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Quotation of the Day…

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… is from page 44 of Tyler Cowen’s just-released (2019) book, Big Business: A Love Letter to an American Anti-Hero: It’s not a popular thing to say, but one reason CEO pay has gone up so much is that the CEOs themselves really have upped their game relative to the performance of many other workers in the American economy. DBx: The data – reported in his book – support Tyler’s claim. The typical complaint about the height of CEO pay is uninformed by sound economic analysis. The complainers often implicitly assume that there is a pool of funds – a pool the size of which is independent of the decisions and actions of CEOs – out of which all corporate executives and workers are paid. From this wholly mistaken assumption flows the faulty conclusion that the higher are the salaries of CEOs

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… is from page 44 of Tyler Cowen’s just-released (2019) book, Big Business: A Love Letter to an American Anti-Hero:

Quotation of the Day…It’s not a popular thing to say, but one reason CEO pay has gone up so much is that the CEOs themselves really have upped their game relative to the performance of many other workers in the American economy.

DBx: The data – reported in his book – support Tyler’s claim.

The typical complaint about the height of CEO pay is uninformed by sound economic analysis.

The complainers often implicitly assume that there is a pool of funds – a pool the size of which is independent of the decisions and actions of CEOs – out of which all corporate executives and workers are paid. From this wholly mistaken assumption flows the faulty conclusion that the higher are the salaries of CEOs the lower are the salaries and wages of other corporate employees, including, of course, those of nonsupervisory workers.

Thomas Piketty, for example, is one of many people who work with this mistaken assumption. This mistaken assumption fuels a great deal of self-gratifying moralizing; it also fuels a great many calls for destructive regulatory and tax policies.

In closing, note that pointing out that a handful of CEOs did indeed acquire their high pay through fraudulent or otherwise disreputable means no more suggests that CEOs are paid too much than does pointing out that some shop-floor workers raise their incomes by selling merchandise pilfered from their employers suggest that shop-floor workers are paid too much.

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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