Everybody wants to live in North Korea

Oh no… now Barack Obama is on the case!

First the Pope. Now the President.

But first, the Dow fell again yesterday, down another 68 points. Gold fell too – down $15.

Meanwhile, the President thinks income inequality will divert the public’s attention from Obamacare. USA Today has the story:

WASHINGTON — President Obama sought to revive the issue of growing income equality on Wednesday, saying it restricts economic mobility and threatens to shrink the middle class.

“I believe this is the defining challenge of our time,” Obama said in a speech at an event hosted by the Center for American Progress, a pro-Obama think tank. “It drives everything I do in this office.”

The growing gap between rich and poor can be closed by actions ranging from an increase in the minimum wage to better education to following through on his health care plan, Obama said.

Obama also again proposed creation of government-assisted “Promise Zones” in urban and rural areas that are struggling.

Obama said the average CEO now makes 273 times the income of the average worker.

Where did he get that number? Out of the hat, we suppose, along with the rest of his ideas.

In our company, the CEO makes maybe about ten times as much as the average employee. We’d be surprised if it were much different in other small businesses.

Let’s see, the average worker makes about $40,000. So 273 times that is $10,970,000. We’ve met some good CEOs, but never one who was worth $10m a year. Not even close. Who would pay a CEO that kind of money? Only a public company with cronies on the compensation committee and shareholders who aren’t paying attention!

Is Obama right? Is there something wrong with one person making a lot more than another? Is redistributing wealth from the person who earned it to the person who didn’t the ‘defining challenge of our time?’

If so, can you control the outcome of a free market, and still have a free market?

But who cares? The trouble with free markets is that they don’t necessarily deliver the results you want. As far as material success is concerned, nothing can beat the free enterprise system – the freer the better.

Bill Bonner on markets, economics & the madness of crowds

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No economist has ever put forward a serious proposal for making it more productive. No improvement has ever been forced upon it. No rival system has ever raced ahead of it.

But the improvers talk about ‘fairness’, or ‘the social consequences’ of it, or the ‘political environment’ in which an economy operates. They say there’s a ‘trade-off’ between the ideal of free markets and a fair, democratic society.

That’s what seems to stick in Barack Obama’s craw; that the trade-off has got out of balance. Markets are too free, he believes; they deliver outcomes that voters don’t like.

“It’s either money or control”, says a friend of ours.

“You get money by giving up control and letting markets work.

“But you, personally, don’t necessarily get what you want. And if you try to control an outcome, it’s gonna cost you.”

Rich people want to control things,because they want to protect what they have. Poor people want to control things, because they want more of what other people have.

Nobody – save a few philosophers and wing-nut economists – are willing to let the chips fall where they may.

“It’s all a matter of envy”, continues our friend. “And greed. Everybody wants what he can’t get honestly. He turns to the government to get it.”

And then he changes his tune. Instead of talking about what he wants, he refers to what he says would be ‘best for the society’ or what would ‘help the economy’.

What we all want is an economy that delivers our own version of ‘fairness’, which almost always involves more for us and less for everybody else. It’s an economy that is so finely controlled that what we do no longer determines what we get. We can step on all the rakes we want; never will the handle come up and hit us in the face.

Instead, everything is under control. We get outcomes that are the result neither of choice nor chance, but croney connections and the master plan. In short, we all want to live in North Korea – until we actually see the place.

Since we are in a philosophical mood, we would like to recommend colleague Alex Green’s new book; An Embarrassment of Riches, he calls it.

Alex says the “human race has never had it so good”. In 226 pages, he proves that the glass is half full and that the other half of it doesn’t really matter anyway, because there’s nothing in it. A good book written by a good man.

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4 Responses

  1. 06/12/2013, Tony Hart wrote

    ‘Only a public company with cronies on the compensation committee and shareholders who aren’t paying attention!’ Quote from your article. That’s exactly what we’ve got. For shareholders, read fund managers, who couldn’t give a toss.

    Why don’t the number twos say ‘Hey, we can do the CEO’s job, for half the salary’. Why isn’t there more competition from the lower levels? Are they just waiting to fill the CEO slot and get the inflated salary. Just what is going on.

    And didn’t the CEO of Novartis get that $10 million?

  2. 06/12/2013, grey wrote

    I’m sorry Bill but I beg to differ regarding pay differentials. In G.B. since the 1990s the gaps have widen between the lowest and highest paid from single & double multiples to triple figure multiples. Are the highest paid always worth it? It is often said that to attract the best candidates firms must pay the top rates and that CEO will perform better with inducements. How do we know? Will they leave the firm if they are only paid by result? Generally, all the inducements feed through into pensions- so its a win win situation for them. Surely when bonuses and pensions frequently amount to more than the average working man can earn in a lifetime something is out of kilter. Unfortunately, all the high earnings have fed through into the public sector -your oft maligned zombies-; local authorities, police services, fire services & NHS etc. Their mantra is we have to offer high remuneration to attract the best talents. Then the high pay feeds into attractive pensions, and because of the public sector, middle management, pay structures it also improves their remuneration packages. I know this may seem an over simplification but as public remuneration follows private the state costs get out of control. My solution would be to make the wage differentials tighter starting at the top.

  3. 07/12/2013, Kris Armani wrote

    While free markets have proven the best generators of wealth, your scorn for any form of market regulation is overdone. To the extent god did not stamp out identical clones of himself, human beings are not equal to one another. Inequality is built into us and so, therefore, a free market rewards people unequally according to their distinct capabilities. However, there is natural inequality, there is exploitative concentration of wealth and there is outright oppression. It does not seem to matter which end of the spectrum one starts from. Both free for all markets and rules for everything governments seem to end up in tyranny eventually because wealth and power are interchangeable. Neither deserves unqualified hosannas.

    Balancing free markets against government regulation will always involve a compromise. Markets should never be fully free to do as they please, governments should never be allowed to exercise total control. If this sounds like hedging one’s bets, that’s how life is. Black and white exist only in the abstract. Reality is all about shades of grey.

  4. 08/12/2013, Richard Millard wrote

    Here’s an interesting contribution to the debate by one of your countryman, Bill – actually he lives not far from you in Baltimore. I don’t think he’s interested in control or in living in N. Korea, but is clearly aware of many of the issues you touch on here.


    Towards the end he draws some interesting distinctions between 1932 and where America seems to be heading now. Crucially his claim that “capital has effectively purchased the government” thereby removing “the one venue for reform that remained to Americans” is an accusation that feels uncomfortably close to the truth. I love America, come home deeply affected by many of its qualities every time I go. And I am deeply worried by the sense that it has lost its bearings, is drifting toward a Niagara moment, and that actually no one is in control, collectively or in any other way. Can America wake from its religious fixation with money and its obsession with how it should or should not be shared out long enough to notice there’s something more to life than ‘financial success’? And that true success is something else entirely.

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