Quantum of What?

Doug has performed a great service over the summer by organizing a readings group on the Economics of Moral Sentiments in which the first reading was, not surprisingly, the entire Theory of Moral Sentiments by Adam Smith.

As we reached a particularly meaty section near the end of the book, and over lunch discussed areas for future study such as corporate governance and "social" versus "fiduciary" responsibility, we had a lively discussion over how the concept of "equality" enters into economic policy. With apologies to the other members of the group for any over-simplifications or omissions, here's a laundry list of interesting ideas that catapulted around the room.

1 ) Is there or should there be any difference on how we view corporate executives who earn large compensation because the company they manage is doing very well (through, for example, incentives aligned through stock ownership) versus corporate executives who are paid large bonuses when the company they manage is going into the tank?

2 ) While question number 1 ) above has apparently entered the political radar screen from both political parties, why is this viewed a political issue instead of, above all, a shareholder issue? If I'm upset as a voter about Mr. or Ms. X getting a fat golden parachute to leave a company that's been run into the ground, why shouldn't I be even more upset as a shareholder? Corporations are, after all, voluntary associations of capital providers, operating under a great deal of government oversight in return for various liability limitations. As someone who has helped to incorporate a non-profit corporation, I know that the bylaws of a corporation --- the rules of governance --- aren't just incidental trivia to the incorporation process. Why don't we have more discussions about the public choice issues to shareholders of corporate bylaws?

3 ) "Equality" is by itself a loosely defined and extremely fluid concept. Equality between whom, and upon what dimensions?

4 ) Following up on 3 ) how many Americans actually believe in equality of either income or wealth as something that has a prior claim in it's own right? To make this concrete, what proportion of Americans would favor the force power of government being used to take either income or wealth from the "wealthy" and destroy it, simply for the purpose of making the gap between the "rich" and the "poor" smaller? Before you, the reader, argue that this is a silly scenario, consider the ongoing debate over the appropriate level of the tax on capital gains tax. The tax on capital gains appears to be one of the best examples of a tax that can actually provide less income to the government when the tax rate is raised by a modest amount. The reason is that it is relatively easy for stockholders to avoid making positive capital gains by rearranging their decisions about when to sell stock. One of the two major party Presidential candidates has already indicated that, for fairness reasons, he might favor an increase in the capital gains tax rate even if it meant that the government received less money.

5 ) Do Americans' views on this issue change when the abstract idea of "the rich" is replaced with a specific person from the world of sports or entertainment (Tiger Woods, Michael Phelps, Christian Bale, Brett Favre, Buster Posey)? We apparently crave inequality on the field and on the screen. No one seriously has argued that Michael Phelps ought to swim with weights attached. What about when these talented individuals earn CEO-like salaries, signing bonuses, or endorsement contracts?

6 ) Do the views of Europeans on questions 4 ) and 5 ) differ from the views of Americans?

7 ) Is there any support for an alignment of the Biblical concepts of justice with an outcomes-based rule of equality if it is the government that is supposed to (attempt) to enforce the required redistribution? I can't find a lot of support for that proposition. I just went to BibleGateway and searched on "equality" in several different translations. The only resource-based reference that repeatedly arose was Paul's exhortation for private assistance between the more well and less well off churches, with the explicit idea that the flow would reverse if the situations were reversed. "Then there will be equality" (2 Corinthians 8:14, NIV).

What I see in the Bible is a whole lot of discussion of:

A ) Unjust means of acquiring wealth, with particular emphasis on deceit, cheating, stealing, and corruption of legal and religious institutions.

B ) Unjust insensitivity of those who have wealth in ignoring those "marker" members of society who need assistance: orphans, widows, invalids, prisoners, aliens, those living through natural disasters, and so forth.

(I will leave for a future post a discussion of what the Biblical authors meant when they used the term "the poor". The original language words translated as "poor" apparently have meaning beyond "very low income individuals".)