Wednesday, March 18, 2009

The Glory of Capitalism

This is from Monday's Rush Limbaugh show, in which he was talking about the AIG Bonuses and why the government shouldn't interview with said bonuses. He got a call from someone who complained about Government Bailout money going to provide the bonuses, who was upset at having to scrape by while these people were getting the big bucks. Rush then asserted that if he wanted to make $250,000.00 it was out there for him. He then proceeded to give his theory of capitalist compensation.
People get paid -- at least in capitalism -- based upon the value of their work to other people.

If you work for me, for example, and I assign you to do something I no longer have time to do, but I need you to do it almost as good as I do, knowing you can't do it as well as I do, but almost as good, and let's say I determine that in terms of my time and my desires, let's say I'm going to pay you a hundred thousand dollars to do that, it is silly for anybody to start assigning, "Well, is that job worth a hundred thousand?" It is to me, and I'm paying it, and that's all that counts. Somebody who does the same thing for somebody else may make minimum wage, as an example, may make 50, whatever. May make more. It's worth what I'm willing to pay somebody to do it.
In a strict sense this is right, with some caveats.

1. We have determined that some activities are illegal because they harm the community. No matter how much value you might place on Crack Cocaine or how much you might be willing to pay to acquire it, it remains illegal in our system because of the damage it does to our communities. Some other corporate practices might well fall into this category as well.

2. A system that rewards activities out of phase with their actual value is not sustainable. Google Tulip Mania for an example of this particular problem. For the past several years, I believe we have been suffering from "executive mania." Executives are compensated enormously, seemingly regardless of the actual benefits they bring to the company.

Now I understand that if AIG wants to compensate their executives well above the value they actually bring to the company that's their business (unless they are taking Government Bailout money of course (they are, in fact, taking Government bailout money)).

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