January 18, 2016

Left-wing economist knows better than the market?

Earlier this month, the socialist think tank Canadian Centre for Policy Alternatives released its annual report on the high pay of Canada's top CEOs. As noted at the time on this blog, the report is designed to fuel class envy and exaggerates the compensation level of CEOs.

Recently, the author of the CCPA report claimed that "there is no rational way to justify the pay of the typical North American CEO" before complaining that there "is no way to explain why CEOs in Canada who used to be able to scrape by making less than 40 times the average worker now command 184 times the average worker’s wage."

This is socialist nonsense. Even ignoring the fact that, by the CCPA's own numbers (which, as previously stated, exaggerate CEO's compensations), only 36 CEOs in Canada earn at least 184 times as much as the average worker, the claim that the pay of CEOs cannot rationally be justified is absolutely ridiculous.

As is the case with all prices in a free economy, the price of hiring a CEO is set by supply and demand. Claiming that "there is no rational way to justify the pay of the typical North American CEO" is as ridiculous as saying that "there is no rational way to justify the price of oranges in Ontario."

For the CCPA's claims about CEO pay to be correct, the market must be wildly inefficient. And if this were so, then there must be easy ways to make big profits.

If the CCPA has so much confidence in their claims that CEOs are overpaid, there is a very simple way they can test their hypothesis and earn lots of money: invest a great deal of personal wealth into businesses with poorly paid CEOs.

After all, according to the CCPA, these businesses which more "reasonably" compensate management must have a huge competitive advantage over the stupid companies that so outrageously overpay their chief executives, right?

No comments:

Post a Comment

Comments are encouraged. I prefer if they are not anonymous.