No Economy Of Common Sense

The New York Times ran this Op-Ed piece today by Steven E. Landsburg, a professor of economics at the University of Rochester, who, among other things, has said that those who choose no health insurance should not receive (potentially life saving) treatment (as noted here). And he is a self-described “libertarian,” which, to me, means that he’s bought into the whole Ayn Rand, laissez faire capitalist, “me, myself, and I and everyone else can drop dead” thing.

How sad.

So it should come as no surprise that Landsburg’s piece in the Times today is a free-market love fest which contains this sickening piece of agit-prop…

If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted.

Pardon me while I spit up a burrito at my PC monitor for a moment.

This does, though, give me an opportunity to compare the earnings of American-based CEOs as opposed to their foreign counterparts (after all, isn’t it true then, using Landsburg’s logic, that we’re being “extorted” if we pay CEOs in this country more money?).

This article actually praises the status quo in this country using language such as the following (I’ll get to the “con” argument shortly)…

The international pay gap (between American and foreign CEOs) arises, under this theory, because foreign CEOs don't have the same power over their boards. In most foreign corporations, control shareholders act as strong checks on executive pay. Control shareholders will recoup most of the firm's surplus that is not paid out to the factors of production, such as CEOs, and therefore have strong financial incentives to keep executive pay abroad low. Thus, by comparison to U.S. levels, foreign CEOs are paid less.

One example I can think of in this country where “control shareholders” have a lot to do with CEO compensation is The Vanguard Group in Malvern, PA, where the “shareholders” are those who have purchased the company’s mutual funds and other products, in line with the management structure conceived by John Bogle, the company’s founder.

And considering the wholly other extreme, we have this blog post from USA Today that notes the utterly excessive compensation awarded to Lee Raymond of Exxon-Mobil, Pfizer’s Hank McKinnell and Home Depot’s Bob Nardelli; in the latter two cases, their companies performed poorly, but in Raymond’s case, Exxon-Mobil did well of course, due to rising oil prices that he had no involvement with at all.

And to return to Landsburg’s original argument, what is the effect of paying less for a foreign worker (considering China in the following example here as opposed to Mexico) versus an American? We know all too well…

The rise in the U.S. trade deficit with China between 1997 and 2006 has displaced production that could have supported 2,166,000 U.S. jobs. Most of these jobs (1.8 million) have been lost since China entered the WTO in 2001. Between 1997 and 2001, growing trade deficits displaced an average of 101,000 jobs per year, or slightly more than the total employment in Manchester, New Hampshire. Since China entered the WTO in 2001, job losses increased to an average of 353,000 per year—more than the total employment in greater Akron, Ohio. Between 2001 and 2006, jobs were displaced in every state and the District of Columbia. Nearly three-quarters of the jobs displaced were in manufacturing industries. Simply put, the promised benefits of trade liberalization with China have been unfulfilled.

But, as Landsburg tells us today in the Times, “All economists know that when American jobs are outsourced, Americans as a group are net winners.”

“American economists,” then, have obviously never flipped burgers at “Mickey D’s” as a stopgap until permanent future employment returns (hopefully) or sweated out the final weeks of unemployment while hoping and praying for a job offer.

Finally, I should note that the University of Rochester named Landsburg “Professor of the Year in Social Sciences” in 2007.

Remind me to cross off the University of Rochester from my list of places or institutions I ever intend to visit for the rest of my life.

Update: Speaking of the economy (what an airhead)...