If someone wants to bash corporations and the "excesses" of raw capitalism, there's no easier target nowadays than CEO pay. Recently critics were in a tizzy over a report claiming that CEOs make 364 times what the average worker earns. For example, in this MSN article Michael Brush declares:
In recognition of the just-completed Labor Day weekend, I'd like to offer a salute to American workers, who the United Nations just reported are second only to Norway's laborers when it comes to productivity.
And now, a bit of bad news for those same workers: You're not getting credit for that productivity. Instead, top executives at your companies are reaping the rewards in the form of increasingly fat paydays.
It's sad that this is the level of economic literacy among the media. If the press ignored advances in other scientific fields as much as they do in economics, we'd see weathermen advising readers to offer sacrifices to the rain gods.
What Mr. Brush apparently doesn't realize is that there isn't a fixed pie of income, such that high pay for CEOs necessarily translates into lower pay for workers. He's also ignoring the fact that competition impels companies to pay workers what they're generally worth. If Company A were paying its workers $25,000 per year when the workers were really adding $30,000 to the bottom line, why wouldn't Company B offer them a few thousand dollars more to switch?
In our increasingly global economy, certain individuals are incredibly productive and can command incredibly high earnings as a result. Corporate executives really do perform valuable tasks, and it really does make a difference who is running the company. Once we concede that productive individuals will earn more than less productive ones, the fact that some make 364 times what others do is largely irrelevant. After all, a TV set might be 364 times more expensive than a gumball. Is that "unfair" or does it merely reflect the forces of supply and demand?