After having a horde of angry doctors attack me (and my wife) for suggesting that they face market competition, I was happy to see Jonathan Rothwell make the same point in a NYT Upshot piece. However, when running through the causes of runaway income at the top, he gives short shrift to the excessive pay of CEOs and other top executives.

Rothwell comments:

"Most top earners in the United States are neither executives nor even managers. People in those occupations make up just over one-third of all top earners in the United States. This share has been falling — particularly for corporate executives — and is lower than in many other advanced countries. In Denmark, Canada and Finland, close to half of top earners are in managerial occupations, according to my analysis of data from the Luxembourg Income Study."

Well, one-third is a very large percentage of top earners, more than the share of doctors, lawyers, and other highly paid professionals taken together. Also, even if the share of top executives in the one percent fell somewhat, the percent of income going to CEOs soared as the share of income going to the one percent doubled.

Also, CEOs are far more likely to be in the upper reaches of the one percent. Many CEOs are earning paychecks in the tens of millions. Very few doctors or lawyers pocket much over one or two million. 


There is still a huge issue of rent-seeking with CEOs, as with the rest of the one percent. The case is that CEOs are not worth their pay to the shareholders who are supposed to be their boss. There are many examples of CEOs who have walked away with pay packages in the tens or hundreds of millions of dollars after having done far worse for their shareholders than their competitors.

The argument is that the corporate governance structure is broken. It is very difficult for shareholders to organize against incumbent management. The boards of directors, who most immediately determine CEO pay, largely owe their positions and therefore allegiance to the CEO. They have very little incentive to ask simple questions like, "can we get a CEO who is just as good for less money?"

Rules of corporate governance are set by the government, not god. They can be restructured to give more power to shareholders, making it easier for them to rein in CEO pay. (My favorite change as a beginning step is to take away the directors' pay if the shareholders vote no on the tri-annual "say on pay" referendum.)

In the bizarre world of Washington politics and political debate in the United States, measures that give shareholders more control over the companies they are supposed to own are treated as government intervention in the market. In the real world, since the government inevitably makes the rules, the current set, which allow CEOs to get incredibly rich, are no more market-oriented than rules that give more power to shareholders.

I would raise some other issues with Rothwell's analysis. For example, in assessing the impact of trade, I would want to see the data on trade with developing countries. I would expect imports from China to have an impact on middle class living standards. I would not expect imports from the European or other wealthy countries to have the same impact.

Also, I suspect the level of unionization has an impact, not just the change. Even with their decline in membership, unions in the Nordic countries still have hugely more power than unions in the United States. But for now, we can stick with CEOs.

Yes, this is all in my free book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.