Posted by Marc Hodak on August 30, 2015 under History, Politics | 
I came across an article about frat boys doing tasteless things. (Which one, right?) So, at the risk of being accused of Godwinning any of a number of ‘national conversations’ we are having today, I offer this brief article in its entirety from 1939…
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NAZIS TOO SERIOUS STUDENTS ASSERT
West Virginia Students Amazed At Row Over ‘Hitler Party’
MORGANTOWN, W. VA, Jan. 11 (AP)—West Virginia University students expressed astonishment today at the international comment raised by a fraternity’s “Fuehrer” party here several weeks ago and declared “we thought ‘twas funny.”
“You take things too seriously over there, ” the campus daily newspaper, The Daily Athenium said in an open letter addressed to Das Schwarze Korps, official organ of the goose-stepping black-uniformed Nazi Elite guard.
IMITATED HITLER
“What,” it asked, “is the world coming to when 80,000,000 inhabitants of a great nation become agitated over the pranks of college students?”
Male students attending the party had imitated the appearance of Adolf Hitler, and when the German newspaper caustically criticized the affair as pictured by “Life” magazine, four students facetiously cabled they were severing “diplomatic relations.”
Das Schwaze Korps replying described the students as “sprigs of war-profiteering Babbits” and said this could not be expected to “make less frivolous play with ‘diplomatic relations’ between two nations than would Jews and free Masons around President Roosevelt.”
QUOTES GOLDSMITH
The Athenum’s letter asserted the “whole episode, including your reply, will cause only a passing ripple of interest here,” and recalled Oliver Goldsmith once said “little things are important to little men.”
Editors said the letter would be mailed to Germany.
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In hindsight, of course, we countenance any ridiculing of Hitler, and discount any protests from Nazi Germany. But in early 1939, when Roosevelt was committing to keep us out of any European conflict, there were arguably a number of sensitivities relating to our relationship with an ascendant Germany, not to mention a significant American minority.
It would have been ironic if those kids were somehow punished for offending those sensitivities soon before having to face death in defense of America’s most fundamental ideals.
Posted by Marc Hodak on August 24, 2015 under Executive compensation, Governance, Politics |
A few weeks back, Hillary Clinton unveiled her proposed tax complication scheme and other proposals to combat “short-termism.” People generally being more conservative with regards to their own professions than other people’s professions, I was tempted to suggest that trusting Hillary (or any politician) to remedy whatever was ailing corporate America was like trusting a medieval doctor to cure…well, just about anything. You just know that whatever the ailment, the treatment will involve bleeding the patient. But recalling the above-noted bias, I realized that I was merely responding to quackery with quackery, and that I was in no better position to give Mrs. Clinton political advice than she was at giving anyone economic advice.
So I refrained from calling her out on her proposal, including addressing the irony of politicians accusing corporations of short-termism, and left it to the pundits to debate her prescriptions. What I didn’t expect is a spate of articles refuting her diagnosis, i.e., that corporate America was suffering from an acute case of short-termism.
Read more of this article »
Posted by Marc Hodak on August 6, 2015 under Executive compensation, Stupid laws |
The CEO Pay Ratio mandated by Dodd-Frank is finally here. The rule sounds simple enough: Companies must disclose the ratio of their CEO’s pay to that of their median worker. Interesting information, perhaps, but the SEC supposedly exists for a more lofty purpose than mandating nice-to-know data. It must, by law, act in the interests of investors. In fact, the Administrative Procedures Act requires the SEC to “base . . . decisions on the best reasonably obtainable scientific, technical, economic, and other information concerning the need for, and consequences of, the intended regulation.”
The CEO Pay Ratio rule is, indeed, of great interest to certain people. Union leaders believe that the rule will give them another crowbar with which to negotiate their members’ wages and benefits. Class warriors believe it will give them more ammo to shame corporations into reducing inequality. Fair enough. But the SEC does not normally allow itself to be used by unions for getting involved in labor relations, or by class warriors in anti-corporate crusading. So, why are they bothering with this rule?
Quite simply, because Dodd-Frank requires them to. The CEO Pay Ratio provision was inserted into the law, without debate, at the last minute by Senator Menendez. His rationale, explained after the fact, was, “This simple benchmark will help investors monitor both how a company treats its average workers and whether its executive pay is reasonable.”
How, exactly, will this “simple benchmark” help investors do those things? What number, or range, for this ratio tells an investor that a company is treating its average workers well or poorly, or that a company is paying its CEO reasonably (given that CEO pay is already thoroughly disclosed)? What economic or financial standards can be created using this or other data to enable investors to figure these things out?
As someone who has been asking this over the five years it has been debated, I can assure you that those questions have never been answered, neither by the rules proponents nor by the investors they claim to want to help. That’s because there is no logical basis for believing that the pay ratio can usefully inform investors either with regards to the company’s treatment of workers or the reasonableness of their executives’ pay. Consequently, there is no scientific or economic evidence that this ratio, alone or in combination with any other data, can be used to judge how well the company is being managed, or otherwise be related to company value—i.e., the nominal concern of investors. The Pay Ratio provides no more useful information than the ratio between the company’s highest cost office space versus its average cost of warehouse space, or between its highest cost commodity inputs versus its average cost of materials.
In other words, the SEC is simply being used in an experiment in social engineering. The expectation is that this ratio will shame boards into changing how they pay their CEOs. That goal might have some redeeming value if this experiment hadn’t already been tried, twice. The “shaming” theory was, in fact, largely behind disclosure rules enacted in 1992 and in 2006. A rational person would have looked at these and similar results, and decided it was time to try another hypothesis. Alas, it appears we are not dealing with rational persons. So today, ideology trumps science.
Posted by Marc Hodak on August 3, 2015 under Invisible trade-offs, Unintended consequences |
What goes up…
Forking an extra $120 billion into the hands people paying college tuition might have had an effect in raising college tuitions. Who would have guessed? The irony is that the student loan and Pell grant programs were intended to make college more affordable for more people.
This new study doesn’t take into account the significant price discrimination practiced by colleges, which partly offsets the net cost per student, particularly for those from poorer backgrounds, versus the sticker price of tuition. Nevertheless, the average student that could once afford college by working summers now has to work a decade or longer to pay for school because of skyrocketing tuition.
So, according to the Fed study noted above, it seems that about half of tuition increase was the result of effective, if artificial, demand in the form of easy money for students. It’s certainly not because schools have gotten any better at educating their students.
