helping you. And the nitwit good person who is nice to you but can't give you a job or does a poor job educating or training you is helping you. In lib world, that makes sense.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
"All of us have thousands of things happening around us that we do not understand. We use computers all the time but most of us could not build a computer if our life depended on it -- and those few individuals who could probably couldn't grow orchids or train horses.
In short, we all have grossly inadequate knowledge in other people's specialties."
Exactly. I've been self-employed for over 5 years now. Some days I can't believe what and how much people will pay me for my particular "brands" of expertise. I'm a firm believer that everyone has unique skills to exploit for their own personal gain. For some reason, we get it drummed into our heads that we couldn't possibly survive by our own skills, aptitudes and wits. Pish!
Our circle of friends is rather large and quite varied, but if I need something, I can get it done for me quickly and competently. Please don't think I'm trying to make my life seem like a Socialist Utopia, but when someone has what you need, and you need what someone else has, it's great to barter and/or be paid for those skills.
"One of the reasons why central planning sounds so good, but has failed so badly that even socialist and communist governments finally abandoned the idea by the end of the 20th century, is that nobody knows enough to second guess everybody else."
I'd never try to fix my furnace myself; that's where Doug comes in. If I need a new window, I call Dennis. If I need accounting advice, I call Jessica. If I need Veterinary care for one of my animals, I call Dr. Smith, etc.
If I needed a CEO commanding millions of dollars a year who can get me great returns on my investment in his/her company, I guess I'd want a competent one available too, LOL!
Thomas Sowell is not just brilliant, he's also hilarious. For an economist, that's amazing.
I love this guy! He's brilliant, and can explain things in terms the rest of us can understand.
Given the high degree of specialization in a modern economyor in any field of foreign affairs, demanding that everything "justify itself before the bar of reason" means demanding that people who know what they are doing must be subject to the veto of people who don't have a clue about the decisions that they are second-guessing.
Perpetuating the myth of the "genius" CEO. They're paid millions because they're extraordinarily talented and extraordinarily rare -- except, of course, when they're not, in which case they're paid millions to go away.
CEO compensation is the product of board cronyism and/or institutional group-think. It has no connection with actual performance, and no reasonable market basis.
Milton LIVES!!!!!
I love Thomas Sowell.