The World Needs More Ninjas

Depending on your political viewpoint, you probably find Paul Krugman to be either the deus ex machina of the journalism world or the biggest waste of space there is in a major newspaper. My thoughts on his columns are that he generally fails to live up to his potential. If you look at his bio, the man is obviously brilliant. Unlike most journalists that have much less academic background, he would be imminently qualified to write about issues in a scholarly manner, looking at both the advantages and disadvantages to various approaches to solve a problem. Unfortunately, in my mind, he seems to dumb down his writing to come up with somewhat of a straw man conclusion most of the time.

In his latest article, he talks about how the economy really isn’t that good for most people. I’m generally of the persuasion that politics has much less of an effect on the economy (as opposed to, say, human psychology), good or bad, than politicians would like you to believe.

Some commentators dismiss concerns about gasoline prices, because those prices are still below previous peaks when you adjust for inflation. But that misses the point: Americans bought cars and made decisions about where to live when gas was $1.50 or less per gallon, and now suddenly find themselves paying $2.60 or more. That’s a rude shock, which I estimate raises the typical family’s expenses by more than $900 a year.

Yea, $900/year can be a lot, but it’s probably much smaller than the rate at which housing prices are increasing annually, for example. And, with the higher housing prices also comes higher property taxes. Another assumption also seems to be that higher gas prices do not change consumer behavior, as a free market model would predict. Yea, there are some inherent transportation costs of getting around down, but there’s also ways that people will change their behavior is travelling becomes too expensive (e.g., not go places, share rides more, use alternative transit more).

And, then comes the conclusion:

You may ask where economic growth is going, if it isn’t showing up in wages. That’s easy to answer: it’s going to corporate profits, to rising health care costs and to a surge in the salaries and other compensation of executives. (Forbes reports that the combined compensation of the chief executives of America’s 500 largest companies rose 54 percent last year.)

Health care costs are definitely a problem. One day, both the parties will stop bickering and recognize that they really need to do something about it besides just toss rhetoric at each other. Unfortunately, there probably won’t be any easy answer to the problem.

The problem about complaining about corporate profits is that anyone who owns stock (or mutual funds that contain stocks) is guilty of demanding corporate growth. You don’t hold onto stock that’s returning 3% a year when others are returning 7%. In the end, the corporations have to answer to their stockholders.

CEOs are always an easy target because they make so much money. Notice that the figure quoted includes salary and compensation. My guess is that this figure is larger since a lot of the compensation is tied to the stock market, which did relatively decent last year. I would also be willing to bet that even if the CEO compensation seems large, that it’s still only a small fraction of the company’s overall profit. Plus, if a CEO does a good job, then they may create a lot more jobs for the company. There’s a lot of jobs that can provide huge compensation…entertainers, sports stars, investment bankers, doctors, lawyers. I’ve never understood why the CEO always gets singled out among all the professions where people stand to make exorbitant sums of money.