The "Greed" Fallacy

By Thomas Sowell

Tuesday, January 23, 2007


In an era when our media and even our education system exalt emotions, while ignoring facts and logic, perhaps we should not be surprised that so many people explain economics by "greed."

Today there are adults -- including educated adults -- who explain multimillion-dollar corporate executives' salaries as being due to "greed."
Think about it: I could become so greedy that I wanted a fortune twice the size of Bill Gates' -- but this greed would not increase my income by one cent.

If you want to explain why some people have astronomical incomes, it cannot be simply because of their own desires -- whether "greedy" or not -- but because of what other people are willing to pay them.
The real question, then, is: Why do other people choose to pay corporate executives so much?

One popular explanation is that executive salaries are set by boards of directors who are spending the stockholders' money and do not care that they are overpaying a CEO, who may be the one responsible for putting them on the board of directors in the first place.

It makes a neat picture and may even be true in some cases. What deals a body blow to this theory, however, is that CEO compensation is even higher in corporations owned by a few giant investment firms, as distinguished from corporations owned by thousands of individual stockholders.

In other words, it is precisely where people are spending their own money and have financial expertise that they bid highest for CEOs. It is precisely where people most fully understand the difference that the right CEO can make in a corporation's profitability that they are willing to bid what it takes to get the executive they want.

If people who are capable of being outstanding executives were a dime a dozen, nobody would pay eleven cents a dozen for them.
Many observers who say that they cannot understand how anyone can be worth $100 million a year do not realize that it is not necessary that they understand it, since it is not their money.

All of us have thousands of things happening around us that we do not understand. We use computers all the time but most of us could not build a computer if our life depended on it -- and those few individuals who could probably couldn't grow orchids or train horses.

In short, we all have grossly inadequate knowledge in other people's specialties.

The idea that everything must "justify itself before the bar of reason" goes back at least as far as the 18th century. But that just makes it a candidate for the longest-running fallacy in the world.

Given the high degree of specialization in a modern economy, demanding that everything "justify itself before the bar of reason" means demanding that people who know what they are doing must be subject to the veto of people who don't have a clue about the decisions that they are second-guessing.
It means demanding that ignorance override knowledge.

The ignorant are not just some separate group of people. As Will Rogers said, everybody is ignorant, but just about different things.
Should computer experts tell brain surgeons how to do their job? Or horse trainers tell either of them what to do?

One of the reasons why central planning sounds so good, but has failed so badly that even socialist and communist governments finally abandoned the idea by the end of the 20th century, is that nobody knows enough to second guess everybody else.

Every time oil prices shoot up, there are cries of "greed" and demands by politicians for an investigation of collusion by Big Oil. There have been more than a dozen investigations of oil companies over the years, and none of them has turned up the collusion that is supposed to be responsible for high gas prices.

Now that oil prices have dropped big time, does that mean that oil companies have lost their "greed"? Or could it all be supply and demand -- a cause and effect explanation that seems to be harder for some people to understand than emotions like "greed"?

Thomas Sowell is a senior fellow at the Hoover Institute and author of Basic Economics: A Citizen's Guide to the Economy.

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Damned right I'm an equal opportunity offender, I'm a Conservative!

fiunny i think that was called gouging (is that spelled right)

and when the price per barrel is 20% higher but the processing cost is epeonentially higher given the the rise in demand and fall in yield with the iraq scandal as i will leave that.

look cheney is a crook and while being considered for enditment he

a) took more crooked money and payed that out.

b) shelled out more filthy cash and ran for VP

guess what we gave it to him or he stole it either way whos to blame us the ppl for taking bad with the worse. or is he to blame for being crooked and pulling the string s on the bush puppet???

maybe we'll blame democrats....

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"All stupid people should be shot in the head. Thin the heard people its called nature" -adam corolla

http://www.rollitup.org/grow-journal...xperiment.html

a citizens guide to the economy sounds like a socialist pamphlet to me.


or is that instructions to the sheep to keep being spoonfed till all the rich old bastards are dead and cant spend money any more.

CEO

Cheating
Everyone
Out

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"All stupid people should be shot in the head. Thin the heard people its called nature" -adam corolla

http://www.rollitup.org/grow-journal...xperiment.html

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Damned right I'm an equal opportunity offender, I'm a Conservative!

i could never agree with you more... thank you for some clarity.

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"All stupid people should be shot in the head. Thin the heard people its called nature" -adam corolla

http://www.rollitup.org/grow-journal...xperiment.html

I just don't see a way to make economic sense to addled brains made soft by our modern, government monopolized school systems. All is lost, I'm afraid.
Hey dick, I went to school around the same time as you, even in the same state, Do you have a doctorate in psychology, or are you making statements out your ass. No-one with 2 cents worth of common sense can understand why we have hungry homeless people on our streets and some asshole is pulling down millions for being the "Boss" This the greatest travesty in this country since the Robber-Barrons. No-one is worth that kind of money for being the "Boss". What about the "Golden Parachutes" while bankrupting a company, now that asshole really earned his money, eh. I hope you choke on your precious money, Dick.

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"I suppose I always knew America would eventually break the planet, like some ghastly, hyperactive toddler that gets hold of a mobile phone and then smashes it repeatedly against the edge of a table". Quote from british journalist.

This has been addressed before, but lets try it again.

The numbers of "homeless" has fuck-all to do with corporate salaries. Our "homeless" are not a reflection of greed, unemployment, or the death of Mother Teresa. They are a reflection of our unwillingness to deal with our drug addicts and our mentally ill. The fact is that no-one with 2 cents worth of common sense would continue to insist that there is any causal connection between high salaries, junkies, and schizophrenia.

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"There is a general place in your brain, I think, reserved for 'melancholy of relationships past'. It grows and prospers as life progresses, forcing you finally, against your better judgment, to listen to country music".- Kary Mullis, Nobel Prize Winner for Chemistry

The numbers of "homeless" has fuck-all to do with corporate salaries. Our "homeless" are not a reflection of greed, unemployment, or the death of Mother Teresa. They are a reflection of our unwillingness to deal with our drug addicts and our mentally ill. The fact is that no-one with 2 cents worth of common sense would continue to insist that there is any causal connection between high salaries, junkies, and schizophrenia Says you! but your word doesn't mean shit to me. If the capitalist pigs that are pulling down multimillion dollar salaries had any humanity, they would find a way to address this issue and put some of their loot to work building low budget homes for the poor and homless instead of building 40+ room mansions for them and their wives, 5 acre houses for two people to live in, Retarded. And when you say that un-employment has nothing to do with being homeless you must have your head stuffed so far up your ass thay daylight will never enter, I might agree about Mother Theresa, but the rest is pure bullshit, a right wing plutocratic view, dickheads forever!

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"I suppose I always knew America would eventually break the planet, like some ghastly, hyperactive toddler that gets hold of a mobile phone and then smashes it repeatedly against the edge of a table". Quote from british journalist.

Med, this will be my last post on any public thread responding to any more of your bitter and delusional thoughts. Your inability to separate fact from opinion, your apparent unhappiness about your own plight, and your endless quest to find somebody else's problems that you can claim as your own make it impossible to maintain any reasonable exchange of ideas. I'm sure you are a nice guy when you are asleep.

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"There is a general place in your brain, I think, reserved for 'melancholy of relationships past'. It grows and prospers as life progresses, forcing you finally, against your better judgment, to listen to country music".- Kary Mullis, Nobel Prize Winner for Chemistry

__________________
"I suppose I always knew America would eventually break the planet, like some ghastly, hyperactive toddler that gets hold of a mobile phone and then smashes it repeatedly against the edge of a table". Quote from british journalist.