So, Talent Matters After All

Chess Grandmaster Judit Polgar

Professors David Hambrick and Elizabeth Moss, in their op/ed piece, Sorry Strivers: Talent Matters, review the literature about skill acquisition. The idea that putting in 10,000 hours of practice is the key component of success, popularized in Malcolm Gladwell's book, Outliers (excerpts here), and that practice matters more than intelligence once you have reached a minimum intelligence threshold has become "enthusiastically championed."

Hembrick and Moss disagree. They write: "Research has shown that intellectual ability matters for success in many fields — and not just up to a point."

A longitudinal study by Lubinski and Benbow compared the accomplishments of youth that scored in the 99.9 percentile of SAT score versus those that scored "only" in the top 99.1 percentile. Those in the 99.9 percentile

"were between three and five times more likely to go on to earn a doctorate, secure a patent, publish an article in a scientific journal or publish a literary work. A high level of intellectual ability gives you an enormous real-world advantage."

Similarly, Hembrick and Moss have found that working memory capacity predicts better performance in music sight reading and other complex activities.

The research doesn't mean that practice is unimportant. It just must be balanced by the fact that talent matters too.

I find this research to be comforting. I no longer need to blame myself for not becoming a chess master or marimba virtuoso. I no longer need to say to myself, "Ah, if I had only practiced longer." I didn't have enough natural ability to be a star, but I put in enough hard work in these fields to be competent.

What the Names We Pick Tell Us About Ourselves

Google searches help parents choose names, according to the New York Times', What’s in a Name? Ask Google.  After looking at specifics for a particular name, many are drawn to the Social Security Administration's website. It allows you to check the popularity of names over time. You will find on the SSA's website the following list:

Top 10 Names for 2010

Rank	Male name	Female name
1	Jacob	Isabella
2	Ethan	Sophia
3	Michael	Emma
4	Jayden	Olivia
5	William	Ava
6	Alexander	Emily
7	Noah	Abigail
8	Daniel	Madison
9	Aiden	Chloe
10	Anthony	Mia

Name data are from Social Security card applications for births that occurred in the United States.

As the Times' article states, some parents want a popular name and some want a more unusual name, as long as it isn't too weird. You couldn't be more of a conformist over the years than by picking my name, Michael. It's been the most popular name in the country from 1954-1959 and 1961-1998. My mom picked Michael because she liked the sound and ethnicity of the name. She didn't do a Google search, and try and find a name that would let me vanish in the crowd.

Can we learn anything about our preferences from the list of names? Indeed, we can. It is quite interesting that four of the ten boys' names on the 2011 list (Ethan, Michael, Noah, and Daniel) are mentioned in the Hebrew bible. The popularity of the ancient Greek name Alexander, derived, of course, from the most famous Alexander (the Great), the conqueror that changed middle eastern history, is popular with Jews, but is not a religious name. Anthony is derived from the Christian Saint Anthony (the Great, the Hermit, or of Kiev, all important Christian leaders). Aiden is an Irish pagan name. William is from the German Wilhelm and also from the Norman invader, William the Conquerer, and Jayden is a hybrid of Jay and Hayden, coming on on the scene from nowhere less than 20 years ago.

In summary, the great majority of currently popular male names are  based on either religious figures or generals.

Only one of the girls' names, Abigail, is from the Hebrew bible. The rest of the girls' names come from all over and show no consistent pattern.

It seems that we want either saints or strongmen for our sons. We are not as interested in profound meaning when naming our daughters.

Peace in the Middle East? Not in our Lifetimes!

Jerusalem, Israel

I was disappointed but not surprised to read the November 1, 2011 headline "Abbas says he'll never recognize a Jewish state." Read the article here. No Palestinian leaders have engaged in serious negotiations with Israel, and the only border state that has, Egypt, has seen its leader, Anwar Sadat, assassinated by Islamic fanatics.

The previous Palestinian strongman, arch terrorist Yasser Arafat, whose picture stands prominently in Abbas' office, spoke about recognizing Israel to English audiences but said something altogether different to Arab audiences and rejected the Oslo accords and the Clinton peace agreement and its famous handshake on the White House lawn. Even Palestinian tourist sites show Palestine from sea to sea. Israel is not on these tourist's maps.

The state department considers Abbas a "moderate" Palestinian, and he is compared to his rivals in Hamas. They propose a "final solution" of killing all the Jews. Publicly, they propose killing only some of them. (See an articles here and here.) So the "moderate" will never recognize Israel, and the extremists want to kill. There is not much to work with here.

Abbas has backed his words with action, planning to go around negotiations with Israel by seeking full United Nations membership, emboldened by their recent acceptance as a member of UNESCO. (Read the article here.)

Israel has no partner for peace, and should act accordingly, unilaterally setting defensible borders. American policy should reflect political realities, not tooth fairy wishes, and the United States can quit trying to be an "equal partner" to both sides. We certainly should not continue to fund the Palestinian Authority. Instead, the United States should support Israel, democracy, and civil rights, opposing Sharia law and theocracy, which are becoming more common in the Muslim world. We can let the Islamists speak for themselves:

“I want to say: citizenship restricted by Islamic Shariah, freedom restricted by Islamic Shariah, equality restricted by Islamic Shariah,” he [Sheik Shahat] said in a public debate.

Grand fundraiser for Islamic extremism, Saudi Arabia, teaches hate to its school children. Saudi textbooks teach annihilation of Jews (link here). Saudi money makes its way to Palestinian extremist groups.

Jews have waited a long time for the State of Israel, from the Hasmonean dynasty until 1948, around 2,000 years. After the Roman conquest it took two Millenia to see a free and independent Israel again. It may take a few hundred years before the Palestinians put peace and the welfare of their people before their rigid claims: a Palestine stretching from the Mediterranean to the Jordan river. Instead, Israel and the United States should be patient and firmly rebuff Palestinian demands. The United States and Israel can work together and tackle other world problems and issues of mutual interest such as creating renewable energy, increasing irrigation and potable water, and discovering new uses for technology (see link).

It appears that the Obama administration does not agree. In response, Jewish voters are starting to question allegiance to Obama and are starting to break away from him. Obama tries to defend his record here. But here is a good rebuttal to his ridiculous statements saying he is a great friend of Israel. If he gets voted out of office, I expect he will turn on his Israeli friends. Obama will reappear as a Mr. Hyde, or as a Mr. Shahat-alike, similar to the transformation of Jimmy Carter to a pro-Palestinian activist.

Reasonably "Good" Scores--Grading Obama's First Term

As a high school teacher I reserve the right to grade anyone, so I might as well grade the most powerful man in the free world. Everyone else is grading the president on economic performance, saving the environment, and foreign policy, so I will choose my own criterion.

Style: B+
Obama is tall and thin. He looks good in a suit and walks stiffly and regally--kind of like those Wall Street bankers he likes hates so much. He should  keep smoking those cigarettes.and stay trim.

Physical Education: C+
Why doesn't he stick to basketball? He's reasonably good at hoops. Instead he plays golf with like those Wall Street bankers he likes hates so much. He gets high scores for playing golf at every opportunity, 88 times so far in his term.

Vacationing: A+
Obama has spent $6 million for lavish vacationing in Hawaii alone. He knows how to relax and have a good time. His planned 17-day December to January 2012 Hawaiian vacation ended up mostly enjoyed by his wife, but he will still spend $4 million this time. Maybe he will give a few speeches on government waste, but he will get a needed break from the strains and grueling hours of his work in the White House. He better tell Congress to stop taking holidays and get back to work!

Overall: B+
As long as the American people grade the president on style, physical education, and vacationing, he gets good scores, much better than Hillary Clinton.

Gap Between Rich and Poor Widest in Berkeley

Communism still exists--not in Eastern Europe but in Berkeley, California. Thus I was intrigued when I read the New York Times article, Gap Between Rich and Poor in Area Is Widest in Berkeley.  Instead of planning protests about American foreign policy, maybe the aging Marxists should take a look in the mirror. Alas, I wasn't able to bask in schadenfreude for long. The NYT analysis has two major errors.

Mr. Berube’s research has shown that the area of central Berkeley bounded by University Avenue and Oxford Street [pictured partly in the background of the photo above--MS] has one of the highest concentrations of poverty in the Bay Area, on par with perennially distressed areas like West Oakland and the Bayview Hunters Point neighborhood of San Francisco.

The University of California hosts about 30,000 students, most who live as close to campus as possible, that is, in central Berkeley. (The population of Berkeley is about 100,000.) Most college students live under circumstances of near-poverty, especially Cal's 10,000 graduate students. (As a Cal undergraduate, I survived off an income of less than $5,000 per year.) Mr. Berube is describing much of the student ghetto. I don't think these kids getting PhD's in engineering will be impoverished for long. All cities have chronic poor, those on the way up, and rich people. Berkeley has its poor, but the students shouldn't count as part of the city's Gini (inequality) score.
 Secondly, the reporter writes

Other observers said income inequality persisted in Berkeley because the city’s most progressive policies had been blocked by higher authorities. In 2009, for example, the California Supreme Court let stand a ruling voiding ordinances that require developers to set aside units for low-income residents when they build new apartment complexes.

Huh? Since developers weren't forced to build for low-income residents, fewer poor people were able to live in Berkeley, making incomes more equal, not less. Berkeley's "progressive policies" have nothing to do with income inequality.

But Councilman Kriss Worthington said officials were not giving up in efforts to reduce inequality.

I'm sure the Berkeley government will find ways of poorly combating a non-issue. After all, it is Berkeley.

Review of "For Better: The Science of a Good Marriage"

I enjoy taking my kids to the library and perusing the stacks while they pick out their books and videos. Since my graduate work was in psychology and I am always intrigued by what research has to say about relationships, I was happy to come across science journalist Tara Parker-Pope's new book on marriage.

I am not married but found the book to be quite useful in finding ways to improve my relationship with my significant other. I explored, throughout the book, what the latest scientific studies conclude about the benefits of marriage, why relationships go sour, and what to do to improve your situation with your partner. Just about anyone that wants to improve their relationship or is contemplating marriage or divorce will benefit from the research in For Better.

The book is divided into three sections. The first section discusses the benefits of getting or staying married. The second section diagnoses the health of your relationship and how to improve it, examining typical areas of conflict. The third section guides you in giving your relationship a checkup. An appendix of 19 diagnostics gives the reader an opportunity to test his or her levels of passionate love, happiness of the marriage, likely areas of conflict, issues with money, marriage equality, boredom, and more.

My favorite sections of the book were the author's analysis of divorce rates (which are not as bad as I believed); how marriage in general and fights between marital partners impacts one's health; and proper rules for engaging in the inevitable marital spats.

The author's website is http://authors.simonandschuster.com/Tara-Parker-Pope/45635796/biography
She blogs on wellness issues for the New York Times.

Crime and the End of Cheap Food

Please see the PDF document "foodprices," Crime and the Price of Wheat in 14th-Century Norfolk, England here. The linked chart is from Sherman et al., World Civilizations, Sources, Images and Interpretations, V.I, 4th ed., McGraw-Hill, New York, 2006. It shows a strong correlation between the price of wheat and number of crimes committed in Norfolk.

If we make the reasonable proposition that human nature has not changed much in 700 years, we have much to worry about.

Michael Pollan has inferred that low food prices have kept the American middle class from revolting against the politicians, since middle class incomes have stagnated over the last decade. (See The Food Movement, Rising here.) In fact, he claims that cheap food is at least partly responsible for low wages.

Well, the cheap food party is over. The nanny state looks to raise prices by taxing what it considers "unhealthy." (See my satirical post on the subject here.) Additionally, global food prices are being pressured upward by voracious demand from Asia. Produce and cereal prices have risen astronomically in the last few years, and I see few reasons for that long-term trend to change. As we move past peak oil and energy and fertilizer prices increase, it costs more to grow food. Lastly, national US debt has swollen 40 percent higher over the last three years, (see the link here) and that will lead eventually to higher inflation and higher food prices. Unfortunately, desperate times lead to desperate people in both the 14th and 21st centuries.

I'm not the only one that senses impending problems.

A chain of three stores that sells survival food and gear reports a jump in sales to people who are getting prepared for the “possible collapse” of society.

See the article here.

Health Care Trade-offs and Potential Savings

                                                     Equity-efficiency trade-off

The higher the efficiency, the lower the equity, and the lower the efficiency, the higher the equity.

If health care was purchased without insurance, only the rich could afford the best care. Most people could afford some care. Equitable insurance for all reduces efficiency, however, and more health care is purchased than is needed by society, and it is purchased at higher prices. People with insurance spend too much money on health care. We could save money by banning insurance for all but the most expensive procedures. People would use only the health care they needed. However, it is highly unlikely that the American people want to go back to this type of system.


                                                     Cost-access trade-off

Similar to the equity-efficiency trade-off, the greater the access the greater the costs, and the less the access the less the costs.

The more people have access to health care, the higher the costs society will pay. Medicare and Medicaid spending is taking more and more of taxpayers’ dollars. Medicare and Medicaid costs can only be slowed by limiting access such as by using government panels to decide who gets care. Eventually, this will happen since Medicare and Medicaid are threatening to become the biggest spending items in the federal budget, pushing out spending for national defense and social programs.

                                                      Magic bullets?

Can everyone have access to world class health care without paying world class prices for it? According to health care expert and New York Times columnist Ezekiel Emanuel (Less than $26 billion? Don't Bother.), if an idea saves less than one percent of costs ($26 billion), it's probably not worth pursuing. For example, less than one half of one percent of costs ($26 billion) can be saved by accounting for and confiscating all the profits of health care companies ($11.7 billion). Similarly, savings from expanding generic drug use is likely to be small relative to total spending on drugs. Importing drugs from Canada doesn't add to much cost savings either ($5 billion per year). Emanuel writes that a 2009 study by the Congressional Budget Office on malpractice reform concluded that a package that among other features, capped punitive damages to $500,000, would save about $11 billion a year, less than one half of one percent of costs. Lastly, all the "million dollar babies" added together account for less than one half of one percent of costs. So where is the cost savings?

                                                     Real Cost Savings
Emanuel writes (Billions Wasted on Billing) that the real cost savings can be found by using electronic billing and credentialing--saving $32 billion a year. That's way over one percent of total costs and would make a difference to doctors, patients, and the government. Secondly, by using concierge care (high touch medicine) and bundling services (Saving by the Bundle) for the sickest ten percent of patients (who use up 64% of the costs)--we improve these patients' care and avoid sending these patients to the emergency room multiple times. Payment is "bundled." All "the bills are rolled into one standard ... charge" for a procedure, instead of the standard charge by fee for each doctor. All doctors and administrators must work together.

They have a strong incentive to eliminate unnecessary tests and treatments and use less expensive implants, drugs and devices that don’t compromise quality, and to prevent infections and other complications that could land the patient back in the hospital.

Emanuel believes that $80 billion is a low estimate of cost savings from bundling. That's more than three percent of costs.

The New Deal and the End of the Great Depression

When I’m on the stationary bicycle I enjoy reading my girlfriend’s New Yorker magazines. San Francisco Bay Area weather was beautiful this summer, so I’ve been running outside and spending less time on the stationary bike. Alas, now I’m three months behind on the magazines. Reading the May 24 issue, I was flabbergasted by lawyer and author Jeffrey Toobin’s article, Activism V. Restraint . Toobin writes about FDR’s failed court-packing initiative, but how he, in the end, made eight Supreme Court nominations. That “is what guaranteed that the federal government was able to address the economic crisis.” The author then relates this history to the problems facing Obama’s legislation.

FDR certainly addressed the economic crisis with New Deal legislation. Let us scrutinize how well these Keynesian programs worked. FDR was president from 1933 to part of 1945. I have collected below the unemployment rates of the years of the Great Depression—late 1929 to 1941 or so.

Year and Unemployment Rate

1923-29 3.3 %, 1930 8.9 %, 1931 15.9 %, 1932 23.6 %, 1933 24.9%, 1934 21.7%, 1935 20.1%, 1936 17.0%, 1937 14.3%, 1938 19.0%, 1939 17.2%, 1940 14.6%, 1941 9.9%, 1942 4.7%

(Source Bureau of Labor Statistics: http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm)

I think we can make three conclusions. First, the unemployment rate did go down, and the number of people employed rose (with the exception of the 1937-1938 period). Second, the unemployment rates were still very high throughout—the best unemployment numbers, eight years after FDR had taken over and twelve years after the depression had started, were approximately the same as what our country is experiencing now. Third, the United States enjoyed full employment only after we started equipping the Allies and mobilizing for WWII. That crisis had nothing to do with the New Deal or unfriendly Supreme Court Justices.

Did FDR’s prescription for unemployment work? We need to examine a control group, a group of Americans that did not receive the independent variable, the New Deal, and compare them with the rest of the country. Obviously, that experiment will not be undertaken.

Would the unemployment numbers have been even worse had FDR not passed New Deal legislation? It is hard to say. On the other hand, UCLA researchers show that the Great Depression would have passed quicker if the New Deal had not gone into effect. (See link )

Historians Kennedy, Cohen, and Bailey, hardly a right-wing bunch, write in the popular textbook, The American Pageant, 12^th ed. (P. 803), “The depression dragged on with only periodic improvement for nearly eight years under his [FDR’s] leadership, until the cataclysmic emergency of World War II finally banished unemployment from the land.” Similarly, New Left historian Barton Bernstein writes (in Towards a New Past: Dissenting Essays in American History, 1968, Random House)

the New Deal failed to solve the problem of the depression, it failed to raise the impoverished, it failed to redistribute income, it failed to extend equality and generally countenanced racial discrimination and segregation.

We can conclude that the New Deal transformed American society, but did not solve the unemployment problem of the Great Depression. Obama's Keynesian solution may not alleviate unemployment much either. See what the Congressional Budget Office (CBO) thought of Obama's stimulus package here.The CBO says that the stimulus may have sustained as few as 700,000 jobs and as many as 3.6 million (costing around $200,000 per job). That's a poor return for a $825 billion dollar stimulus and tax rebate package that must be paid back.

Social Studies Teaching Resources on the Web

Use this resource, and you can put together a wonderful interactive lesson plan on most history and social studies subjects. The links have been checked (November 13, 2011) and are presented in no particular order. Just click the purple links!

The home page of Mike Spinrad's blog http://mikespinrad.blogspot.com

Bibliographic records of education literature, plus a growing collection of full text http://www.eric.ed.gov/

High school teacher Paul Ippolito's wonderful collection of PowerPoints on AP Economics and other subjects http://137.164.143.46/pippolito/main.html

A collection of primary resources for educators http://www.calisphere.universityofcalifornia.edu/

Library of Congress digital collections--a primary source bonanza--print, pictorial and audio-visual collections and other digital services http://www.loc.gov/library/libarch-digital.html

More than 220 history PowerPoints http://pptpalooza.net/

History lesson plans written by Mike Spinrad and others http://www.sonoma.edu/tah/lessons.html

National Archives database http://aad.archives.gov/aad/

Center for Civic Education lesson plans http://new.civiced.org/resources/curriculum/lesson-plans

Bill of Rights in Action http://www.crf-usa.org/bill-of-rights-in-action/blog.html

First Amendment Schools lesson plans http://www.firstamendmentschools.org/resources/lessonplans.aspx

California Learning Resource Network: links, reviews, digital textbooks, video, online courses http://www.clrn.org/home/#3

Social studies lesson plans and resources collected by Marty Levine https://www.csun.edu/~hcedu013/

American Field Guide. PBS teacher resources http://www.pbs.org/americanfieldguide/teachers/

Council for Economic Education Economics and personal finance lesson plans
http://www.econedlink.org/lessons/economic-lesson-search.php


Educational Communications Board: searches for websites, video and more http://www.ecb.org/

Digital History Reader for US and European history http://www.dhr.history.vt.edu/

Digital History Classroom-tested lesson plans created by master teachers

http://www.digitalhistory.uh.edu/historyonline/lesson_pl.cfm

Fairness versus Prosperity: The Flat Tax

Americans must choose--fairness or prosperity. Certainly we can mitigate income inequality and increase levels of GDP by limiting the most egregious excesses of corporate remuneration. See my post on corporate boards acting on behalf of shareholders and limiting poorly performing CEO salaries here. However, the country must choose, as a matter of policy, high GDP growth and job creation or progressive taxation. You can't have both.

When tax rates were very progressive, in the 1950s, GDP growth was steady if unspectacular. (Source information here.) GDP really took off in the 1960s, after the top marginal tax rates went down from 92 percent to 77 percent in the 1960s. The Reagan boom was also fueled by marginal tax rate cuts, the top earners paying 50 percent. Lower tax rates also lead to greater resources for government. As the Laffer curve (below) demonstrates, when marginal tax rates are too high, people use tax avoidance (or illegal tax evasion) strategies to shield income from the IRS.

Ironically, those that want increased government spending on social programs should not be in favor of confiscatory marginal tax rates on the rich. Setting rates back up to 90 percent will put less money in government coffers.


What would happen if we did away with our ridiculously unwieldy, complicated, and wasteful progressive income tax, and replaced it with a flat tax? (See this.) Both Herman Cain and Rick Perry favor a form of flat tax. The New York Times, predictably, hates the idea. Robert Frank writes in The Problem with Flat-Tax Fever (link here) that the flat tax can be just as cumbersome as our current system if it all the usual tricks are needed to compute adjusted gross income, and the flat tax is unfair because the rich would be taxed less and the poor more. These criticisms can be easily refuted. A good flat tax is a simple tax. Add up all ones income and multiply it by a percentage, say 20 percent. There are no deductions are complications. The calculations can be completed on a postcard. Each American saves hours of time and hundreds of dollars (or more) in lost revenue computing their taxes.

Is the flat tax regressive? No, the rich pay the same percent as everyone else but they still pay more. The woman who made a million dollars pays $200,000 with a 20 percent tax rate. Joe Six Pack, bringing home $40,000, pays $8,000. The rich will still pay the lion's share of IRS inflows.

Most importantly, will the flat tax turn our economy around? Wikipedia has an excellent analysis of the pros and cons of the flat tax. (See the article here.) The article shows how the Russian Federation, Estonia, Latvia, Lithuania, Ukraine, Slovakia, Romania, Hungary, Macedonia, Albania, and Bulgaria have implemented a variation of the flat tax in order to stimulate growth. Lithuania has boasted of strong growth, though it is hard to say if the flat tax alone is most responsible. Many more countries are considering the flat tax. Should the United States give it a try? Arthur Laffer writes that the flat tax is a recipe for growth, proposed (quite ironically) by the current Democratic governor of California, Jerry Brown, in 1992. (See editorial here.)

Will the flat tax increase income inequality? Perhaps, but with unemployment stuck at high levels, our economy needs a shot of strong medicine to grow GDP and create jobs. Recessions lower inequality but also throw many of the poor out of work.Those who have been without a job for months will be hired only when expanding businesses need workers. Extreme poverty has increased in the last year. (See article here.) Our current taxation system is not working well, and the flat tax is worth a try.

Goodbye to the Dollar Bill

Should we replace dollar bills with a dollar coins? The New York Times reports (link here) in Hoping to Save Money for the Government, Some Seek and End to the $1 Bill, the government could save $5.5 billion over 30 years by phasing out dollar bills and replacing the currency with dollar coins which last much longer. Despite proposed legislation to make this happen and U.S. Mint public relations campaigns, Americans will not choose the coins if bills are available. Only by phasing out the bills will Americans choose (rather, be forced) to use the coins.

So again, we have the government acting for our own good when we are unable to do the “right thing” ourselves. Why do most Americans prefer paper money over coins? I’m not sure, but I can state why I prefer paper money.

• It’s more convenient. I have a wallet. I put real money (and I still consider $1 real money) and plastic in my wallet. I throw assorted change in the drink holder in my car or in a plastic jar in my room. I don’t like carrying any more junk in my pockets than necessary—wallet and keys. That’s it!

• It’s less complicated. Cash is becoming increasingly irrelevant. I pay my bills online and use a credit card for almost everything else. I don’t want to complicate my life by remembering to keep coins in my pocket. I’d rather pay for everything with a plastic card or with the paper money I already carry.

What do you think? Do you want to replace the dollar bill with a coin?

Paying CEOs a Little Less--Doing Something About the Gap Between Rich and Poor

I rarely agree with the opinions of socialists and anarchists and cannot empathize with the Occupy Wall Street (OWS) movement. However, an increasing gap between the very rich and everybody else is neither economically advisable or, as it turns out, truly necessary.  We need to have some gap between rich and poor. Otherwise, people would have no incentive to work hard, be creative, and serve others, and we would become another decrepit and creaky Soviet Union or an anachronistic Cuba where the people earn $20 a month. But when the gap between rich and poor becomes too great, the poor struggle to survive and the rich have too much economic and political power. One group of the rich, CEOs of public corporations, have been improperly rewarded for performance, and their remuneration packages are ridiculously high.

I was intrigued by an article on Jewish ethics criticizing overly high CEO remuneration packages. CEO pay has escalated once again, averaging more than $10 million per year for leaders of Fortune 500 companies. Some CEOs earn their stratospheric pay, increasing the company’s value and making larger shareholders rich. However, most do not truly earn their millions, making more than 300 times their lower paid corporate employees, even when the company reports lackluster results.

Michael Dorff explains in a number of different ways the reasons boards do not limit CEO pay. In the compilation Money (pp. 45-51, edited by Elliot N. Dorf and Louis E. Newman) Dorff notes that shareholders, the company owners, have a vested interest to keep pay down to reasonable levels. Whatever is not paid out in salaries is left over for the shareholders. Shareholders, represented by the company’s Board of Directors, suffer because the Board does not act in shareholders’ interests. They completely give into the CEO’s demands for overly generous remuneration.

Members of the typical Board of Directors have an easy, high-paying job—a few meetings a year for $40,000 (or more) plus benefits. Dorff remarks that no one wants to turn down such a wonderful situation, hardly working for a lot of money and prestige. If a Board member keeps his mouth shut, he will be invited to sit on other corporate boards and make even more easy money. Management nominates the slots for open board positions, and nominees are unopposed. Who wants to give up the gravy train for criticizing a CEO’s pay package? Shareholders’ interests and the Board member’s interests are not aligned.

I suggest that public companies change the way they pick and pay Board members. Only those stockholders that own the most stock, let’s say the top fifty shareholders, should be invited to serve, and these Board members, once elected, should receive no compensation for serving. Serving on another company’s Board for pay is grounds for dismissal. Thus we have aligned the Board’s interests with the rest of the shareholders, and it is more likely that CEO pay will be based strictly on performance and the salaries will not be overly generous. What has been saved on CEO salary can be reinvested in the business or distributed directly to shareholders.

Reserving Board membership to top shareholders may make Boards less diverse. Most rich shareholders are white males. However, since the Boards will be more responsive to shareholder interest it will be worth it. Diversity is not an end in itself but a means to avoid “groupthink” and a good old boys club. Making Boards less in management’s back pocket will avoid these problems as well, leading to a more equitable distribution of the owners’ money.

Bibliography

Dorff, Elliot N. and Newman, Louis, E., Jewish Choices, Jewish Voices, Money, JPS, Philadelphia, 2008

Postscript. June 25, 2012
The New York Times bemoans the fact that corporations have not learned a lesson from the last few years, and CEO pay rose five percent on average for 2011. (See the article, C.E.O. Pay Is Rising Despite the Din here.) Yet, since corporate boards have tied pay closer to performance, and corporations are making record profits, this may not be so bad for stockholders. We will see what happens when profits decrease. Will the CEO pay go down then? Will corporations spread the wealth a bit more, giving their lower paid employees a boost?

Postscript October 20, 2012
In her Fair Game column, Gretchen Morgenson describes a study that shows that Boards are overpaying CEOs. Reasearchers Elson and Ferrere conclude that CEOs cannot "readily transfer their skills from one company to another." So CEOs will not leave simply because someone else makes more money. Boards must reign in CEO pay. In her April 7, 2013 article, The Infinity Pool of Executive Pay, Morgensen quotes an expert: "Don't expect executives to give up on their prized perks anytime soon...even if shareholders can now publicly register their displeasure."

June 2, 2013
Adam Davidson interviews Harvard Law School professor Lucian Bebchuk. "His solution is to pass laws that make it easier for shareholders to vote out boardmembers who fail to discipline underperforming chief executives."