Payscales and Pitchforks

Shocked, disappointed, disgusted. See e.g., Claire McCaskill and President Obama. Those are the responses to news of exhorbitant bonuses and astronomical compensation packages, for CEO’s, executives, and others in anti-government, anti-tax, anti-regulation corporations that are gorging mind-numbing amounts of taxpayer funds from the bailout trough. Wronged, self-exculpatory, defensive. See e.g., John Thain and Rudy Giuliani. Those are the responses to the criticisms of the McCaskills and Obamas.

And yet, in retrospect, none of this is surprising. The principal fiction underlying the obscene compensation of those “masters of the universe” is that the market determines their compensation based purely and irreducibly on their value. This fiction becomes, has become, deeply rooted and self-fulfilling (for a time). In their minds, the cause-effect relationship between value and compensation has been conveniently stripped of every other factor: externalities, structural effects, market inefficiencies, morality, finite resources, personal biases, etc., etc. Stripped of these considerations the compensation logic is unassailable, albeit circular.

Why is their compensation so high? Because of their value! How do we know they are so valuable? Because they require such high compensation! Such simple positive feedback systems eventually consume all available resources destroying themselves in the process. But from their vantage, and applying this impeccable logic, it appears to the masters, for the time being, that the excesses are those of the mere rabble. How dare they question the value of their economic aristocracy?! The unfortunate history of the world has repeatedly demonstrated that when aristrocracy becomes insensitive to the rabble in this way, their breakthrough understanding is delivered through pitchforks, either real or metaphorical. My advice? Invest in pitchforks.