Economics, Political Theory, politics, US Politics

CEOcracy: A CEO’s marginal contribution to welfare.

Most people stopped believing that superstars simply earn their marginal contribution to welfare. Moreover, most people believe the fact that they do usually earn more than their marginal contribution is a consequence of a specific market setup, or, simply put – a kind of “market failure”.

However, John Snow, the US Treasury Secretary, when asked about the excesses of American CEOcracy, used “superstar economics” as a justification for widening gap in labour compensation (referring only to the US).

“What’s been happening in the United States for about 20 years is [a] long-term trend to differentiate compensation,” Mr. Snow said… “Look at the Harvard economics faculty, look at doctors over here at George Washington University…look at baseball players, look at football players. We’ve moved into a star system… Across virtually all professions, there have been growing gaps.”

Mr. Snow said the same phenomenon explains why compensation for corporate chief executive officers has climbed so sharply. “In an aggregate sense, it reflects the marginal productivity of CEOs. Do I trust the market for CEOs to work efficiently? Yes. Until we can find a better way to compensate CEOs, I’m going to trust the marketplace.” (source: WSJ)

Well, it is true that the marginal productivity of a CEO is not easy to measure, certainly not in financial terms (just as the one of the guy sweeping the floor, except in m2 per time unit) – but to argue that the market price is de facto a fair valuation thereof strikes me as a rather problematic position, given everything we know about markets and particularly in light of the next sentence in the WSJ’s article…

Since the 1970s, CEO compensation has gone from 40 times to more than 300 times the average worker’s salary.

That’s quite some executive productivity increase, don’t you think? (via Economist’s View)

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Economics

13,9% arbitrage yield. Sealed in plastic.

The German discounter PLUS is taking the concept to the next level, selling a limited amount of 100€ Euro bills, albeit sealed in acrylic glass, for the bargain price of 92,95€ including shipping. They must be pretty sure it will be impossible to get the bill out of its plastic case… I’m not sure they know that any central bank branch will replace a broken Euro bill with a new one provied more than half of the original is handed over, and the bill’s number is intelligible. (via lawblog.de)

update:only 3 pieces are sold per person. The Bundesbank will not replace intentionally damaged bills, ie it’s not possible to hand them the entire block of plastic with the bill, it has to be damaged ‘unintentionally’ during the removal attempt.

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Economics

The Transaction Cost Theory of Protectionism.

Harvard’s Tarun Khanna explains with reference to the Mittal Steel bid for Arcelor why protectionism can make economic sense – just ask Ronald Coase.

From the IHT -At home, it’s not just profits that matter.

MUMBAI, India Guy Dollé, the embattled chief of the European steelmaker Arcelor, may have been wrong to resist Lakshmi Mittal’s takeover attempt. But his opposition to the bid contained a kernel of truth: National ownership really does matter.y

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intellectual property rights, music industry

I’ve been saying *THAT* since 1999…

I’ve been saying this for years – the most likely explanation for the ongoing copyright war is the socialised concept of (intellectual) property in most politicians’ minds – it will take another generation and, liekely, as Volker Grassmuck argues below, a copyright induced knowledge-lock-up disaster until people will realise what has been done.

The occasional quote in German, you’ll just have to trust me that it confirms my statement above… – via heise.de

Volker Grassmuck, Forscher an der Humboldt-Universität zu Berlin und Mitgründer der Initiative Privatkopie.net, beklagte auf der Konferenz einen “Mental Lock-in” bei den Politikern. Diese würden sich allein an dem Mantra festklammern, dass der immer stärkere Schutz geistiger Eigentumsrechte die Innovation fördere. Als Beispiel nannte er etwa die erste Evaluation zur umstrittenen EU-Datenbankrichtlinie. Darin sei klipp und klar nachgewiesen worden, dass das neue Schutzrecht den Informationsmarkt behindere, und nicht beflügele. Trotzdem habe die Kommission Gründe gefunden, um den eingeschrittenen Irrweg nicht zu verlassen. Ähnlich verhalte es sich beim Festklammern an der “chimärische Technologie” des digitalen Rechtekontrollmanagements (DRM). Grassmuck geht davon aus, dass es erst eine “massive Wissens- und Informationskatastrophe braucht, um die geistige Blockade aufzubrechen”.

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intellectual property rights, oddly enough

New Pricing model for food!

Via netzpolitik.org comes another data point proving the extent to which the right concepts in the wrong hands can create disastrous results: copyrights running wild – should there be a copyright on cooking recipes? I’m sure the next step will be the inclusion of some kind of DRM into a BigMac tying the food license to a specific licensee who had to identify himself using biometric identifiers. Enforced by RFID chips, sharing food would no longer be possible without purchasing an additional license. Imagine the possibilities…

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Economics, Germany, photoblogging

Ladenschluß.

Ladenschluß.Shopping from midnight to 4am, in Germany. It’s possible – at least for promotional reasons. Last Saturday, a couple of hundred of local retailers celebrated the “night of the senses”, during which shops were allowed to open. Apparently, the project’s revenue was satisfactory, as 100,000 people decided to postpone their shopping from Saturday afternoon to Saturday night. Interestingly though, the shop-closing-law exeption was one of the measures intended to indemnify local retailers for the loss of revenue suffered during George W. Bush’s visit to Mainz in February. So, even inadvertendly, the American government is advancing their economic agenda…

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almost a diary, Economics, web 2.0

Blogging the GDR.

About two weeks ago I had dinner with my parents and one of their oldest friends who was in town for a day. Like my mother, he hails from the eastern part of Germany, the part formerly known as German Democratic Republic. Unlike my mother, he stayed there until the bitter end.

I was inclined to think that someone like him would be most confident when it comes to Schumpeterian processes, the creative destruction and recreation of social and economic governance mechanisms. Well, I was wrong.
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compulsory reading, intellectual property rights, media, web 2.0

Blogs are really different.

To those who haven’t yet had the opportunity to read about Loic LeMeur’s efforts in bringing together the loose ends of the Germanic blogosphere, I say – do so.

When I went to meet him and some other bloggers I had never seen or even heard of before, I was not too sure what to expect beyond a pint of wheat beer. But what developed were indeed very intristing debates about the future -as we develop it.
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Economics, USA

Pulling Plugs.

I’ve Seen the Lights Go Out on Broadway –
I saw the Empire State laid low.
And life went on beyond the Palisades,
They all bought bright Cadillacs-
And left there long ago.

We held a concert out in Brooklyn-
To watch the Island bridges blow.
They turned our power down,
And drove us underground-
But we went right on with the show…

Billy Joel, Miami 2017

Not many will have seen the lights go out on broadway until today (IHT coverage). Although massive power outages are not too uncommon in the US, today’s blackout is apparently the biggest so far.

The “Blackout History Project” tries to keep the memory of past ones alive by archiving personal stories of what happened when the lights went out. Personally, I remember that the big 1977 NY power failure was a major story in my 8thgrade English textbook for some reason.

Power failures are an interesting phenomenon, for they demonstrate the vulnerabilty of extremely complex systems like modern industrial societies. Sometimes we forget how much infrastructure is needed to keep such a complex web alive. And we ought not to – low tech beats high tech, every single time, if used appropriately. Just like we do it at home whenever we get annoyed at the deficiencies of one operating system or another – we hit the button, we pull the plug.

That, of course, is a controlled exercise. A power failure, by definition, is not planned. It is either an accident or the consequence of an attack. As this one, according to most commentators, was likely an accident, there will be a lot of questions, just like in the aftermath of the California blackouts a few years ago.

In a Larry King Live special edition former US energy secretary Bill Richardson stated that America might a superpower, but one with a third world electricity grid. When asked if this could happen in Chicago, San Francisco, New Orleans, he said –

“Yes, it can, Larry, and the reason is that our transmission lines, our electricity grid is all interconnected. And since we have not built enough transmission lines, the existing lines have an enormous amount of electricity pent-up. In other words, overload. And what we need is basically the federal government and the states working together to allow utilities to invest in new technologies, to bring in wind power and solar and biomass, not just get electricity from the traditional coal and nuclear sources. Diversify, invest in new modern plants. But also, Larry, this is – you know, this is very technical. But the Congress has been, for years, not passing an energy bill which contains what are called reliability standards, mandatory reliability standards on utilities, many that are monopolies, that don’t want this kind of control, that says to them, look, you cannot have more power than you can absorb. And what they had here in New York – well, in the Niagara power grid is too much power, an overload of power.”

So apparently, it was an overload. No wonder somebody pulled the plug.

But the regulation part is interesting. Even though problematic incentives for utility industries seem to be more common in the US, there is no guarantee whatsoever, the EU is not replicating these mistakes while liberalising the EU energy market. In fact, I became rather scared last December when I talked to an EU energy market official and learned that there are mostly lawyers concerned with these issues.

Of course, it’s not the lawyers themselves who pull the plugs. But you might remember – lawyers don’t calculate (anything but their fees). And a bit calculus can come in quite handy when constructing institutional arrangements for complex infrastructure service providers to conduct business in. If this is not done the right way, darkness will follow, sooner or later.

Some of the lessons to be learnt from the Californian blackouts some years ago have been summerized by Paul Krugman. If your read it you will no longer wonder if it is actually legal issues that are primarily at stake here.

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