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On wealth April 13, 2007

Posted by Sharath Rao in America, economics, life.

Most interesting thought today:

In the United States, the CEO of a large public company makes about 100 times as much as the average person. Basketball players make about 128 times as much, and baseball players 72 times as much. Editorials quote this kind of statistic with horror.

“Are they really worth 100 of us?” editorialists ask. Depends on what you mean by worth. If you mean worth in the sense of what people will pay for their skills, the answer is yes, apparently.

It may seem unlikely in principle that one individual could really generate so much more wealth than another. The key to this mystery is to revisit that question, are they really worth 100 of us? Would a basketball team trade one of their players for 100 random people? What would Apple’s next product look like if you replaced Steve Jobs with a committee of 100 random people? These things don’t scale linearly. Perhaps the CEO or the professional athlete has only ten times (whatever that means) the skill and determination of an ordinary person. But it makes all the difference that it’s concentrated in one individual.

When we say that one kind of work is overpaid and another underpaid, what are we really saying? In a free market, prices are determined by what buyers want. People like baseball more than poetry, so baseball players make more than poets. To say that a certain kind of work is underpaid is thus identical with saying that people want the wrong things.

No, Paul Graham who wrote this is not the CEO of Exxon, he is a computer scientist ( and by definition therefore) not your not so favorite millionaire. 🙂

Yeah, if even I get a chance to grumble why I am paid less than my company’s head, I will remember to ask myself how many jobs I have created, risks I have taken and if my mistake will lead people to lose their jobs and intense media scrutiny and the like. I remember that quotation I read somewhere :

For the world, you maybe somebody. But for somebody at least, you are the world.

As I write this I realize that even the following is true –

For somebody, you maybe the world. But for the world, you are just a somebody.

In terms of the influence we have on the way the world works, most of us have very little of it. Coming to think of it, its much less headache. 🙂

Hence the striving for equality of opportunity, not equality of income. Equality of wealth is unjust unless we are all born with the same talent in every sphere of activity and every sphere of activity is equally valuable to every body in the world. Such a day can be envisaged thus :

The day when people ( who are all equally smart physicists ) will enjoy watching a random person ( who is as smart a physicist as the audience is ) perform electron collision experiments as much as they would enjoy people playing basketball.

Right time then that as I was writing this post, I get this mail from Sanjika.

Meanwhile, headline of an article at Hindustan Times : Indian-American group plans to raise $5 bn for Hillary

In reality :

Confident of topping the list of fund-raisers among ethnic groups, an Indian-American grouping has aimed to raise at least USD five million for Hillary Clinton’s presidential campaign.

Lost for words uuh..



1. MMS and the PDS « Epistles - May 25, 2007

[…] Update: My previous post on CEO pay and wage differentials. […]

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