Is It Unfair to Pay CEOs Billions? Q&A with Prof. Howie Baetjer

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Is it fair that CEOs get paid millions—even billions—while there are so many people still in poverty? Well, it depends! Watch the second entry in our question and answer series with Prof. Howie Baetjer.

    1. What If There Were No Prices? The Railroad Thought Experiment (video): Why do self-interested business owners do greater good for society than benevolent bureaucrats and central planners? Prof. Howard Baetjer demonstrates why prices are, quite possibly, the most essential tool for improving human well-being. 
    2. Debate: Is There Too Much Inequality in America? (video): The distribution of wealth in America is lopsided in the favor of the 1% – a point made by the video “Wealth Inequality in America.” This inequality is intuitively and philosophically unfair to many people, but what happens when we examine the roots of our motivation? How can society BEST help the poorest? 
    3. Economics: 3 Myths of Capitalism (video): Not sure what to believe about Capitalism or not sure what it is? Dr. Jeffrey Miron from Harvard University breaks down 3 myths of Capitalism.

Isn’t it unfair to pay CEO’s billions of dollars when there’s so many people in poverty? That all depends on where the pay comes from and how it is earned. If, for example, the payment to the CEO’s comes in part from a government bail out, at the taxpayers’ expense, then absolutely it’s wrong to pay then that.
But if the CEO is earning that money, has paid that money as a result of a contract with the board of directors and they use that to reward him or her for making decisions for them. Because they believe that he or she is the best … is a good option and worth it. And if that CEO makes decisions suppose the CEO’s paid $10 million a year. If he or she makes decisions, which earn the company $15 million a year, they’re absolutely worth it.
As long as they … I guess I would answer that the way I would answer about the pay … about any pay for anybody. It’s fair and it’s ethical, I think, if they’re creating more value for the enterprise then they’re paid. Because then the enterprise is better off on net. And let’s remember that enterprises make their money by creating goods and services creating wealth for other people.
So no I don’t have any difficulty with paying a CEO millions of dollars. If he or she has earned it with making really good decisions and guiding the company so as to create a greater amount of wealth than what they’re paid. I see no problem with that at all. To add one other thing. The question isn’t it unfair to pay CEO’s millions of dollars while other people are living in poverty, seems to assume that the CEO has that money at the expense of the people in poverty.
But that’s not true. If the company that the CEO works for is creating valuable goods and services, then the CEO’s money doesn’t come at the expense of the poor, it comes as a result of making the poor better off by providing them good and services they would like to have at a price they’re willing to pay. This idea that the rich get richer in a free market at the expense of the poor is a pernicious error.
Bill Gates and Steve Jobs didn’t get rich at our expense. They got rich by making us better off. It’s important for us to remember that.