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Showing posts from January 13, 2019

the social utility of fat cats

We need to discuss the social function of rich people. Besides the marginal entertainment and sports figures, I see two functions: administration and investment. The social cost of administration has gone up considerably since corporations changed their nature, breaking the old post war pact between capital and labor. I am going to put to one side the growth of LBOs and private equity firms that developed new forms of looting corporations in the eighties, and concentrate mainly on the radical elevation in compensation for the highest levels of management, which occurred mostly in the 80s. They were abetted by neoclassical economists and the newly expanded power of business schools. Harvard Business school in particular boasted a team of scholars who cheered on the insane compensations of the new class of CEO with arguments having to do with “aligning” the interests of the organization and the management: the famous principle-agent problem, the solution to which was to