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Thanks for taking the time to answer, and I completely agree with the framing of the two types. The reason I asked is that it's hard for me to believe that the

by jshen 16y ago

Thanks for taking the time to answer, and I completely agree with the framing of the two types. The reason I asked is that it's hard for me to believe that the rise in CEO pay is a result of a rise in productivity of said CEOs. Another example would be wall street, they are taking a larger and larger cut of the pie, but I can't see how they are adding to the pie commensurate with their increasing rewards. In short, this seems like the old form to me. The counter points are of course Jobs, Zuckerberg, The Waltons, etc. But it feels like these are not the majority case, but I admit I don't have any hard numbers on this.

pg 16y ago
It's clearly possible for CEOs to be worth the sort of money they get paid. E.g. Steve Jobs. If I had started a company and wanted to retire, and was looking to hire someone to run it for me, I would have no problem paying the right person 5% of the total revenues, or even more. From what I've seen (and I am old enough to remember the old days), the main cause of the rise in CEO pay is that CEOs are now the equivalent of free agents in baseball. The hedge funds are an interesting case. I'm not absolutely sure about this, but I suspect they are irrelevant, because while they don't create wealth, they don't confiscate it either, at least not in the old way.
- johnrob 16y ago
  Is insider trading a form of wealth confiscation? The only way banks and hedge funds can be as successful as they are is via insider trading - not in the legal sense, but in the sense that they have info that the public does not. I don't know the answer, but to me it seems more likely to fall in the confiscation category. Not an easy call.
  - pg 16y ago
    Yes, pure insider trading seems a lot like theft. But it doesn't seem likely that most hedge funds depend on it. It would be a remarkably well executed subterfuge if all those quants were just window-dressing.
- ivankirigin 16y ago
  Why don't hedge funds create wealth? How do they do it less than, say, DST or any other investor?
  - pg 16y ago
    I'm not 100% sure where investors fit in, but my current hypothesis is that "pure" investors (i.e. people who supply only money) are like armed forces: they do not themselves create wealth, though they can sometimes create an environment in which it's easier for other people to.
  - deleted 16y ago
    [deleted]
    - deleted 16y ago
      [deleted]
curt 16y ago
CEO pay is getting larger because the companies are getting larger. Just run a simple thought experiment: you have two CEO's Alex and Bob. Bob will increase the companies growth 1% more than Alex. If the company is $100 billion, Bob will create $1 billion more a year than Alex. Over time with compounding it's a much greater effect. $10-$50 million a year doesn't really seem like a lot when you actually figure out the added benefit. People attack Wall Street, specifically Hedge Funds but they make the system efficient (look up arbitrage). The problem with Hedge Funds is a ridiculous loop hole that lets them only pay their income at the capital gains rate. Another problem is that the government through legislation has taken away the risk while leaving the reward. With minimal regulations Wall Street profits are balanced by the risk they incur.
- locopati 16y ago
  Does Bob create $1b of wealth or do the workers of the company create that wealth?
  - curt 16y ago
    That's like saying Scipio Africanus, Charles Martel, or Alexander the Great were nothing because their soldiers did the fighting. The leader manages and leads the troops, they follow his vision. Take a modern example, Steve Jobs, the man is the creative visionary behind most products. He envisioned the wealth and then set the workers upon creating it. Without him it wouldn't have existed.
    - locopati 16y ago
      And yet, it's the workers/soldiers who often are the ones on the line. We see CEOs walk away with big payouts, even when their strategies have been disastrous (for the company, for the workers, for the stockholders).
      - curt 16y ago
        That's not the CEO that's the board selecting the wrong person and creating the wrong compensation package. Just like a basketball player getting hurt after signing a huge contract. EDIT: Look at PG's response above. same thing.

by jshen 16y ago

pg 16y ago

It's clearly possible for CEOs to be worth the sort of money they get paid. E.g. Steve Jobs. If I had started a company and wanted to retire, and was looking to hire someone to run it for me, I would have no problem paying the right person 5% of the total revenues, or even more. From what I've seen (and I am old enough to remember the old days), the main cause of the rise in CEO pay is that CEOs are now the equivalent of free agents in baseball. The hedge funds are an interesting case. I'm not absolutely sure about this, but I suspect they are irrelevant, because while they don't create wealth, they don't confiscate it either, at least not in the old way.

johnrob 16y ago
Is insider trading a form of wealth confiscation? The only way banks and hedge funds can be as successful as they are is via insider trading - not in the legal sense, but in the sense that they have info that the public does not. I don't know the answer, but to me it seems more likely to fall in the confiscation category. Not an easy call.
- pg 16y ago
  Yes, pure insider trading seems a lot like theft. But it doesn't seem likely that most hedge funds depend on it. It would be a remarkably well executed subterfuge if all those quants were just window-dressing.
ivankirigin 16y ago
Why don't hedge funds create wealth? How do they do it less than, say, DST or any other investor?
- pg 16y ago
  I'm not 100% sure where investors fit in, but my current hypothesis is that "pure" investors (i.e. people who supply only money) are like armed forces: they do not themselves create wealth, though they can sometimes create an environment in which it's easier for other people to.
- deleted 16y ago
  [deleted]
  - deleted 16y ago
    [deleted]

curt 16y ago

CEO pay is getting larger because the companies are getting larger. Just run a simple thought experiment: you have two CEO's Alex and Bob. Bob will increase the companies growth 1% more than Alex. If the company is $100 billion, Bob will create $1 billion more a year than Alex. Over time with compounding it's a much greater effect. $10-$50 million a year doesn't really seem like a lot when you actually figure out the added benefit. People attack Wall Street, specifically Hedge Funds but they make the system efficient (look up arbitrage). The problem with Hedge Funds is a ridiculous loop hole that lets them only pay their income at the capital gains rate. Another problem is that the government through legislation has taken away the risk while leaving the reward. With minimal regulations Wall Street profits are balanced by the risk they incur.

locopati 16y ago
Does Bob create $1b of wealth or do the workers of the company create that wealth?
- curt 16y ago
  That's like saying Scipio Africanus, Charles Martel, or Alexander the Great were nothing because their soldiers did the fighting. The leader manages and leads the troops, they follow his vision. Take a modern example, Steve Jobs, the man is the creative visionary behind most products. He envisioned the wealth and then set the workers upon creating it. Without him it wouldn't have existed.
  - locopati 16y ago
    And yet, it's the workers/soldiers who often are the ones on the line. We see CEOs walk away with big payouts, even when their strategies have been disastrous (for the company, for the workers, for the stockholders).
    - curt 16y ago
      That's not the CEO that's the board selecting the wrong person and creating the wrong compensation package. Just like a basketball player getting hurt after signing a huge contract. EDIT: Look at PG's response above. same thing.