Wednesday, July 21, 2004

Supply And Demand

I'm still catching up on blog reading, so I almost missed Kevin Drum's hilarious economics contest:
Supply and demand. Yes indeed. The labor market is a slave to supply and demand just like any other market, right?

Odd, then, that CEO pay rose 27% in 2003, isn't it? Did the supply of CEOs shrink last year? Did demand skyrocket?

What's more, compared to average workers, who remain stuck in the invisible grip of Adam Smith, CEO pay has increased about 3x since 1990 and about 7x since 1980.

Is this the free market at work? That's what I'm told. So I have a contest in mind: a prize for the least laughable explanation for why CEO pay has gone up 7x since 1980 based on supply and demand. At a minimum, winning entries should explain the following:

Why the supply of CEOs has decreased.

Why the demand for CEOs has increased.

Why the elasticity of the CEO demand curve is apparently steeper than for any other commodity on the planet.
Okay, so plenty of the entries are unimaginative. (Supply has decreased because so many CEOs are in prison, heh heh heh. Repeated ad nauseam by dozens of other people who don't read comments before posting.) But there are also some true gems. Here are my favorites so far:
1. The onslaught of government regulation such as Sarbanne-Oxley has 1) dramatically increased the workload of the CEOs and 2) is discouraging aspiring CEOs from entering the field just like malpractice insurance has dramatically diminished the number of qualified physicians...

2. With so many new businesses being generated, demand for CEO's is higher than ever before, but supply is low because few wish to labor under the extreme tax burden imposed on our nation's CEOs.

3. The post-Enron world has made being a CEO a very risky venture, which assuredly adds a supply curve explanation. [The other two are clearly sarcastic, but I think this guy might actually be serious. Who knew that I could demand additional compensation to protect me from the risk that I might turn out to be an amoral felon?]
So: read and enter. If you win, I insist upon a cut of your fabulous prizes.