Executive salaries

Plot of top bracket from U.S. Federal Marginal...

Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009. Data are from http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_progressivity_in_federal_income_tax (Photo credit: Wikipedia)

Why are top executives in the US paid so much more than their companies’ lowest paid employees? There once was a rule of thumb (I have it written on my thumb) that the CEO’s salary was limited to a relatively small multiple of the janitor’s wages, such as 100 to 1 or 250 to 1. Now the sky is the limit. In Japan, I believe the old standard of 40 to 1 still holds true. In Europe, much smaller multiples than in the US are sufficient to attract and hold top talent to the CEO position. Only in the US are we told that outrageous salaries and bonuses are required to attract and retain top talent. And then those talented individuals earn their money for the company by increasing sales and profits, as Wall Street demonstrated during the onset of the Great Recession.

I think that the arguments put forth for CEO pay are specious. If US corporations will not rein in their CEO pay, I think that the marginal tax rates on outsized salaries and bonuses should be raised to the 90%+ level. The argument against higher personal taxes on CEOs and higher corporate taxes in general is that the consumer will be forced to pay higher prices. That argument is true in some cases, but not all. Consumers can resist higher prices if there are competitive products available. Then corporations are forced to accept a lower profit margin, stockholders receive lower profits and stock prices, and corporations have less money to pay outrageous salaries. Corporations have plenty of money now to pay their CEOs. If outsized salaries and bonuses were required to attract and keep top talent, then Japanese and European firms would not have any CEOs.


The Pentagon, looking northeast with the Potom...

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Since the end of World War 2, the US has been the main defender of the free world. We have reached the point in time when the US and more specifically US taxpayers can no longer afford to carry that burden. This is what I propose.

Before the Second World War, the US defended the Western Hemisphere from foreign intervention under the Monroe Doctrine. I propose that we return to that position and require that others defend the rest of the world. We could do that by starting one or more government-sponsored enterprises, similar in nature to Fannie Mae and Freddie Mac. It or they would be private companies expected to earn a profit and selling shares to the public. One could be named US Defense Co., and listed on the NY Stock Exchange as DEFCO. If private enterprise is more efficient than government, here is a chance to prove it once and for all.

Once the private companies are up and running, we can begin withdrawing our troops from South Korea and Europe. The Koreans and the Europeans will have the option of re-arming or hiring a private contractor such as Xe Services (formerly Blackwater) or one of the new contractors such as DEFCO.

Private contractors claim to be able to lower costs by being more efficient than government. I believe that they lower costs by paying their employees less. Let us see a demonstration on a large scale. The contractors will want to hire some US citizens for some of the highly technical positions until they can train replacements. Much of the lower ranks can be filled from nations with a martial tradition: Sikhs from India, Gurkhas from Nepal, Eritreans from Africa and Pathans from Afghanistan and Pakistan.

Let us provide the troops and equipment for homeland security and defense of the Western Hemisphere. The rest of the world can protect themselves or hire and pay for private defense providers to do it for them.

Read the footnotes

The Colonial Revival headquarters of Fannie Ma...

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Sometimes the footnotes contain some of the more interesting material. That is true of a footnote in All the Devils Are Here, The Hidden History of the Financial Crisis by Bethany McLean and Joe Nocera. As a former Chicagoan, I am well aware of the claims that the dead voted at least once in elections in Mayor Richard J. Daley’s Chicago.

According to McLean and Nocera, the dead also wrote letters to Congress in support of Fannie Mae, the Government Supported Entity, GSE, that oversaw the housing market in the US before it went bankrupt. In an attempt to increase regulation of Fannie Mae, in 1999 Congressman Richard Baker from Louisiana introduced a GSE reform bill. In the footnote on that page, this is what ensued.

“In response, Fannie hired a telemarketing company, which blanketed the Hill with tens of thousands of letters protesting the bill. Some of them turned out to be from dead people. When asked how much the campaign cost, Fannie said that information was ‘proprietary.’”