Mr. Bernanke, who should have known better, misjudged the causes and the severity of Economic Katrina, but he's absolutely right about executive pay. There is typically little connection between the pay of corporate executives and how well and honestly their companies meet stakeholder expectations in a capitalistic market. We have witnessed this phenomenon in bailouts of banks, for example. To make matters much worse, executive pay is unconscionably high and while CEOs are fattening their own pay they are simultaneously laying off workers by the thousands.
An egregious case in point is that of eleven companies that despite high risk ratings and a composite loss of $640 billion in shareholder value paid their CEOs a total of $865 million. That's nearly $80 million for each of the eleven failing CEOs and about two thousands times more than the average worker in their companies who probably was paid an annual wage of around $40 thousand. In his time, two millennia ago, Plato suggested a 9-to-1 ratio between the highest and lowest paid citizen. In his time, the late management guru Peter Drucker suggested between 20-to-1 and 25-to-1 ratio between CEOs and the workforce. Rick Wartzman, executive director of the Drucker Institute, said Drucker contended that paid CEO's alienated "people on the plant floor who were convinced their bosses are crooks," were "morally unforgivable when laying off workers," and "tore at the fabric of society as a whole."
The public outrage over executives of federally bailed out Wall Street firms giving themselves lavish bonuses prompted President Obama to set a pay cap of $500 thousand on senior executives of these firms. The public ought to be insulted by his timid measure. The taskforce ought to recommend in no uncertain terms that corrupt Wall Street executives ought to be fired, not bailed out and that pay for CEOs of all corporations receiving handouts from the government be capped at a 25-to-1 ratio.
In Closing
The knee-jerk reaction of free-market ideologues is that socially responsible capitalism is just a euphemism for socialism. It isn't. It is capitalism with a conscience, the kind that I'm certain Adam Smith would extol.
Then there are those who would argue that no form of capitalism is fit for a real democracy. Lester Thurow, for example, a former dean of the MIT Sloan School of Management, professor of management and economics, and author of numerous bestsellers on economic topics flat out says in his book, The Future of Capitalism: How Today's Economic Forces Shape Tomorrow's World that "capitalism is perfectly compatible with slavery [and] democracy is not compatible with slavery." He is right only if he means socially irresponsible capitalism.
An unavoidable conclusion from all of the foregoing is that neither the
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