Relevant and even prescient commentary on news, politics and the economy.

On the surge in CEO compensation

Economic Policy Institute has published a new study on the surge in CEO compensation:

Summary

What this report finds: This report looks at trends in chief executive officer (CEO) compensation, using two different measures. The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000). The gap between the compensation of CEOs and other very-high-wage earners is also substantial, with the CEOs in large firms earning 5.5 times as much as the average earner in the top 0.1 percent.

The surge in CEO compensation measured with realized stock options was driven by the stock-related components of CEO compensation (stock awards and cashed-in stock options), not by changes in salaries or cash bonuses.

Because the decision to realize, or cash in, stock options tends to fluctuate with current and potential stock market trends (as people tend to cash in their stock options when it is most advantageous to do so), we also look at another measure of CEO compensation, to get a more complete picture of trends in CEO compensation. This measure tracks the value of stock options at the time they are granted. By this measure, CEO compensation rose to $13.3 million in 2017, up from $13.0 million in 2016.

By either measure, CEO compensation is very high relative to the compensation of a typical worker—and an earner in the top 0.1 percent.

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Politico End Zone Dance

(Dan here…Lifted from Robert’s Stochastic Thoughts)

Politico End Zone Dance

The cover article of politico is a concession by Blake Hounshell that he was wrong and that I and many others were right. I enjoy a little end zone dance in comments

The case is overwhelmingly convincing. Also none of the critical evidence is new. As you now are no longer a russiagate skeptic, you should concede that you were foolish in February. All the (100% convincing) arguments you present here were valid then and made by many many people (including me in a twitter tiff with you).

You still insist on your personal definition of the word collusion to mean … well I don’t know what but it has nothing to do with the dictionary definition “secret or illegal cooperation or conspiracy to deceive others” or common usage.

Nothing in the definition or common usage implies that collusion must be competently executed to be collusion nor must it be well organized, effective or successful. The assertion that the Trump campaign was not competent enough to collude is a catagory error. It was convenient to Republicans some of whom are shameless enough to use a plainly invalid argument when they have no valid argument.

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My extended take on housing permits and starts at Seeking Alpha 

My extended take on housing permits and starts at Seeking Alpha

– by New Deal democrat

My long-form take on housing sales, updated with yesterday morning’s housing permits and starts report, is up at Seeking Alpha.

Like my Weekly Indicators posts, I make a penny or two when you decide to read.  So decide to read!

Also worth mentioning: my overall view of housing differs somewhat from that of Bill McBride a/k/a Calculated Risk.  Like Bill, I don’t think housing has already peaked.  But unlike Bill, I see inventory as the tail, rather than the (a?) head. “Months’ inventory” typically turns up precisely because sales turn down, so doesn’t give me any new information. Also, Bill is really focused on the demographic tailwind, and on “pent-up demand.”  I’m not sure about the latter, since the bubble years where 2+ million units were added a year, coincided with the demographic *nadir,* i.e., there was a lot of excess housing to be absorbed. As to the former, high enough interest rates and prices will be enough to overcome it. I don’t think we’re quite there – yet.

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Accountable Capitalism Act

It’s called the Accountable Capitalism Act.   Here’s the bill text.

Yves Smith has a take on this…lots of talk in the news econ sections:

Elizabeth Warren introduced her Accountable Capitalism Act in the Senate yesterday and set forth the logic of her bill in a Wall Street Journal op-ed. The Massachusetts senator described how as recently as the early 1980s, even conservative groups acknowledged publicly that corporations were responsible to employees and communities as well as to shareholders. And as we’ve written, and is implicit in the Warren article, there is no such thing as a legal obligation to “maximize shareholder value”. It’s simply an ideology that has become widely accepted, even as some of its most prominent advocates, such as Harvard’s Michael Jensen, have since renounced it. But this practice has become so deeply embedded and so damaging that it will apparently take a change in rules, or at least a credible and live threat to do so, to change behavior in boardrooms and the C-suite.

We documented in the early 2000s that the cost of shareholder-fixated short-termimsm was that corporations as a whole were net saving, as in not investing, which was a disturbing departure from long-establihed norms. Corporate priorities have become even more warped in the post-crisis era as companies borrowed to buy back stock.

Warren highlights how “shareholders come first” doesn’t look to have been very positive for anyone save corporate execs who have asymmetrical pay deals. They get paid handsomely even in the face of so-so to lousy performance, and are paid egregiously if results are good.1

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Weekly Indicators for August 6 – 10 at Seeking Alpha

Weekly Indicators for August 6 – 10 at Seeking Alpha

– by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Two long leading indicators are within 1% of turning negative. And two short leading indicators are also weakening considerably.

A friendly reminder that not only is the post informative, but I get compensated the more people read it, so by all means please read it!

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Empires, Past and Present

by Joseph Joyce

Empires, Past and Present

Economists rarely write about “empires,” unless they are referring to historical examples such as the Roman empire. But Thomas Hauner of the Federal Reserve Bank of Minneapolis,  Branko Milanovic of the Graduate Center of City University of New York and Suresh Naidu of Columbia University have presented a study of empires using criteria drawn from an economics classic, John Hobson’s Imperialism (1902). The same criteria can be used to examine whether any empires exist today.

Hobson was not a Marxist, but his work greatly influenced later Marxist writers who wrote about imperialism, including Vladimir Lenin, Rudolf Hilferding and Rosa Luxemburg. Hobson believed that there was chronic underconsumption in advanced capitalist countries due to unequal distributions of income. This lowered the return on domestic investment, and as a result the owners of financial capital turned to foreign markets where returns would be higher. These investors relied on their governments to guarantee the safety of their foreign holdings from seizure.

Hauner, Milanvic and Naidu demonstrate that there was a high degree of inequality within the advanced capitalist countries in the late 19th century. The foreign assets held by wealthy investors in Britain and France expanded greatly during this period, and these assets generated rates of return higher than those available from domestic investments. They also present evidence of a linkage between the accumulation of foreign assets and militarization that led to World War I. These results are consistent with Hobson’s work.

Hobson’s empires established positive net international investment positions (NIIP) and received income from these foreign investments. The payments appear in the current account of the balance of payments as “net primary income.” This component of the current account records the difference between payments received by domestic residents for providing productive resources, such as their labor, financial resources or land, to foreigners minus the payments made to foreigners for their productive resources made available to the domestic economy. For most countries, receipts and payments on financial assets are the largest component of their net primary income.

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Four Definitions of Money. All Correct

By Steve Roth  (originally published at Evonomics)

Four Definitions of Money. All Correct

Money makes the world go round. That may well be true, but money certainly makes the economics world go round. It’s the discipline’s special purview, the numeric linchpin that gives economics its dominant role and voice in our affairs. It’s what makes economics seem so “objective” compared to other social sciences.

Given that, it’s remarkable that economists don’t have an agreed-upon definition of the word. Sure, there’s the three- or sometimes four-part “money serves as…” non-definition that you learn in Econ 101. But in practice, what you see is a hodge-podge of unstated and shifting meanings in economic discussions.

The problem is, there are multiple, perfectly valid, widely-used meanings for the word. They’re all “correct.” The challenge is to be clear on each of those meanings, and on which ones are being used in a discussion.

Here’s a shot at that defining those commonly-used meanings, and the relationships between them:

money. n.
1. A  technology invented ca. fourth-millenium BCE for tallying up the value of diverse ownership claims, and designating prices, numerated in arbitrary units of account. “What’s the summed-up value of two goats plus three chickens?”

2. Wealth: the sum of tallied balance-sheet assets (see #1). Ask a real-estate tycoon or mutual-fund investor, “How much money do you have?”

3. Financial instruments whose market prices are institutionally pegged to a unit of account. Fixed-price instruments: physical cash, checking and money-market balances, etc. (The price of a dollar bill or a one-dollar checking-account balance is always one dollar.) A subset of #2. “How much ‘cash’ do you have in your portfolio, on your balance sheet — assets/instruments whose prices never change?”

4. Coins and currency. Physical tokens representing balance-sheet assets, which make it easy to transfer those assets from one balance sheet to another. A subset of #3. “How much money do you have in your pocket?”

The second definition bears examination: does this widespread usage fit with another intuitive, vernacular sense of the word — “Stuff I can use to buy stuff”? It doesn’t seem to; you can’t buy a car with shares of stock (much less the reverse).

“You can only buy stuff with #3 and #4 money. That’s my definition of money. So by (my) definition, #2 money isn’t money.” But in practice, in our liquid financial system, you can easily swap some of your Apple shares for “cash” (#3 money), and swap the cash for a car.

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