American Elephants


Those Dratted CEO’s Get Way too Much Money! (or Do They?) by The Elephant's Child

Thomas Sowell had a wonderful column last week at National Review on CEO pay.  He began:

Congress is never more ridiculous than when it tries to look like it is serious.

In the midst of a major national financial crisis, what was one of the first things Congress zeroed in on? The pay of Chief Executive Officers of financial institutions.

If all those CEOs agreed to work for nothing, that would not be enough to lower the bailout money by one percent.  Anyone who was really serious would start with the 99 percent and let the one percent come later.

But however insignificant the pay of CEOs is economically, it is big stuff politically.  Whatever the shortcomings of the Democrats, they are consistent in their message and class envy is a great part of that message.

People who say that they cannot understand how CEOs in general get so many millions of dollars seem not to realize what a trivial thing they are saying.  Most people do not understand most things.  But that is no reason to have national policy guided by their ignorance. …

What really sets some people off is the fact that a CEO who has mismanaged some corporation into losing billions of dollars is rewarded with a severance package worth millions.

Think about it.  If the CEO’s decisions are costing the company billions, it is a bargain to get him out the door immediately for millions, rather than having his departure delayed by either internal struggles or battles in the courts….

Politically imposed limits on the pay of CEOs is one of the most penny-wise and pound-foolish things that can be done.  The difference between a top-notch CEO: and a second-rate CEO can be billions of dollars on the bottom line.

That is what drives up the pay of CEOs.  If you want someone who will be top-notch in running organizations as huge and complex as Fannie Mae or Freddie Mac, there is no point offering $5 million a year if similar enterprises elsewhere are paying $20 million for people with the kind of ability required. [emphasis mine]

Do read the whole thing. It’s a great corrective for faulty thinking, and being honest, we all indulge in a lot of that. Clarifies a lot of the conversation about the “bailout” too. Not too many CEOs enjoy a very long tenure at their firms.



Speaker Pelosi’s Improbable Pronouncements. by The Elephant's Child

Democrat Nancy Pelosi, Speaker of the House, appeared on Meet The Press yesterday. Mr. Brokaw inquired about the Democrat Congress’s very low approval poll numbers. She admitted that the oil companies and the administration all ranked higher than Congress in those polls. “BUT the point is this. People—” she said,”we have to look after the consumer, we have to increase the supply of energy. And the President, even as recently as yesterday, said if you drill offshore, you’re going to bring down the price at the pump. It simply is not true.”

Many economists and professors have pointed out that the President is right, and Ms. Pelosi doesn’t know what she’s talking about. Professor Don M. Chance, a professor of finance at Louisiana State University said:

Thus, the current price of any storable commodity will be affected by expectations of future supply because producers use those expectations to determine when to bring their product to market.

Oil is an excellent example because it has a long storage life. Every drop of oil consumned is on the market for only a small fraction of the millions of years of its life.

If producers expect increased supply in the future, the incentive to bring oil to market later is reduced.

Ms Pelosi went on to say that “Well the fact of the matter is — and the President knows this — if you drill offshore today , you won’t have any impact at the price at (sic) the pump for 10 years, and then it’s 2 cents. We can move much quickly (sic) by releasing oil from the strategic petroleum reserve and having an impact at the pump in 10 days, in 10 days.(sic)”

There are offshore oil rigs that have been sitting off the coast of California, idle since Democrats put a block on drilling decades ago. With restrictions lifted, they could potentially be producing in 3 years, because they know where the oil is.

The significantly explored areas are the central and western parts of the U.S. Gulf of Mexico. Demand all over the world is such that drilling companies are pulling rigs out of the U.S. Gulf. Larry Dickerson, CEO of Diamond Offshore Drilling, says that there are probably 30% fewer rigs working than there were 3 years ago. The rigs that they have are booked up quite a bit in advance, so they would have to build new rigs or relocate rigs here. While that was going on, oil company customers would be doing the seismic exploration, so he estimates four or five years to start producing oil. Not exactly what Ms. Pelosi claims.

Environmental organizations have a mystic belief in “alternative energy”. Wind, solar, and biofuels. Natural. Not “dirty”. Not nuclear. They make a huge assumption that if we just contribute enough money, these sources that contribute only a minuscule bit of energy will suddenly be able to take over the entire job of supplying American energy. That is wishful thinking. And as these organizations are a huge source of Democrat money, Congressional Democrats cannot afford to do other than follow their demands.

The Left always believes in giving taxpayers’ money to their pet causes. They think of it as government money, or their money, to do with whatever seems noble. Trouble is their ‘noble’ causes seldom seem to work. But Democrats are interested in intentions, not results.

They never seem to understand that if the price of gas is so high that people are interested in alternates, the free market will produce all sorts of folks tinkering in their garages to produce new engines, new batteries, new fuels, new cars.

That is what the Capitalism that they so despise does.

Subsidies, on the other hand, entice people hoping to make a quick buck. England has all sorts of problems with wind farms being put in places where the wind supply is doubtful, simply because the subsidies pay for it. In Japan, when subsidies were removed activity in solar power ceased; because there were not investors willing to risk their money in the hope of future profit.

Speaker Pelosi actually had the nerve to claim that big oil, needed to pay “royalties” to the American people, Big oil pays three times as much in taxes as they receive in profits. If they lease land on which to drill, they bid at auction, enormous sums. If they secure the lease, they pay rent every year. If they cannot find oil on the land that they leased, tough luck, rent continues until the lease term is up. At the end of the lease, it reverts to the government.

American corporations are more highly taxed than their counterparts around the world. U.S. corporations pay 39% in taxes. Their counterparts in Ireland pay 11%. There is a clue here to the reason why U.S. corporations move their business offshore.

The late Walter Wriston, former CEO of CitiBank, said in The Twilight of Soverignty:

Capital will go where it is wanted and stay where it is well treated. It will flee from manipulation or onerous regulation of its value or use and no government power can restrain it for long.

Perhaps if we embroidered little samplers with this quotation, and sent them to members of Congress…Nah!




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