I remember being mildly dismayed back in November 2011 when students at Harvard walked out on one of Gregory Mankiw’s lectures. Not that I’d agree with the economist who once headed George W. Bush’s Council of Economic Advisers. It just struck me as kind of misplaced.
But today, after having read Mankiw’s opinion piece in Sunday’s New York Times, I officially reverse that position and indeed suggest—nay, plead—that every Mankiw student from here to the end of time boycott his lectures on the basis of its dishonest vapidity. The idea that someone could peddle these gaseous lies to college students (to our future leaders, no less!) fills me with horror. To the extent that the worldview he expressed is taken seriously in this country—which, alas, is a considerable extent—our economic prospects are grim.
The headline, “Yes, the Wealthy Can Be Deserving,” was undoubtedly slapped up there by the sheepish commissioning editor trying to understate the column’s more egregious claims. What Mankiw in fact argues is that nearly every super-rich corporate titan in America has earned whatever he makes, and that “the value of a good CEO is extraordinarily high.”
Sure, the value of a good CEO is extraordinarily high. Whether it’s 343 times as high as the wage of an average employee is highly debatable. But that’s not even my main criticism with Mankiw’s argument. The main problem in our society isn’t the over-compensation of good CEOs, scandalous though that is. It’s the over-compensation of bad ones.
Every year for the last 20 years, the Institute for Policy Studies has looked at the compensation packages of the top 25 highest-paid CEOs as defined by the Wall Street Journal. That’s 500 spots. Of those, 112 were held by Wall Street CEOs who drove their companies to bankruptcy or bailout. Another 39 were held by CEOs who ended up being terminated. A final 38 were taken by executives who ended up paying fines or settlements arising from fraud charges. That’s 189 out of 500, or 38 percent. Basically, two of every five of America’s highest paid CEOs behaved in a way that, if they were regular workers, would have gotten them fired, disgraced, possibly prosecuted—maybe even jailed.
But once you reach a certain level in America, you can’t fail. Oh, you can be humiliated, and in the most extreme cases, maybe even do a little soft prison time. But where it matters—financially—you can’t lose. And so the 112 received $258 billion in bailouts from American taxpayers. And the fired CEOs averaged golden parachutes of $48 million.
This is what’s wrong with American capitalism. It’s not that Robert Downey Jr. made $50 million for The Avengers, which is how Mankiw opens his column, marveling that no one he asks about it seems to resent Downey’s compensation. At least The Avengers made $1.5 billion.
Now, if The Avengers had lost $1.5 billion, and if Downey had turned in a universally reviled performance, and if its producers had been breaking laws and bilking investors throughout its production cycle, and if all this had become a national scandal along the lines of the Enron or Tyco or Lehman scandals, then yes, Greg, Americans would certainly be outraged that Downey took home fifty mil. But none of that happened. Paydays like Downey’s may be crazy, but at least he came by it honestly and hasn’t gotten rich at other people’s, and taxpayer’s, expense.
Mankiw acknowledges that such ducks exist. But here he gets even sillier: he cites … Bernie Madoff. So in other words, to join the ranks of the undeserving rich, you have to develop a massive Ponzi scheme and work it for three decades and defraud your investors of untold billions of dollars. If you’re just Dick Fuld, who made $75 million in the two years before Lehman collapsed, nearly bringing the world economy down with it, you’re still part of the solution, I guess.
Of course no one seriously begrudges Downey his money, or LeBron James his. Athletes least of all—they have to produce on the field of play, and subjective matters like their smile or charisma have nothing to do with it. And no one resented Steve Jobs’s fortune. It’s unserious even to mention these things. And while it gets trickier when you get to Wall Streeters and hedge-fund people, I think most of us understand and agree that investment spurs economic activity, gives innovators a shot seeing their dreams become reality, and grows the economy in any number of ways.
But we don’t live in an age in which big investors and corporate leaders are justly rewarded for their good bets and rightly punished for their bad ones. We live in an age of rentier capitalism, in which textbook risk-reward scenarios have too often been replaced by a system in which powerful actors make massive profits in distorted or uncompetitive markets and simply aren’t punished—indeed are often further rewarded!—when they make terribly wrong bets or, worse, cook the books. What that has to do with Robert Downey is precisely nothing, except that one wishes Iron Man could swoop in and provide the Hollywood ending these people deserve.