No One Hates Free Market Capitalism More Than Free Market Capitalists

by Mad Rocket Scientist

I’m really starting to think that a good amount of the trouble we have with business in this country would be solved most effectively through a heavy regulatory environment.

Not on business itself, but rather on just the people in the C-Suite and the Boards.  Why do I have this thought, you might ask?  It might have something to do with this article on PandoDaily:

The Techtopus: How Silicon Valley’s most celebrated CEOs conspired to drive down 100,000 tech engineers’ wages

This is not really new to me, as I recall hearing about it a few years back.  What is new is the reach of this “agreement” and how cooperative it was.

For the tl;dr crowd, our favorite tech giants in Silicon Valley — Apple, Google, Intuit, eBay, Adobe (Microsoft is absent from this party, it seems) — all conspired to not poach one other’s talent.  This was not a case of ironclad non-competes, but rather an agreement to not cold call each other’s current employees in an attempt to hire them away.  This was kicked off mostly by Apple and Google, although it turns out George Lucas is the grandfather of this current scheme.

Of course, that alone, while bad, is not necessarily evil; employees were still free to move about on their own.

No, the really bad bit is that the companies shared salary tables and colluded to keep them equivalent so employees had no real financial incentive to look elsewhere, thus effectively shutting down the price information professional tech employees rely on when it comes to making career choices.  They also agreed to keep employees from gaining raises too fast, hamstringing the meritocracy that allows talent to be recognized and rewarded.

Rather hypocritical coming from a class of people that all claim their massive salaries are all earned because their talent is so great, but refuse to acknowledge the same in their intellectual capital.

Of course, this agreement, while only directly affecting the 100,000 or so employees of the cabal companies, indirectly affects the entirety of the STEM field.  The bulk of STEM workers wear multiple hats, working across a range of disciplines that should be improving our monetary value. But as many of us have found, our wages have been stagnating for the past 20 years or so.  Agreements like the one above are a large part of that stagnation, because the price signals from top companies inform the smaller companies.  Agreements like this are a great way to encourage professionals to form Unions — something that has happened before (e.g. Boeing and SPEEA), and can very easily happen again.

Unfortunately, I expect that once the fallout from the current criminal cases and class-action lawsuits settles, something like this will happen again, because we allow for the elites to enjoy a near incestuous relationship, with CEOs also serving on the boards of competitors and other related corporations.

I know some of you would rally for expanding Unions. But given how much like CEOs the major union leaders behave, I don’t think that is an answer — and it could just make the problem worse. (Unions, IMHO, will, as they increase in size and influence, work for the betterment of their leadership far more than for the betterment of their membership – this is structural and can be fixed, but as it stands they’d probably compound the problems).

So, how else can we handle things like this?  Should CEOs have their pay and benefits limited by law to a percentage of the company finances, or wages?  Should they sacrifice privacy for the power and cash they enjoy (all calls and emails recorded, etc.)?  Should we prohibit current C-Suite members from serving on any boards, or just boards in the same industry?

Other Ideas?

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174 thoughts on “No One Hates Free Market Capitalism More Than Free Market Capitalists

  1. Fun fact: This was the second case I worked on during my professional career as a lawyer. I was very low level and just doing doc review to prepare for depositions and class cert but it was my full-time job for nine months. I worked for the plaintiffs.

    I can’t go into details but I read the e-mails cited in the Pando Daily article and many similar ones over and over again.

    The solutions are tricky. I suppose we can limit the amount of boards that CEOs sit on but Silicon Valley seems to be a very clannish structure and all the higher-ups know each other and go from one company to the next, serve on boards, meet at various conferences and hob nobbing, their kids probably go to the same schools, etc. They often seem to know each other from university and grad school as well.

    The ratio on CEO compensation seems to be the best idea you have. I like unions but I am not sure you could convince software engineers to unionize. Software engineers often seem to think that organizing is what unskilled workers do and can be snobby about it. Most of the Valley does lean Democratic but there is also a fierce libertarian contingent with people like Peter Thiel who wander far into loony territory.

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    • I like the ratio concept myself (although the actual mechanics of it would be a bear to hash out to try and avoid gross gaming of it), since it allows for compensation to be still be tied to market value & price signals, but prevents the C-Suite & Boards from jacking up their own compensation without making sure their employees enjoy the benefits as well.

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      • The problem is that American CEOs and Boards seem to be masters at gaming the system including as compared to their foreign counterparts.

        There has been a lot of liberal outrage at Jamie Dimon’s raise. From what I hear this was also controversial at Morgan Stanley but the Board justified it because of Dimon’s “stewardship” of the company through a rough year. It would seem that there is nothing CEOs can do to get them to lose compensation. If the company does well, they deserve a reward. If the company does poorly, the CEO gets rewarded for steering them through a tough time like the captain on a ship during a storm.

        Even when a Board wants a CEO to leave, they need to offer the so-called golden parachute as incentive.

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      • Executives owe loyalty to stockholders, not employees. Their compensation should be tied to their ability to deliver dividends. If the Board of Directors were paid solely in the form of a split of dividends, I think that would have a lot of advantages.

        If tying regular-worker-level compensation to executive compensation is something that will increase profitability then we should assume that sooner or later, this HR model will produce successes and be emulated. It hasn’t been, and that’s not been for lack of willingness by a variety of executives to explore different management paradigms in a variety of different business settings. Perhaps a permutation of this idea will become popular in some sector some day.

        Until then, compensation for managerial and lower level employees should balance the need to attract and retain quality talent and to roughly approximate the value that the worker adds to the company. I can think of no good reason at a policy level to say, “The CEO makes $10,000,000 a year, therefore I should make $100,000 a year.” Your job is worth $100,000 a year because a person of expected talent and acceptable performance levels contributes more than $100,000 worth of value to the company. Or maybe not, in which case that job ought not to command that sort of compensation.

        By this metric, I’d likely agree that quite a lot of executives are overcompensated. But as I wrote above, I believe that the proper means to value the performance of an executive is not value input, but profit output.

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      • IIRC the mania for dividends and quarterly earnings did not really appear until the 1970s and was largely influenced by theories and writings of Milton Freidman. Maybe it is rose-colored history but the view seems to be that before then, executives focused more on long-term stability and profits. Yes, CEOs always had a fiduciary duty to the stockholders but they felt that the duty was in making the company profitable over the long-term instead of short-term gains.

        The focus on quarterly profits produces other bad incentives.

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      • I have nothing against the idea of focusing on long-term profitability rather than short-term profitability, and structuring executive compensation packages accordingly. But it remains the case, Friedman or no, that if we’re discussing a for-profit company, then profit is the objective. Dividends are how profits are distributed to owners.

        I think a lot of our financial problems have come from the divorce between earnings and price caused by the triumph of the greater fool model of stock trading. This is why we ought to care about P/E ratios, but it seems there is much more money to be made in churning.

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  2. There are certain basic realizations that lead people to calling themselves a certain political label. While those realizations often exist at feeling level they are still powerful. Reagan had his stock lines about gov, libertarians have theirs about gov also. Well you have just struck gold on a key liberal realization about business and capitalism. Capitalism and business are , in themselves, fully nifty. It’s people that screw them up with all sorts of behavior that seem to fly in the face of the values they promote. Capitalists have done more harm to capitalism then communists ever will.

    Unions might be an answer if the software types really wanted them and bought into the communitarian mindset. They don’t so, i can’t see them as an answer. Better social norms, which conservatives like to push, might help quite a bit. But that would require ditching a lot of the deification of the Visionary Leader like Jobs or Maker/Producer obsession that leads rich folk to think their shit is actually gold. One thing unions do which would be really valuable in cases like this, isn’t the bargaining, its having union types/workers be part of the leadership of a business. If you have enough workers in the top parts of a business, it is harder to pull off crap like this.

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    • Agreed heartily on that last part. BlaiseP (who I still miss ferociously) would raise a similar one in that the Scandinavians, Swedes and Germans by and large all have union representation on most of their corporate boards.

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    • One thing unions do which would be really valuable in cases like this, isn’t the bargaining, its having union types/workers be part of the leadership of a business.

      Can you please provide names of US companies where union workers have been part of the leadership of a business (senior management or board) and have contributed to the growth of a company? Can you provide examples of companies doing this on a long-term basis?

      My guess is that examples are few and far between at best. I don’t think it can work. At the end of the day, the interests of labor and capital are too divergent for this to work (a reason that collective bargaining exists in the first place).

      As far as I recall, BlaiseP only cited the German corporate governance model. Not once did he make an argument that it could work in the U.S.

      Based on my cursory understanding of the German structure, the laws governing takeovers require certain conditions to be met before board members are removed. Under US law, a company that takes over another company can at its sole discretion remove the entire board.

      Not to be too snarky about this, but assuming that companies (including publicly traded one) appoint labor representatives to key decision-making roles at a firm as being discussed here, unless the regulatory regime is changed to protect the boards of these companies, the end result is that this exercise will generate a lot of takeover targets and enrich private equity and hedge fund investors. The labor-capital conflict will cause all sorts of headaches at the management level thereby negatively affecting the company’s ability to generate earnings. At some point, investors will lose patience and dump the stock. At some price X, it becomes an attractive buy to opportunistic investors.

      Just my .02

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      • Oh i’m not sure how well cooperative governance between unions and upper level corporate types could work. But that is mostly because our corporate types not only expect to be treated like conquering hero’s, geniuses and the reason we aren’t stuck in the middle ages but crave complete control. Citing Germany and Scandinavia as places where something can work is actually citing data. It doesn’t mean it would work here, but it is still evidence.

        “unless the regulatory regime is changed to protect the boards of these companies” ummm you mean even more protected than they are now?!?! But seriously you know more about how corporations work then i do, but it seems like boards and C level types are pretty much completely protected now. Even C level types fail that seem come out of it showered with money.

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      • Greg,

        My apologies for not getting back to you sooner.

        Oh i’m not sure how well cooperative governance between unions and upper level corporate types could work. But that is mostly because our corporate types not only expect to be treated like conquering hero’s, geniuses and the reason we aren’t stuck in the middle ages but crave complete control.

        I disagree. It has more to do with the irreconcilable differences between labor and capital. Even when United Airlines was employee owned and the union members were also owners, when the pilots staged their work slowdown in 2000, they were obviously acting in their own interests as employees by trying to improve their work situation and not at all like owners when they failed to take into consideration the damage they caused in terms of customer outrage. That stunt cost them business and, as owners, profits.

        Given that one of the most recent and notable situations where organized labor was in an influential ownership position ended in a failure because, among other reasons, the workers ultimately didn’t act like owners when the inevitable conflict between labor and management arose, how am I supposed to have any confidence that putting workers in a position to influence management (or at least be a thorn in the side) will lead to positive outcomes, especially if said workers have no real skin in the game (i.e. share ownership)?

        It doesn’t mean it would work here, but it is still evidence.

        Evidence of existence yes. However, to make a convincing argument, you would have to demonstrate why you think it would work, at least as far as we’re concerned. I don’t care where things work and don’t work if the mechanics of those structures can not be employed here. It may as well not be evidence. It doesn’t help your cause, unless your cause is simply making suggestions.

        ummm you mean even more protected than they are now?!?!

        Yes you would need to change the regulations and make labor representation on the board of directors a legal requirement. It will never happen voluntarily through normal market mechanisms, at least on a semi-significant basis with larger companies with various disparate interests. I can’t see a situation where labor would have any interest in leading a firm without the upside potential associated with it, upside that is only achievable via an ownership position.

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    • “One thing unions do which would be really valuable in cases like this, isn’t the bargaining, its having union types/workers be part of the leadership of a business.”

      It seems to me that the UAW had a unique opportunity in 2009 to take such a role in the North American auto industry, but declined to do so.

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  3. Yeah capitalism would work great if it wasn’t for all the humans mucking it up.

    And it brings to mind the ingratitude and shrieking entitlement of the whole Tom Perkins affair where he blew through Goodwins law in a letter to the WSJ. This all in referrence to progressives and the current admin which he seems to have forgotten (along with Bush II’s admin) essentially pulled the fat out of the fire for the 1% class. It’s enough to make one start thinking that it’d perhaps be a not bad thing if some plutocrats found themselves strung up by their toes from time to time to remind the fattened classes how good they have it right now. Crazy emotional thinking there, I know.

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    • I was wondering when Perkins would get mentioned on OT.

      Andrew Sullivan and Josh Marshall had some great pieces on the psychology behind the Perkins letter.

      The sad part is that Perkins was not the first conservative/right-winger to violate Godwin’s law and he will not be the last. This kind of story seems to flair up every few weeks or months. I wonder if it is a seen of the Big Sort being complete. Liberals hang out and live among liberals. Conservatives hang out and live among conservatives. This just reinforces beliefs. Even though everyone is saying what Perkins said is horrible, I wonder if people are going to him in private and saying that they agreed with him and thought he was speaking the truth!

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      • http://www.newrepublic.com/article/116376/tom-perkins-kristallnacht-letter-sat-hours-without-notice

        Short version: A Venture Capitalist in SF named Tom Perkins complained about how people disliked Google buses and warned the readers of the Wall Street Journal of a coming progressive Kirstallnacht. He compared the 1 percent to the Jews of Europe/Germany during WWII. He tried to be somewhat complimentary to the Jews by calling them the 1 percent of Germany at the time and basically saying the Nazis were envious of Jewish success.

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      • People have noted it more as a non-apology apology. The problem is not that he walked his comment back. In these kabuki dances, the speaker always walks his or her comments back once called out upon them. The problem is that too many people lack self-censorship against inflammed rhetoric and hyperbole and he made the comparison in the first place.

        Comparisons to the Holocaust, Nazis, Slavery, and Rape should largely be taboo and verbotten in reasonable and civil discourse.

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      • By Odin’s one good eye, I declare that I utterly detest the preening and posturing of outrage that goes along with someone saying something inappropriate, getting called out for it, apologizing, and then getting told that the apology isn’t good enough to satisfy the people who were so very very outraged. I detest it because the process uses exile as a substitute for the hard work of maintaining heterogenous society.

        We need to have at least some room in our culture for apologies, because people are going to make mistakes and the next one to make a mistake might be you and the nature of your mistake might be that the only thing you can do is apologize. I may not be a Christian, but I think Jesus had an excellent point when he preached about the virtue of forgiveness. That virtue is necessary and should be practiced with liberality.

        This does not mean that an apology means you get to escape the shame and consequences of a misdeed; it means that a person who recognizes and does what is possible to remedy his or her own moral failure is a better sort of person than someone who unreasonably tries to conceal or deny his wrongdoing. After all, the next person to make an inadvertent mistake might be you, and you’d want some latitude to earn forgiveness too.

        Not necessarily you personally, , of course. Y’all take my meaning here. Yes, Perkins made a social blunder. All he can do now is say “I screwed the pooch, sorry, I realize that this makes light of an astonishing act of evil that harms people to this day.” And being as freaking wealthy as he is, maybe he makes an appreciable donation to the Museum of Tolerance as a tangible gesture of atonement to the community he insulted with his thoughtless comments.

        But the deal has to be, after that, it’s over.

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      • I haven’t seen the full Perkins apology (~40 min, Bloomberg interview* or Perkins’ ADL letter), but compare what you wrote, “I screwed the pooch, sorry, I realize that this makes light of an astonishing act of evil that harms people to this day.” to this, for instance, from Perkins,

        “If I had to do it again, I don’t know what I’d change and I’m at peace with myself,” he said. “And the fact that everyone now hates me is just part of the game and I’m sorry about that but that’s not what I meant to do.” [http://www.cbsnews.com/news/billionaire-tom-perkins-apologizes-for-nazi-comparison/]

        Sometimes an apology is really a non-apology and doesn’t deserve forgiveness or the finality of “after that, it’s over”.

        * Bloomberg has posted a 10 minute excerpt, I haven’t found the whole thing online. www(DOT)bloomberg(DOT)com/news/2014-01-27/tom-perkins-s-unhinged-nazi-rant.html

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      • I would prefer something considerably less glib and considerably more aware of precisely what he’d said. Creon’s right – he didn’t offer an apology so much as acknowledgement that he had gotten into trouble for what he said, followed by an attempt to immediately reassert the same claim.

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      • As I’ve pointed out before, he’s basically correct. Modern left-wing rhetoric is old-school anti-semitic rhetoric with “Jews” crossed out and “the 1%” written in.

        Which is not to say that the modern left is anti-semitic, but I think it comes from the same basic psychological drive—the need to find someone to scapegoat for their dissatisfaction with their own lives. My understanding is that the anti-Chinese violence in Indonesia had a similar dynamic going on. And for that matter, anti-Mexican sentiment in the US, although those jokers can’t decide whether the Mexicans are taking their jobs or living on welfare.

        That it’s coming to violence just makes the parallels clearer.

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      • As I’ve pointed out before, he’s basically correct. Modern left-wing rhetoric is old-school anti-semitic rhetoric with “Jews” crossed out and “the 1%” written in.

        There’s actually an important difference between “The Jews control the economy” and “The people who control the economy control the economy”. Would anyone like to take a guess what it is?

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    • plutocrats found themselves strung up by their toes

      “Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.” – H.L. Mencken

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  4. Well, this already is illegal, and DOJ is pursuing it. How is this any different from collusion to price fix products or such?

    You want more regulation? So we can have more regulatory capture? So we can have more political influence peddling to get around the regulation.

    Seems to me the better thing to do is to ensure that DOJ makes an example of these companies good and hard.

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    • Damon, isn’t the law under which this is being persued one that libertarians are opposed to? AFAIK libertarians intensly dislike antitrust and anticollusion laws so in a libertopia wouldn’t the only acceptable answer be to wait for some enterprising company to come in, break the cartel’s embargo and poach all the best workers?

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    • The DOJ is, in most such cases, relatively powerless to make any real example of such. Even back in the days of Enron, the bar for sending a C-suite person to prison for corporate crime was exceedingly high, and as Jamie Dimon & his ilk showed us during the last round of shenanigans, it has gone even higher, since our self-styled political masters have no stomach for sending their corporate peers to prison. None of the CEOs, even though they were directly involved with the collusion, will ever see sunlight filtered through the steel bars of a correctional facility. They will pay a fine they can handle out of petty cash, maybe do some community service &/or probation, and get a pat on the back for saving the company so much money on wages for all those years.

      No serious example will be made.

      Even if the employees succeed in their class action, they will, as usual, see a pittance, with lawyers eating the bulk of any award, and the corporations will probably still come out ahead in the final tally, especially the companies that have long enjoyed the benefits of artificially distorted price signals for professional STEM employees without being directly involved, because our courts seem incapable of fully righting such systemic wrongs (although I feel Loser-Pays would help that a lot).

      So while in general, I am happy to bang the drum against regulations right along with you, I am going to declare this system as broken & in need of repair. Such repair may be new regulations to discourage such things, or prevent them from being profitable. Or such repair may be the removal of regulations that incentivize this type of behavior (keep in mind I asked for suggestions beyond the obvious, because our law books are so insanely bloated that it is quite possible that there are regulations responsible that I am unaware of).

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  5. I am not sure if a law that requires CEO compensation to be in a certain ratio to employee’s compensation would constitutional. Regulation can set minimums but I’m not sure if it can control maximums.

    It’s a lot easier to prevent the exploitation of waged rather than salaried employees with government regulation for a variety of reasons. For salaried employees, the best answer might be a union.

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      • I was thinking more along the lines of: The initial rate is set as an averaging of the non-executive pay per hour (including salaried employees – to avoid just making all of them work 60+ hours a week to skew the average) over a year, multiplied by a factor (a factor which is set by the board & approved by the shareholders) which results in the TOTAL compensation available to a C-suite, including all options & bonuses & severances. Once set, it can only be changed every decade or so.

        Then, If the CEO wants a raise of 5%, the company has to be able to afford to grant the entire workforce a 5% raise as well (above and beyond any negotiated raises).

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      • I’m no expert in corporate law but even a middling lawyer like myself could run rings around any attempt to regulate ratios: outsourcing, inplacing, different corporate entities, grants of stock options and other hard-to-value assets, grants of restricted classes of stock that have preferred distributions, dramatic increases in corporate benefits that just happen to accrue just to the C-Suite, etc.

        Look at any BigLaw firm. The lowest-paid workers — cleaning staff – are employees of a cleaning company hired by the building management. The next lowest-paid workers — mail room / copy staff — are also no longer employees of the firm. They are now employed by document management companies that place their employees in the mail room of the law firm. (Oddly enough, when the switchover from law firm employee to doc manager employee occurs, the same individuals who get fired by the firm get hired by the in-placing company on the same day and just happen to get placed at their old place of employment.) If needed to avoid the ratio bite, the same thing would be easy enough to do with the secretaries, HR department, etc. At the end of the day, the firm would employ only lawyers.

        And even if your ratio is still upward of 100:1 (which is entirely possible – compare a $165 K starting associate to a $16 MM rainmaker), then go lobby the SEC to exclude dividends and distributions on partnership interests from total compensation.

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    • I am not sure if a law that requires CEO compensation to be in a certain ratio to employee’s compensation would constitutional

      If the government was serious about this, I believe they could enact a tax-break for businesses that abide by the fixed ratio. The break could be paid for by an across-the-board corporate tax-hike, effectively yielding a similar result through monetary incentive. Although I like this idea, I worry about businesses coming up with loopholes to exploit the subsidy (for example, designating severely underpaid figurehead CEOs, or spitting the company into income-based sub-units with individual CEOs running each unit de jure but actually answering to management in the respective higher-tier sub-unit).

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  6. “No, the really bad bit is that the companies shared salary tables and colluded to keep them equivalent so employees had no real financial incentive to look elsewhere…”

    I’ve heard that law firms (specifically NYC law firms) employ a similar model that is well-known and accepted among young hires. Is this true? If so, how/why is it different?

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    • I think it makes a difference when such scheduled salary tables are public or not. Do they know going in what the limitations are going to be? That it’s going to be based primarily or solely on seniority? That taking a job here means that you can’t be hired there?

      There is some legitimacy to this approach, I think (although it’s not my preference), but not the way it can often end up being carried out.

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    • When I worked at Large Oil Company, a system like that was used quite openly: the meetings, open to all employees, that explained how salaries were set began by describing it. Some accounting firm gathered data from my employes and similar companies, anonymized it, averaged it, and sold the result. That was used to set salary ranges for the different classifications. (The bulk of the meeting was, of course, about how to get yourself towards the top of the range.)

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      • But it’s also really important that you don’t actually know the ranges. Or at least any range beyond what is immediately necessary. We need that information to set fair salaries for you. But it’s best if you keep quiet about it.

        I’m not sure if it was done intentionally, but encouraging the norm that talking about your compensation with others is terribly bad behavior created a great environment for employers. They had all of the salary tables and employees only ever got comparison numbers if they interviewed at another firm and got an offer. Sites like glassdoor.com must cause a lot of tooth grinding.

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      • encouraging the norm that talking about your compensation with others is terribly bad behavior created a great environment for employers.

        My wife used to work in an sector (medical) where most of the practices wrote confidentiality regarding your wage into the contract. It was a firing offense to talk about pay rates with your co-workers. I think the justification was that it created a better work environment…

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      • Though there is no doubt elementary benefits employers, my experience is that a lack of confidentiality is toxic.

        No doubt, but I think that’s also a symptom of other issues. Notably, either the employer’s tendency to pay vastly different amounts for the same work, or the employee not having a realistic understanding of the value they bring to the table.

        The first order effect is that while the employer might be willing to pay Bob 10% more, they don’t have to be cause Bob is in the dark. In this arrangement, that 10% off error never happens the other way around.

        In any case it’s less of a problem now with salary ranges being reported more and more online. Once everybody knows up front which companies pay above and below average and which companies have big spreads for the same jobs. Just having the information in aggregate is enough for Bob to figure out if he’s working for less than he should be–no need to know that Jill specifically makes way more than he does.

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  7. One of the reasons the software types would be very slow to unionize is that they are aware that the output ratio for most-productive coder to least-productive is at least 10:1. Current pay scales don’t reflect that, and unions are known for flattening the pay scales even more. My experience is that just as 20% of Americans think their earnings put them in the top 1%, 20% of coders think they’re in the elite 1% group of incredible programmers. And those people think that unionizing will mean less money for them, and more for the less-competent. I can’t begin to count how many times I’ve heard that argument made over lunch.

    The problem can be even more extreme in the hard* real-time programming world. I was sitting next to a consultant on a plane many years ago who said his toughest job was, “Convincing management that a single $50K programmer will accomplish things two $25K programmers will never accomplish, because the $25K programmers won’t have the insight into the problem that makes it possible to meet the time constraint. You need to have a couple of brilliant people on staff, and pay them accordingly.”

    * Hard not in the sense of difficult (although it can be), but that there’s a hard deadline by which a particular computation must be finished. Failure to get the result by the deadline is just as wrong as getting the wrong number.

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    • I think that argument is pretty much right on. Even if you’re not in the top 1%, the top 10% of software engineers at a software company are massively more productive than the bottom 10% with pay scales nowhere near reflective of that. Flattening it further will just make it hard to attract anybody in that top 10% unless you’re doing something really fun.

      It seems like the “fairness” thing is purely cultural and we’d do well to get over it. Other industries seem to survive very public salary discrepancies for similar work. Professional sports are a good example. A couple of superstars on a team often make a lot more money than the rest of the team, but the reality is that the famous superstars sell tickets. There may be some bitterness there, but the player seem to acknowledge reality well enough that the teams still function.

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  8. I agree with you on the need to accept apology but Sam is right to note that this really wasn’t heartfelt or sincere. Others have been the same observation.

    http://www.slate.com/articles/business/moneybox/2014/01/tom_perkins_and_the_davos_problem_it_s_time_to_stop_listening_to_rich_people.html?wpisrc=burger_bar

    We also need to work on having a society that does not take umbradge at everything. The Perkins affair was a good example of necessary and correct outrage. Most things are not though and just seem to be professional complainers looking to stoke the fires. The latest I heard was that the conservative blogosphere is angry at some movie critics for disliking Lone Survivor and giving it a bad review.

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      • I’ll go one step further than and say I don’t understand why he’s expected to apologize at all.

        Some guy makes a terrible metaphor and makes himself look like an ass, and by doing so he’s hurt who, exactly, other than himself? Seriously, I don’t get who he’s supposed to be apologizing to.

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      • “I am sorry for making an absurd comparison to one of the most tragic events in human history. No one who has protested against Google busses or the increased expensiveness of San Francisco has ever came close to initiating a Kristalnacht against Silicon Valley.”

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      • You’re still dodging.

        Who is he apologizing to? Who on Earth has Perkins injured, other than Perkins?

        If someone is clearly wrong (and Perkins is, by pretty much everyone on the planet’s agreement) than that person can either admit they were wrong, or stubbornly refuse to do so, and we can make future evaluations about them based on that decision going forward. But I don’t get this whole, “I need a more sincere/different kind of apology” when he hasn’t harmed anyone but himself, and all we really want is for him to say he was wrong.

        Scouring over the apology and demanding a new one feels like we’re trying too hard to take something that should have been a two-minute-at-most news story that’s already gone on days too long, and try to make it go one several days longer.

        Seriously, how many of us even knew who this guy was 72 hours ago?

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      • Who is he apologizing to?

        Well, he could apologize to Occupy, the San Francisco Chronicle, and progressives for a start. They figure prominently in his letter,

        From the Occupy movement to the demonization of the rich embedded in virtually every word of our local newspaper, the San Francisco Chronicle, I perceive a rising tide of hatred of the successful one percent.

        […]

        This is a very dangerous drift in our American thinking. Kristallnacht was unthinkable in 1930; is its descendant “progressive” radicalism unthinkable now?

        If part of having a dialogue is understanding your opponent’s position, then classifying Occupy as “a rising tide of hatred” akin to the Nazis is pretty much an epic fail.

        Basically, “You know what your movement it like? The Nazis!”, a slur that is apology worthy.

        Seriously, how many of us even knew who this guy was 72 hours ago?

        Some editorial pages get more scrutiny than others. The Wall Street Journal would be in the more scrutiny category. Millions of readers means you can expect some of that readership to talk about it.

        take something that should have been a two-minute-at-most news story that’s already gone on days too long

        This is one of the debates of the moment. The persecution of the wealthy, the plight of the innovative makers versus the rapacious takers, the suffering of the job creators… that’s an angle. A billionaire defining himself as analagous to a Jew in Nazi Germany in the pages of the Wall Street Journal is a pretty significant contribution to that discussion.

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      • Creon’s points were excellent. I would also add that he owes an apology to the remaining survivors of Kristalnacht and the Holocaust.

        Comparing your opponents to the Nazi’s is a kind of poor rhetoric technique. Almost everyone recognizes that the Nazis were a uniquely immoral and horrible political group. It shows a serious lack of prospective to compare everything to the Holocaust, Slavery, and Rape. Yet the right-wing at the moment seems to be unable to resist the analogies again, and again, and again.

        My main beef is not with the apology but with the utter lack of self-restraint and seeming unself-awareness at making the comparison in the first place.

        http://talkingpointsmemo.com/edblog/the-brittle-grip-part-2

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      • Eh, that seems less compelling. People have been pulling the Hitler/Nazi/Holocaust/Rosa Parks/Slavery cards pretty much at least since I’ve been of drinking age, and probably a good deal prior. Which is part of why so much of all of this feels manufactured to me. (If I’m being honest, if feels a little Fox&Friends-ish to me.)

        No one else ever has to apologize for playing those cards; I don’t see why we demand that Perkins not only do so but do it “just so.”

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      • Geez Perkins was apologizing to his friends and business associates who he had embarrassed and to protect whatever reputation he has. This is reputation management. That is all it is, its not about a conventional apology when someone feels they have screwed up.

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      • Newdealer,
        the nazis were not unique. they were not any different than ten other groups I could cite, some of which are currently active in European countries.

        They were more Successful. Mostly at keeping records.

        … shit, this really could be a fucking comedy routine.
        Because, by damn, this shit is funny.

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  9. Should CEOs have their pay and benefits limited by law to a percentage of the company finances, or wages?

    No. (I’m on board with taxing them at a higher rate, though, although that doesn’t have much to do with the problem in the OP).

    Should they sacrifice privacy for the power and cash they enjoy (all calls and emails recorded, etc.)?

    Yes. Said recordings should be maintained by the company in question, however, but should be discoverable in a legal proceeding.

    Should we prohibit current C-Suite members from serving on any boards, or just boards in the same industry?

    A CEO should not be allowed to sit on the board of another company, or accept outside contracts, really. I mean, if I had controlling interest that would be a mandatory clause in all my contracts for CEOs. Whether or not that should be a should enforced under color of law, I’m not certain.

    The Board of Directors and the CEO should have much less personal liability protection than they currently have. It’s one thing for the shareholders to have limited liability (which is bad enough, but that’s a conversation for another day), it’s completely reprehensible that an executive should make a decision for which the executive should be held culpable… but if there is a lawsuit, the burden of executing that liability falls back on the shareholders.

    You know, moral hazard. Make ’em put some skin in the game. At the very least, they should be on the hook for their income for the years they were under the employ of the company, including any contract-ending parachutes, golden or otherwise.

    When the CEO of Apple can collude with the CEO of Google to keep wages down, and when (and if) this comes to light the inevitable lawsuit goes against the shareholders of Google or Apple or both and the CEO walks away (at worst) with his or her pay, well, the perverse incentives are pretty starkly laid bare, there, aren’t they?

    If they get caught running a ship and the bosun’s mate is the one whipping the guys belowdecks, I say they get hung with the bosun’s mate. You don’t want the risk, don’t take the job…

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    • I’ll note:

      The possibility that you might lose your personal fortune to a jury decision is probably going to be a better check on your decisions to get involved in these sorts of shenanigans a lot more than an arbitrary list of rules that you can sicc the boys and gals in Legal on, looking for loopholes, like Francis points out, above.

      “If I do this, I’m following the letter of the rules and saving the company money!” == good hard nosed business practices.

      “If I do this and anybody finds out, not only am I fired but a goddamn jury could take away all my money and my house in the Caymans!” == fear of God.

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      • I’m not sure if the threat of a law suit would work. Lots of people think that they will be the ones that got away with it even though people who did similar actions in the past did not.

        Eh, that’s a fair point, but can you imagine what the fallout of this labor price-fixing might look like?

        It would certainly make people pause if Timothy Cook and Steve Jobs’ estate went through a lengthy, very expensive, litigation process, even if it didn’t wind up with a major judgement against them.

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      • Threats of a lawsuit might not work, but Patrick’s talking jury trials where the common folk would be passing judgement on the lords of the manor. It’s the legal equivalent of the stringing up by the toes that proposes up thread.

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    • This would be acceptable to me. As it is, boards & C-suite seems to be far too insulated from bad acts. I’d be happy to hold a board partially liable for a CEOs bad acts (they hired him & are supposed to provide some measure of oversight, after all).

      Jamie Dimond should have had to cough up the fines & losses out of his own fortune, as should the board that supported him.

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    • At the very least, they should be on the hook for their income for the years they were under the employ of the company, including any contract-ending parachutes, golden or otherwise.

      I *really* like this idea.

      The entire point of limited liability is that people should not have to put their personal fortunes on the line when investing in a business. If they invest $1000 in the business, all they can lose is that $1000. There are good reasons for this.

      For some reason, we’ve also decided to shield *executives* from legal liability. But executives aren’t ‘investors’, and they *are* the people who actually commit, or at least order, the crime. (As opposed to the investor, who has no idea…someone with Apple stock had no idea they were doing this, for example!)

      There’s really no reason that executives (1) should be shielded from liability.

      Of course, the problem there is that executives will just buy themselves liability insurance as part of their compensation. So while this seems like a cool idea, it runs smack into the problem that executives are out of control.

      At some point, we’re going to need to require laws saying ‘Stockholders must authorize executive compensation’. Without that, this problem is not fixable.

      1) Or any employees, actually. Although most lower level employees are completely unaware of legal violations, sometimes even if they’re the ones physically committing them. (They assume that management is following the laws.) It needs to be understood that it is not the job of the guy running the paint-making machine in a paint factory to know that some chemical is toxic and not allowed. It is the job of the engineers to tell management that, and it is the job of management to decide not to use it. One or both of them commit the tort, not the guy pushing the button to run the machine or the guy who sold the can.

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  10. So, how else can we handle things like this? Should CEOs have their pay and benefits limited by law to a percentage of the company finances, or wages?

    I would love this. If I was creating my own little experimental utopia, I’d legislate that there could be no more than a 1:10 difference between the pay of the highest-earning and lowest-earning people in any given company. No chance of implementing that in the United States, but it would be great if we could find something along those lines (1:100 ratio?) that companies wouldn’t have an easy work-around for.

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  11. “No One Hates Free Market Capitalism More Than Free Market Capitalists”

    I once had dinner with the founder of a libertarian/free-market environmentalist think tank, on whose board of directors sit numerous captain of industry types. He knows these folks well. I asked him how many businessmen he knew were actually pro-free market. “None!” He immediately blurted.

    It’s a category error to conflate free marketers with capitalists.

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    • Yes and no. Business people want to make money and their preferred system is obviously going to be one that gives them the ability to do so with little or no risk. This will probably take the form of a system where a lot of their activities are heavily subsidized and protected by things like tariffs. If the government agencies helped them by things like turning the other way when they do things like this or oppress organized labor than all the better. However, if they can’t get this than they would probably prefer a free market to the more regulated economy favored by liberals. They won’t get their subsidies or other government help but they won’t face any cost-inducing regulations either and would be free to do with labor as they want for the most part. The free market would be a second preference.

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  12. Re: Culture of Offending and Taking Offensive.

    This is a difficult and tricky question to answer. There are people who do take offense to quickly and there are people seem to offend merely for the sake of offending in a perpetual petulant class clown kind of way. There are also times when it is legitimate to take offense and when being offensive can be a legitimate and artistic tactic as well. There is also the fact that “one person’s vulgarity is another person’s lyric.”

    I also don’t know how to answer the question without acknowledging my own biases and preferences. Obviously as a Jewish person, I find comparisons to the Holocaust to be rather tone deaf.

    My general take is that when people talk about being anti-PC, I take it as a stand in for “doesn’t want to treat people different from speaker with dignity, decency, and respect.” I’ve also mentioned on OT that always placing the burden on the listener makes it easy for people to get away with lots of racist, sexist, anti-Semitic, homophobic and other bigoted remarks.

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    • It would be nice if the anti-offense contingent detailed the last time they faced a truly offensive situation — I mean offensive for them. Do they have any real understanding? Do they have skin in the game?

      Let’s see — today I was in a hospital waiting room because my wife was in surgery, and a group of jock dudebros were staring at me and doing the laughing/nudging/head-shaking thing that shitty dudes do when they notice I’m trans.

      Should I be offended?

      Well in this case I had fun with it and turned up the queer, which is a defense strategy, a little fuck you for the assholes. (Can you tell I hate these guys?)

      I get offended a lot. Do you think you wouldn’t if you were me?

      As if! You guys would crumble in ten seconds if you had to walk in my shoes.

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      • I could be crazy, but having someone make a ridiculous comparison of their suffering with my own seems like it might exist in a different class than having someone staring at me with obvious loathing for my very existence and an intent of intimidating me.

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      • — Fair enough, but there is a pretty blurry line between my offense and the next person’s. For instance, I find the “it’s a joke” excuse rings pretty hollow, when uttered by people who are seldom the targets of loathing, and simply never the targets of loathing by a broad spectrum of the dominant culture. Such people have no perspective. They cannot see why their jokes are offensive, nor do they want to see. But the harm they cause is real.

        If someone says, “Your holocaust comments are offensive to me” — I listen.

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      • but there is a pretty blurry line between my offense and the next person’s.
        Certainly.

        For instance, I find the “it’s a joke” excuse rings pretty hollow,
        Absolutely.

        But the harm they cause is real.
        I’m less sure of that. That is, I think those “jokes” can cause harm in some cases, but more often I think it’s important to distinguish between harm and offense. Again there are blurry lines there, and I don’t mean to imply that the categories are perfectly distinct. And I think–whatever legitimate justification there may be in cases like this–that to let the category of harm bleed over too far into the category of offense puts freedom of speech at risk. (None of that is intended to suggest that sexual harassment is just a matter of offense.)

        If someone says, “Your holocaust comments are offensive to me” — I listen.
        Because you’re a decent person. I’m not arguing that the guy we’re talking about (too lazy to look up the name right now) is decent. I’m not defending him, nor am I saying that we shouldn’t listen to those who call his statements offensive. They are, and should be publicly called out as offensive (also, as stupid and indicating he’s not as bright as he thinks he is).

        But I think demanding an apology, waiting for one, being upset if it doesn’t come or isn’t phrased right, is a self-defeating strategy. We just end up granting the idiots more power over our lives, our happiness and our emotional well-being.

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      • Sorry, but I’m personally the target of too much cruel, lazy humor to see the value in it from those who are seldom the targets of cruel, lazy humor.

        It’s almost as if one’s personal situation and stakes colors their perceptions.

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      • v,
        oh, no, you misunderstand me.
        For that epic rant to actually work,
        it would have to come from someone
        who is trans. And it would be hilarious.

        They say, “My life’s a joke”
        “A joke — as if it’s something to laugh about
        As if I get up every morning and …
        To be HaHa Funny.”

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      • I know a professional trans comedian who does a variant of that routine, at least close enough, under the rubric “You have to laugh to keep from crying.” Then she pours her heart out on Facebook ’cause she can barely stand it and cannot laugh all the time and I want to help but I can’t.

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    • Also, I really wish the anti-offense crowd could see the long-term, grinding, toxic effects of offense culture — all the dudebros joking! Amirite?

      I’m pretty tough, I suppose, by most standards. But this shit breaks people, and if you all think you wouldn’t break, well then you’re young and stupid and haven’t seen much life.

      I break sometimes. It’s a heavy weight to carry.

      (Right now I’m in another forum dealing with a girl who just fucking broke, because of an offensive online comment. She’s crying. It wasn’t a big thing, just another ignorant-ass white cishet guy who laid into her friend about queer stuff. Just words. But today it was too much.)

      Anger is energy. Offense is real, about things that matter. Behind my offense is love.

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      • I think an important thing to understand about offense culture is micro aggressions. Not only are people suffering under the weight of the sledgehammer blows, but they are also facing death by a thousand paper cuts. And I think those things are really hard to understand if you haven’t experienced them. I understand what they are, but I’ll probably never truly understand what it means to experience them. The world affirms me in just about every way imaginable.

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    • Obviously as a Jewish person, I find comparisons to the Holocaust to be rather tone deaf.

      I, as a Gentile, find them tone-deaf, and guess that you, as a Jewish person, are politely understating your actual response. And I would not lecture you for findkng his comments something considerably more than tone deaf.

      But nevertheless offense is something one chooses, in most situations, to take, particularly when the speaker was not addressing the offended party. To speak of the speaker “owing” the offended party, in such a case, seems too presumptuous to me.

      Better, I think, to just note that the speaker has behaved as an ass, and worry not about an apology that us likely to be a carefully calculated insincerity.

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      • In private conservation and events you might be somewhat right.

        I think the work environment is rather different though and that is where my main concern is. Suppose someone was the only person of South Asian origin/ancestry/ethnicity at their work place, should said person just privately note if their co-workers are being asses and making racist jokes or do they have a right to complain to HR. Should employers allow such boorish behavior and just tell minority workers not to take “offense” because taking offense is a choice.

        If taking offense is a choice then so is deciding to tell a crass/tasteless/offensive joke and surely within just as much willpower as taking offense.

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  13. MRS,

    Thanks for the post. This stuff is … irritating. I don’t really have anything to add beyond the great comments already made. It strikes me as a) a real problem which logically follows from b) capitalism for which c) state intervention could be justified. In fact, I wonder if legislation imposing penalties for this type of thing isn’t already on the books tho. Collusion? Price fixing? That sort of thing?

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    • It is illegal, just often damn hard to identify & prove in court (as I understand it, can probably offer more perspective).

      I know I sometimes seem like a bad libertarian because stuff like this gets my inner liberal up & rattling at his cage, but to me, behavior like this is the worst kind of hypocrisy. For years now all I’ve heard is how important it is to not try to control C-suite compensation, that these people are exceptionally talented, the Creme de la Creme, that they deserve every red cent. To then see them collude to actively hold down the wages of their workforce, to distort & control the price/value of other talented people in order to pad their own pockets & make their lives easier.

      It is the worst kind of hypocrisy, and nothing fires me up like hypocrisy.

      I’m willing to tolerate all manner of offensive opinions & lifestyles, but damn-it! You claim it, then you own it & live it.

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  14. Why do we observe so many people who self-identify as libertarian while behaving in ways that are inconsistent with libertarianism? I submit the answer depends on a concept I like to call intellectual cover, which I’ve cobbled together after reading too much Robin Hanson.

    People like to think they are good people. They certainly like other people think they are good people. For this reason people want to portray their nakedly self-serving actions as being other than nakedly self-serving (not only to others but also to themselves). The best way to do that is to find a system of thought that justifies your actions and just say you’re a believer in it (if you’re fooling yourself you’ll actually become a believer in it). So someone who wants to believe they’ve earned every dollar they make will be attracted to a system of thought that holds that wage rates tend to map closely to Marginal Product of Labour, even as they undermine the very system that creates that mapping. Libertarianism acts as intellectual cover for a desire to be as rich as possible. I suspect this is the reason why Objectivism is so appealing to assholes.

    To see the same phenomenon in a different context, consider Keynesian economics. Keynesian stabilisation theory advocates running deficits in recessions and then running commensurate surplus in good economic conditions so as to try and even out the business cycle. The funny thing about this idea is that it’s popularity in political circles is cyclical. Even funnier, that cycles seems to follow the business cycle. For some strange reason politicians start to get really interested in Keynes when there’s a recession on, only to drop the concept like a hot rock once economic conditions improve. A suspicious person might wonder why politicians develop an interest in Keynesian economics at the precise moment when it recommends that they spend as much money (and cut as many taxes) as possible, but I couldn’t possibly comment.

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  15. It’s not often I get to wave my libertarian flag with no risk of being subjected to the “FYIGM” smear by some left-wing yahoo, but as a tech engineer, all I can say is “Meh.” These companies collectively represent a small fraction of the market for software engineers, and we get more recruiters than we know what to do with. They may have agreed not to compete with each other, but they still had to compete with everyone else or risk losing the best talent. In the long run, you can’t fight economics.

    To be clear, this doesn’t make me look favorably on these companies, but I don’t see this as a reason for government to step in.

    The bulk of STEM workers wear multiple hats, working across a range of disciplines that should be improving our monetary value. But as many of us have found, our wages have been stagnating for the past 20 years or so.

    I’ve seen no indication that this is true in the software industry. Maybe if you compare total compensation (salary + stock) to the height of the Internet bubble, but that was nuts. For other STEM occupations, I think it’s primarily a supply and demand issue. You’re going to be hard pressed to tell a story where the sector closest to this scheme is the one affected the least.

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    • Actually it does hurt the whole STEM market.

      If I am a hiring manager at Microsoft, and Google, Apple, Adobe, Intuit, HP, & a whole host of other major players in my market are actively keeping wages down among themselves, then what incentive do I really have to offer more to a prospective employee? All the big names are actively keeping their wages low, but this is not public knowledge, so one can claim that the market has spoken and this is the going rate.

      This subsequently bleeds over into other STEM markets. Engineering wages tend to be on parity with Software development, so again, if major players, even if in name only, are keeping Software Engineer wages down, other STEM fields will factor that information into their salary tables.

      IMHO, this was all going to start falling apart in the next decade anyway, unless the government greatly expands the foreign worker visas, because almost every other engineering discipline is facing a nasty wave of looming retirements. The wave would have already hit, except the recession has pushed a lot of the planned retirements back. As the Pensions & 401Ks come back to life, those engineers will take their leave, and there are not enough currently in the market to replace them (a lot of younger engineers got their MBAs or JDs & switched careers, or became stay-at-home parents because their partner made more than enough, etc.).

      Right now, companies are panicking, especially companies that do ITAR work, because they do not have anywhere near enough young blood in the house. My former employer, one of the largest employers of engineers in the world, had maybe 1 young engineer for every 5 older ones, and they had a hell of a time keeping the young ones from leaving.

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      • If I am a hiring manager at Microsoft, and Google, Apple, Adobe, Intuit, HP, & a whole host of other major players in my market are actively keeping wages down among themselves, then what incentive do I really have to offer more to a prospective employee?

        Below the market-clearing wage, the market will not clear. That is, if wages are below marginal productivity, employers will want to hire more workers at that price. But if wages are below market-clearing levels, there will be some point at which employers want to hire more workers, but will simply be unable to find any at the going rate. Their only option, to get the workers they need, will be to make a better offer.

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      • It always seemed to me like we could solve a lot of the problems associated with H-1B visas by selling and reselling them on an open market. Hire anybody you want, but for them to start work you’ll need an H-1B “credit” for them at whatever the market rate is.

        Systemic underpayment becomes less of a problem because the price of the H-1B would be at least equal to the average underpayment. You could learn a lot about the state of the market by looking at the market price of the H-1Bs at various maturities. You could let people purchase their own H-1Bs to have the freedom to float easily from company to company. Best of all, we wouldn’t waste visa slots on boneheads. They’d actually go to the most valuable tech people instead of sending a $300K genius home while giving a visa to a lucky recent grad who can barely code.

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  16. In answer to the post, I don’t think this is an area where regulation is the proper tool.
    Its not a structural problem- as others have pointed out, this was already regulated, and illegal.

    Asking what regulation might fixt this is like asking what regulation we can enact that will solve the problem of purse snatching or burglary. This was a crime, plain and simple. The people who did it are criminals.

    What can help here is enforcement. How well funded are the agencies with power to investigate, and prosecute these crimes? What sort of tools do they have at their disposal? How rigorous are the penalties?

    If CEOs actually had a sense of fear and anxiety about breaking the law, they might do it less.

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