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Executive Pay

The concern with inequality---esp. from those who claim to care about "society"---betrays an egregious ignorance of economics: For it is precisely inequality, inequality specifically with respect to opportunity costs and wants, that is the basis of all trade and social interaction. Men are social precisely because they are unequal. To decry inequality is to destroy the economic foundation of society.

But the overwhelming majority of mankind are not governed by intellect---not when their actions don't immediately affect them, at least: not when the costs are born by others. In the everyman's political discussions, things are said to convey qualities and characteristics of the speaker or to vent emotions in act of displacement: They are rarely said so as to describe the world. And so, we see people decrying executive compensation---knowing next to nothing about the consequences of reducing it or the causes of its growth over the years: Indeed, they are completely unaware that many of the "liberal" policies they themselves proscribe are responsible for the increase they find so offensive (This is a theme that characterizes the modern left's take on immigration. The let poor people into this country and then decry the fact that there are poor people in our country---thinking that a man's poverty can be cured in a matter of hours, and not years, I suppose).

The envy of executive compensation is a topic that deserves an essay---or perhaps a book---of its own. This essay serves a different purpose---to prove that the left's own policies are responsible for the size of executive compensation and that the consequences of reducing it would be disastrous.

There is no doubt that executive compensation has grown over and above the rate of inflation. However, the leftist hypothesis that this is merely the outgrowth of shareholders increased goodwill towards executives seems more than a little far-fetched. (Some leftists might claim that boards do not represent shareholders any longer; to the extent this is true, however, it is the result of laws requiring that "shareholders" serve on boards instead of shareholders.) It is, in fact, an efficient response to companies' increased market share and reduced competition, competition reduced by the simple fact that there are gigantic economies of scale with respect to regulatory compliance. A large company can afford to maintain records that comply with Sarbanes Oxley much better than a medium size company can. A large company can more readily weather the vagaries of the legal process, having a larger base of capital on which to borrow when the inevitable legal harassments come. These and other government policies have caused the average size of a firm, and its average market share, to increase. This, in turn, increases the value of a marginally more capable CEO: which, in turn, increases executive pay.

The results of reducing executive pay---esp. when the government policies that caused it to increase are still in place---would be the inefficient allocation of executive talent---inefficiencies that would eventually harm the performance of American companies. Instead of having the best CEO's go to the best and most productive companies, executive talent would be allocated almost at random. Of course, the exact costs of these policies are hard to quantify, but that there would be costs to the American economy and, thus, to the American people is certain.
If the Austrian theory of the business cycle is correct, we should see less severe business cycles in countries where the banking industry is more concentrated---as the tragedy of the commons that is at the heart of the issuance of fudiciary media in excess is mitigated if banks have higher market concentration. What do my econ friends think of this idea?

Government Bonds

The main advantage to using bonds to finance a government action is that it might---if you are dealing with a one time expenditure like a defensive war---allow you to mitigate dead weight losses. Otherwise, its economic effects are identical to a tax increase.

A Few Points About Income Statistics

There are a number of people bewailing an imagined increase in income inequality: While I don’t think that such a measure should matter (what does it matter how much better off some are as long as nobody is worse off than they had been?), let’s dissect what is actually going on here: For those who think we are approaching some Gattica-like dystopia are completely wrong---in fact, they are interpreting a consequence of an improvement in our condition as a sign of its deterioration .

The problem is that most of the income pessimists are focusing on household income----not individual income. Now, while this might sound like a small difference (after all, shouldn’t the two be correlated), there is actually a tendency for household income to decrease as private income increases. What the “liberals” are bewailing is actually the increase in private income!

As individuals become richer, households become smaller: Because making more money makes moving into a household of one’s own easier but obviously reduces the income of the pre-existing household. If a couple has a son who goes from making minimum wage to making 20 dollars an hour, that son is likely to move out of the house. But now we have two households with---on average---half the income of the previous one as a result of the son’s increase in private income.

The leftists are making additional mistakes in their parsing of income statistics, however. They are ignoring the fact that individuals occupy different income brackets at different points in their life: Many of the poor are young people new to the work force who have yet to prove themselves in the market. Ignoring age when considering income statistics is a serious mistake.

Furthermore, the left---for better or worse (though here I actually agree with them, with reservations, of course)---favors open immigration: Which obviously amounts to allowing a constant influx of the impoverished. But, of course, the more impoverished people you allow into the country, the more impoverished people you will have in your country. To some extent, the left wants to have their cake and eat it too: They want to let poor people in and then, magically, have them cease to be poor.


1. I strongly suspect that there is a profound connection between Godel’s incompleteness theorem and the existence of emergent properties. If we treat our standing knowledge of a thing’s parts as a sort of axiom system from which conclusions/consequences are drawn, we can readily see how emergent properties might correspond to the Gödel statements in that axiom system.

2. Psych-meds provide a strange prospective on one’s personhood. They way in which behavior changes merely because of an alteration in your brain’s chemistry provides one with an experience of his own personhood being undermined. I always thought I was in control of my temper---the reality is that I did not have a temper because I was depressed and didn’t feel anything.

3. The reason inductive logic may have proven so tricky to justify and formalize is that it is inherently non-monotonic in character: Something might be true if we have premises A and B but not true with A, B, and C all being true. What this means is that in non-monotonic logics, what you don't know affects your conclusions. The inability to include this feature until recently in models of inductive logic may be responsible for the notorious difficulty of the problem. Between non-monotonic logic and probability theory (and possibly category theory), I believe a full formalization of inductive logic is possible.

A Brief Reflection on the Law of Identity

I have often heard it said that the law of identity is fruitless---that no conclusions follow from it. This, however, is a byproduct of misidentifying the law. While the expression 'A is A' is useful for focusing one's consciousness and remembering the law of identity, the law of identity should really be expressed in the following way: If (B--> A not = A), then not B. Once we state the law in those terms, it is extremely clear that---in fact---many logical consequences follow from the law of identity and that the law is amazingly useful in proof. Once this superior formulation is understood, the claim that the law of identity is fruitless can easily be put to rest.

Spanking Is Wrong

No one tolerates corporal punishment for real criminals even though these people clearly bear greater moral responsibility for their actions than does a child. But it is okay to hit your child: In fact, you can hit your child in a manner that involves nudity and sexual humiliation---and nobody bats an eye. Would somebody tolerate the public nudity---even partial---of a person about to be caned with the same equanimity? Frankly, we are in denial about child abuse and how disturbingly commion it is: Hitting a child is almost never acceptable (the chances were it might be are all lifeboat scenarios, which don't merit discussion in this article which deals with spanking as it is widely practiced) and it is an unspeakable shame that we tolerate it. There are several arguments put forward for the practice of spanking. All are weak and easily refuted: But, of course, denial about the wrongs we have committed against the helpless and that our own parents may have committed against us can be a powerful thing.

First, people argue that hitting a child on the buttocks is okay because it is the safest place to hit a child. Of course, this would come as a great surprise to nuns---whose instinctive sexual propriety made them understand that spanking was wrong and perverse---who have used the rasping of knuckles as an alternative for centuries. Quite simply, this explanation is a facile, makeshift justification for a bizarre practice. There are alternatives that are equally safe---knuckle rasping is but a single example. And of course, denial of all but basic food (bread, water, and some tasteless soy protein) is another alternative---as is the taking away of toys. Second, people argue that removing the child's pants is not inherently sexual---that it is done to increase the sting. Why not simply strike the clothed behind harder---and not remove the pants. Or why not add an extra smack or two to make up for the difference in the lack of sting. No, nudity---in the context of punishment---always has a sexual element to it. This is done to sexually humiliate the child.Now, let's even say that most parents do not have sexual feelings while carrying out this action. What about the small percentage that do---even if it is a vanishingly small percentage: Let's say, one out of 10,000. Of course, the per capita incidence of pedophilia is much higher than this. But, one in ten thousand should be enough to ban the practice. Why should any sexual perversion of that sort be tolerated?

Research also suggests that spanking children correlates with increased aggression and criminality. Now, the counter argument to be made here is that the relation is not causal (I strongly suspect it is and will do my best to prove it here). Rather, parents who have poor impulse control are more likely to lose their temper and spank: And it is this inherited impulsivity shared by the parent and child, not the consequences of the spanking itself, that causes this higher rate of criminality. Also, somebody could argue that crinimally inclined children are more incorrigible---more likely to frustrate their parents into spanking them. Let's deal with this nonsense. First, we can see that corporal punishment generally, and of children in particular, correlates negatively with societal progress. Europe is superior to Asia, which is superior to Africa: Now, if we are to assume that inherent racial differences are not at play, then differences in culture must be to blame. What is the chance of this correlation really being secondary---or insignificant. The cultures that rely less on corporal punishment are more advanced than those that do not---it is a sign of those people's basic understanding of the evil of violence, which understanding underlies all morality and economic order.

Second, the fact that the children persist in being violent despite spanking clearly shows that it is not an effective method in curtailing criminality: And this is exactly what you would expect by showing them that you can get what you want by using violence agaist those who are weaker than you. Of course, using controls of psychometric testing to establish personality factors and then isolating the variable of spanking will probably solve this problem: in favor of my argument. Indeed, "a longitudinal study by Tulane University in 2010 controlled for a wide variety of confounding variables previously noted and still found negative outcomes in such children.According to the study's leader, Catherine Taylor, this suggests that 'it's not just that children who are more aggressive are more likely to be spanked'." (Source, wikipedia)

Dr. Soler---my former employer---had many patients who developed sexual problems as a result of spanking and the corporal punishment imposed by parents. I have first hand knowledge of what this practice entails. We act as if we are concerned about child welfare---the reality is that we are concerned with being perceived to be concerned with it. Real concern would face this issue straight-forwardly.
Ethan Fenn's Response
All right, with some time to read and reflect, I think that you have hit all the key reasons why Harris is wrong: the rich systematically invest their wealth, which creates value in the economy and is also a perfectly sufficient moral justification for their keeping it; technology does not destroy net jobs for reasons of comparative advantage; a tax on wealth is ultimately a tax on saving and investment; and government is no more trustworthy than the private sector in allocating resources. I would add one fundamental criticism and three somewhat derivative ones.

The fundamental criticism is that if Harris is going to posit that a certain accumulation of wealth, through otherwise unobjectionable means, is morally or economically opprobrious, then the burden is on him to provide a moral or economic theory why this is so, and he has completely punted on this burden. All he offers is an argument by intimidation: "How many Republicans who have vowed not to raise taxes on billionaires would want to live in a country with a trillionaire and 30 percent unemployment? If the answer is 'none'—and it really must be—then everyone is in favor of 'wealth redistribution.'"

The first of my three more particular objections is that nobody would trust that Harris's "one-time" wealth tax would really occur just once. There is a long history of emergency government actions becoming regular occurrences, and after such a tax was levied once there would be tremendous uncertainty in the economy over when it might be levied again. (I might add an off-hand suspicion that a one-time levy on existing assets could legally constitute a "taking" rather than a tax, and therefore raise constitutional issues.)

Second, I would add that any additional tax on capital in the present tax environment would be particularly destructive because capital is already double-taxed. Corporate income is taxed when firms report profits, then capital income is taxed again when it is returned to investors as interest, dividends or capital gains. The problem with this is that the deadweight loss from a tax varies with the square of the tax rate, so that when you double the taxation, you quadruple the deadweight loss. If you triple-tax capital by taxing accumulated wealth on top of corporate profits and capital income, then you will nonuple the deadweight loss---and people should never have to use the word 'nonuple.'

Finally, regarding technical change, we do not simply have to trust in theory to avoid worrying about job losses. We have about 75 years of excellent, systematic economic statistics, and about 100 years before that of looser statistics and estimates; and every bit of relevant statistical evidence says that technical progress has showed a steady increase over the decades while unemployment has fluctuated around a fixed, low average. To suggest that technical change destroys net jobs flies directly in the face of all recorded economic experience.

Economic Reflections on Slavery

Only an economic idiot would think that the US was made rich by slavery. Slavery is less efficient than free labor---and slaves were not cheap. Frankly, giving the slave trader title to a person's labor doesn't do anything but transfer funds---no net gain could ever result: In fact, the reduced incentives make it more expensive. The only advantage that owning a slave had over procurring labor freely was the slave owner's claim to the progeny of his slaves: But this value would likely already be built into the slave's market price---so it was little more than an investment vehicle, which being non-capital in nature was less useful than other modes of investment.

Of course, investment took this form largely because Northern impositions on the South---esp. tariffs and higher railway freight rates that followed directly from government regulation---acted to keep capital out of the South. I am not arguing that slavery is good---far from it. In fact, I am arguing that no good in aggregate---even if we consider only the effect on whites---accrued to anyone other than slave traders and to a lesser extent slave owners. Slavery was a net drain---this is, after all, why the South lost despite being on the defensive (which generally confers an advantage) and having better officers. If slavery had created riches, why didn't those riches win the war for the South?
In fact, the larger this tax is, the larger the range of values that will destroy wealth in order to avoid being over the threshold of the tax: Anybody whose total wealth percentage that is over the threshold is less then the percentage rate of the tax will have reason to destroy that wealth that is over that threshold. The larger the tax, the more people who will fall into this range and the more economic harm it will do.

For Comparison's sake, consider what would happen if the tax were 100%. Obviously, a person would ditch all money that went over the threshold. Understanding this limiting condition should help to clarify my point.