It might have been worth a few sentences calling attention to the seeming irony in the industry's objections to proposed regulations that would limit emissions of methane gas. The NYT article noted that a large share of greenhouse gas comes from such methane emissions. At the same time, the industry has promoted fracking as a way of developing a bridge fuel, that emits less greenhouse gas than the coal it replaces, until renewable energy becomes cheaper.
If the net effect of fracking is to reduce emissions, then regulations that ensure this outcome should not pose a problem for the industry. The regulations should only be a major issue for the industry if it turns out that methane gas emissions largely or completely offset any reductions in carbon dioxide emissions.
In an interesting piece on the decline of the political center, E.J. Dionne wrongly lists globalization as a villain. He tells readers:
"Globalization weakens the ability of moderate governments of both varieties to deliver on their promises. Capital can flee easily to more congenial climes, undercutting a nation’s tax base and its regulatory efforts."
Globalization should also have the effect of reducing inequality by making it easier to take advantage of lower cost professional services (e.g. physicians services, lawyers' services, dentists' services) except that the United States has acted to maintain or even increase barriers to trade in these areas. It should also make it easier to circumvent patent and copyright monopolies that redistribute income upward, except we have consciously pursued policies to strengthen these forms of monopolies to limit the extent to which developing countries might provide vehicles for avoidance (in contrast to tax policy).
Also, governments with their own currency (e.g. the United States, the U.K., and the euro zone collectively) need not be restricted by their tax take in terms of spending, as long as they are below full employment. The decision not to use fiscal policy to bring economies to full employment is due to superstitions, not actual limits imposed by globalization.
Yes, it can be hard getting access to information in the barren heart of the nation's capital. Therefore it is not surprising that the Washington Post seems completely unaware of the economic situation in Japan at present.
In an account of the economic problems facing the world the Washington Post told readers:
"Japan, meanwhile, has recorded years of slow growth, has alarming public debt levels and is perpetually on the brink of deflation."
Actually in terms of employment growth, which is probably what matters most to the Japanese people (as opposed to GDP growth), the country has been doing pretty well as of late. According to the OECD, Japan's employment to population ratio (EPOP) has risen by 2.4 percentage points from 70.8 percent to 73.2 percent since the new Prime Minister Shinzo Abe took power in the fourth quarter of 2012 and embarked on a policy of aggressive fiscal and monetary stimulus. By comparison, the EPOP in the United States rose by 1.4 percentage points to 68.7 percent in this period. If the EPOP in the United States had risen by the same amount as in Japan it would correspond to another 2.5 million jobs.
It's not clear who the current levels of Japanese debt are supposed to be alarming to, but clearly financial markets do not fall into this group. The interest rate on long-term Japanese government bonds is 0.38 percent. In terms of being on the brink of deflation, fans of economics everywhere would say, "so what?" The United States, Europe, and Japan all have inflation rates that are lower than is desirable. If the inflation rate ends up being a small negative number rather than a small positive number it doesn't matter. Any fall in the inflation rate, regardless of whether it means crossing zero makes debt burdens worse and raises real interest rates.
Steve Rattner had a column in the NYT in which he derided Donald Trump's economics by minimizing the impact of trade on the labor market. While much of Trump's economics undoubtedly deserve derision, Rattner is wrong in minimizing the impact that trade has had on the plight of workers.
Rattner tells readers:
"In Mr. Trump’s mind (although not in the minds of serious economists), that’s why [the trade deficit] we’ve lost five million manufacturing jobs since 2000.
"The Chinese are certainly protectionists, but a shift in manufacturing jobs was inevitable. For centuries, as countries have developed, the locus of jobs has shifted based on comparative advantage.
"Moreover, many of those manufacturing jobs weren’t lost to other countries but to growing efficiency, just as employment in agriculture in the United States has fallen even as output has risen."
"No policies could reverse tectonic forces of this magnitude, and in suggesting that there are remedies, Mr. Trump is cynically misleading the American public."
There are several points here that are worth correcting. First, productivity in manufacturing is not new, but the large-scale loss of manufacturing jobs is. According to the Bureau of Labor Statistics, in 1971 we had 17,200,000 jobs in manufacturing. In 1997, we 17,400,000 jobs. This is in spite of the fact that there was enormous productivity growth in manufacturing over this quarter century. Manufacturing employment then fell to 13,900,000 in 2007, the last year before the crash. The big difference between this decade and the prior twenty-six years was the explosion of the trade deficit as jobs were lost to China and other developing countries.
The fact that we would have more manufacturing jobs without the trade deficit is almost definitional. We currently are running a trade deficit of more than $500 billion a year, a bit less than 3.0 percent of GDP. Total manufacturing output is roughly $1.8 trillion, which means that if we filled the deficit entirely with increased output of manufactured goods, we would expect to see manufacturing employment rise by more than a quarter ($500 billion divided by $1,800 billion), creating more than 3 million new manufacturing jobs.
There is also a fundamental difference between the shift out of manufacturing jobs and the shift out of agricultural jobs to which Rattner refers. Workers left agricultural jobs for higher paying higher productivity jobs in manufacturing. The jobs didn't actually disappear, the workers did not want them.
This is the exact opposite of what we are seeing with manufacturing jobs. Workers are losing relatively good paying jobs in sectors like autos and steel, and are then forced to take lower pay and lower productivity jobs in the retail or restaurant sectors.
Paul Krugman had a nice blogpost outlining some of the key issues in the literature on optimal currency unions. The question is what happens in a currency union like the euro zone, which is not optimal for many reasons, if there is free mobility of labor.
Krugman points to the experience of Portugal and argues that mobility of labor actually makes the situation worse, not better. The story is that much of Portugal's prime age labor force is emigrating to other countries in the European Union, leaving behind a population of retirees, without a working age population to pay their benefits. This is similar to the story with Puerto Rico, although as Krugman points out, due to the fiscal union with the rest of the United States, retirees in Puerto Rico can still count on their Social Security and Medicare, as well as other payments that flow from Washington.
It is worth taking another step with this one to think about Detroit. There we have a situation where the the downturn in the auto industry is a big hit to the city and the region. However, white workers were able to escape many of the bad effects by stepping over the city lines and move to the suburbs. Due to discrimination in housing and lending, African Americans find the move to the suburbs much more difficult, therefore leaving many of them stuck dealing with the effects of the loss of much of the city's employment base.
This picture is clearly somewhat exaggerated. People can move to other cities and many African Americans have moved to Detroit's suburbs, but the reality of discrimination, certainly in the very recent past and which undoubtedly continues to some extent into the present, has made it considerably more difficult for African Americans in Detroit to escape the fallout from the collapse of the auto industry than for its white population.
Economists and people who write about the economy are not known for being especially astute when it comes to economic issues. After all, there were almost no people in this group who were able to see the $8 trillion housing bubble whose collapse sank the economy. More recently, we have a substantial clique running around yelling that the robots will take all the jobs. This is at the same time that we continue to have most of the Washington elite types fretting that the retirement of the baby boomers will leave us without any workers. These concerns are 180 degrees opposite, sort of like complaining that the soup is too hot and too cold, but that's the sort of conceptual absurdities folks have come to expect from people who write about the economy.
The usually astute Catherine Rampell is one of the guilty parties today, telling readers that the recent drop in the value of the Chinese yuan is a response to the market, not the result of currency management by China's government. The problem in this story is that it ignores that China's central bank is holding more than $4 trillion of reserves, about $3 trillion more than would be expected for an economy of China's size. This stock of reserves has the effect of raising the value of the dollar and other reserve currencies against the yuan.
If that is not obvious, consider the analogous situation with the Federal Reserve Board and its holding of more than $3 trillion in assets as a result of it quantitative easing (QE) policy. Under this policy, the Fed bought up large amounts of government bonds and mortgage backed securities. The idea was that the Fed's purchases would drive up the price of these bonds and thereby directly lower long-term interest rates.
The NYT went a couple of miles over the top with Peter Eavis' analysis of China's currency devaluation. It begins by telling readers;
"For years, China looked like the principled noncombatant. As other countries, seeking to secure an economic advantage, let the value of their currencies slide on international markets, China held firm on the value of its money."
"The principled noncombatant?" What are they smoking over there? China accumulated more than $4 trillion in reserves to keep its currency from rising against the dollar. China looked to the world outside of the NYT like the principal combatant. This massive intervention led China to run massive trade surpluses, peaking at more than 10 percent of GDP in 2007.
Fans of economics everywhere know that fast growing developing countries like China are supposed to run large trade deficits, as capital is supposed to flow from slow growing rich countries to fast growing developing countries. Given China's 10 percent plus annual GDP growth a trade deficit of 10 percent of GDP would have been reasonable, instead China had that reversed.
This also explains the massive housing bubble in the United States and other wealthy countries. With trade deficits creating enormous gaps in demand, the only way they could be easily filled was with demand driven by asset bubbles. (We could have filled the demand gap with large budget deficits, but people in positions of power in Washington are superstituous, so we can't run large budget deficits to fill demand gaps.)
The rest of the article is no more in touch with reality. It tells readers:
Yes, I know oil is priced in dollars, not euros, but it doesn't make one iota of difference. In an article on the meaning of the drop in the value of the yuan on people in the United States, USA Today told readers:
"China, the world's second largest economy, consumes a lot of oil, second only to the U.S. However, oil prices are denominated in dollars, so a gutted yuan means China's purchasing power is reduced, which could prompt the Chinese to spend less on oil-based products. That reduction in demand could lower prices, an upside for American drivers."
Everything in this paragraph would be equally true if oil was priced in euros. The Chinese currency is now worth less measured in dollars, euros, yen, or oil. The loss of purchasing power will lead China to buy less of everything that is produced abroad, including oil. The fact that oil is priced in dollars matters not at all.
As a practical matter, anyone hoping to get super cheap gas due to less demand from China is likely to be disappointed. If we assume that the 2 percent drop in the value of the yuan leads to 2 percent higher gas prices in China, and we assume an elasticity of demand of 0.3, then China's gas consumption will fall by roughly 0.6 percent as a result of the devaluation. This almost certainly has less impact on the demand for gas than even a one-year reduction in China's growth rate by 2 percentage points. If the devaluation and other stimulatory policies speed growth in China, then we may see increased rather than decreased demand for oil from China.
The piece also gets the story of U.S. companies manufacturing in China somewhat confused. It tells readers:
We here at CEPR were glad to see that new research confirms what we had shown earlier, the Affordable Care Act (ACA) did not create a "part-time" nation as many of its opponents warned. In contrast to these studies, our work actually looked at the period when employers would have expected the sanctions to have been in effect, the first six months of 2013.
We did find a small increase in the percentage of workers employed between 25 and 29 hours a week, just under the 30 hours a week cutoff for the sanctions, as the opponents of the bill predicted. However this increase in the share of people working 25-29 hours was due to a reduction in the percentage of people working less than 25 hours a work, not a reduction in the number working more than 30 hours a week. In other words, there was no evidence that employers were shortening workweeks to escape the sanctions in the ACA.
This meant the bad story, that people who needed full-time jobs would only be able to find part-time work, was not true. But there is also a good story, that because people can now get insurance through the exchanges, many people will opt to work fewer hours at jobs that don't provide health insurance. This is likely to be the case with many parents with young children and possibly among older pre-Medicare age workers who might find it difficult to work full time jobs.
We used the Current Population Survey (CPS) to examine the change in voluntary part-time employment between 2013 and 2014, the first year the exchanges were operating. We found a large increase in the number of young parents (the CPS only gives ages of the parents, not the children) who were choosing to work part-time. We also found an increase in the number of older workers, especially women, who were voluntarily working part-time.
In short, our takeaway is that the ACA is not taking away full-time jobs from people who need them, but it is giving many people an option to work part-time that they did not previously have. That looks like a pretty good deal.
Several of the articles discussing the decision of China's central bank to lower the value of the yuan have referred to the assessment of the I.M.F. that the Chinese currency now reflects its market value. Many have pointed out that China's central bank has stopped buying large amounts of foreign exchange to keep the yuan from rising, implying that the current value now reflects the market rate.
The problem with this story is that China's central bank is still sitting on more than $4 trillion in foreign exchange reserves. If we apply the rule of thumb that it should keep around 6 months worth of imports on hand as a buffer, this implies $3 trillion of excess reserves. This large holding of excess reserves, helps keep up the price of the dollar and other reserve currencies relative to the yuan.
This is the same situation as the Fed is in with its holding of $3 trillion in assets as a result of its quantitative easing programs. There are few people who would argue that the Fed's holding of these assets doesn't have the effect of keeping interest rates down. It would be very difficult to come up with a story whereby the Fed's holding of assets keeps interest rates down, but China's central bank's holdings of foreign exchange doesn't keep the value of the yuan down.
The NYT ran an article on the goal for greenhouse gas emission reduction set by the Australian government. The article noted criticism of the goal as being inadequate. In particular, it refers to criticism from the Marshall Islands' government that this sort of action will not be sufficient to keep the islands from being destroyed by rising sea levels.
While it would be a tragedy if the Marshall Islands were destroyed and its 53,000 people had to be relocated, this would be a relatively minor consequence of the failure to address global warming. By comparison, Bangladesh has a population of almost 160 million, most of whom live in relatively low-lying areas that are subject to frequent flooding. With rising oceans, these floods would be much more severe.
No one has a plausible plan to locate the hundreds of millions of people in Bangladesh and other low-income countries whose lives will be put at risk from rising oceans. Similarly, hundreds of millions of people live in areas of Sub-Saharan Africa that will be faced with severe drought if world temperatures continue to rise.
If the point was to call attention to the consequences of the failure to address global warming, these situations probably deserve more attention than the fate of the Marshall Islands.
Those of you who were wondering about the best way to finance drug research need look no further, the Washington Post has the answer: It's government-granted patent monopolies. They told us in an editorial today:
"The profit-driven system in this country has its inefficiencies, including high marketing costs and the like; but on balance it has served the United States, and the world, well, by promoting more innovation than a state-dominated system of research probably would have."
It would have been useful if the Post had given some hint as to what evidence it might be relying on to make this assertion. The claim doesn't start well with the phrase "profit-driven," since there is no reason that alternative funding mechanisms might not also be profit-driven. For example, military contractors are profit-driven, last time I checked. These alternative systems also would not create the same sort of perverse incentives that are likely to lead to enormous waste and bad medicine.
But hey, since we got the word from the Post, there is no reason to look further. (I suppose it is rude to mention that the Post gets lots of advertising revenue from drug companies.)
One of the most bizarre debates in national politics is over whether China "manipulates" its currency. It is bizarre both because of the term used and also because the fact that China manages its currency is really not a debatable point.
The use of the term "manipulation" is bizarre because it implies that China is doing something sneaky in the middle of the night when no one is looking. There actually is nothing sneaky about it. China openly targets the value of its currency at a level that is well below the market clearing rate. The question is not whether we can somehow catch them in the act, the question is what do we think about the policy.
Anyhow, China just gave deniers another degree worth of global warming to explain away when the bank lowered the target rate for its currency against the dollar in order to boost its economy. There are three points worth making here.
First, China is quite obviously acting in currency markets to keep down the value of its currency. Do we have to pretend we didn't see this? The $4 trillion in reserves that China's central bank was sitting on should also have been a big hint on this issue. (For those who confuse the importance of stocks, rather than just flows, almost everyone believes that the Fed's holding of $3 trillion in assets puts downward pressure on U.S. interest rates. It's the same story with China's central bank's reserves and China's currency.)
The second point is that China's government obviously believes that the relative value of its currency affects its trade balance. That also should not really be arguable, but there were some policy experts who believed that imports and exports from China are not affected by relative prices. Of course they may still be right, but this move demonstrates that China's government does not agree with them.
The third point is that several other currencies moved in step with China's currency against the dollar. This contradicts a common assertion that if China raised the valued of its currency against the dollar then we would just import more from other countries. In fact, since many countries' currencies follow the Chinese yuan, the improvement in the U.S. trade balance with China that would result from a higher yuan is likely to be amplified by an improvement in our trade balance with other countries as well.
That is the implication of comments by John Myers, a reporter with KQED radio in San Francisco. Myers was interviewed on the occasion of California paying off the last of $15 billion of bonds issued in 2004 to cover a large deficit. When Myers was asked how the bond issue worked out for the state, he responded:
"Well, certainly, the state got through the worst times. But again, in that million dollars a day, every day, for 11 years, that's a lot of interest. I don't think that the voters really understood that. Schwarzenegger did not sell that part of the plan when he was out campaigning for the deficit bond that it was going to cost all of this in interest. I think there are definitely lessons learned.
"The politics of California were so polarized back then. And of course, we have seen that now on a national level. There are, you know, some lessons about what happens that the political system can't resolve at some point. And I think, too, there's probably a lesson for voters that borrowing money in state bonds is not free money and that it does come at a cost. All of those interest payments could have gone for something else in California.
"That money - just as an example - could have paid for the state's share of the University of California system for like 15 or 16 months. I mean, it is a lot of money. And these were choices that the voters were making. I think that might be the real lesson learned."
The state could have only saved the interest to pay for its share of the University of California system for 15 or 16 months if it had found some combination of tax increases and spending cuts to fill a $15 billion gap in 2004. Since the state had already done both, and was still feeling the effects of the collapse of the tech bubble on its economy at the time, it does not follow that a further set of tax increases and spending cuts would have been wise policy at the time.
Of course the state could have made very large cuts to its contributions to the University of California and K-12 education in 2004, then it would not have been forced to pay so much interest in later years, but it's hard to see why that would have been a better route for the state to take. In addition to the direct effect of these cuts, given the weakness of the economy at the time, it is likely there would have been an additional effect due to loss of purchasing power and therefore further job loss.
That's pretty much what the headline and article said, telling readers that Clinton wants to spend $350 billion "to make college affordable." Is that a lot of money?
Well, the article doesn't tell us whether the spending is over one year or twenty years, which would make some difference. If we assume that it is over ten years, the standard budget horizon, that comes to $35 billion a year. With total government spending a bit over $5 trillion in a 2017-2026 budget horizon, this would come to roughly 0.7 percent of projected spending. Alternatively, with a bit more than 20 million students enrolled in college (including community colleges), this would amount to roughly $1,700 per student per year.
Anyhow, it might have been useful to provide a little context on this one.
Apparently pay increases aren't on the list of ways to address a teacher shortage according to the New York Times. The paper had an interesting piece reporting on a nationwide shortage of applicants for open teaching positions. The article described a number of ways in which schools are attempting to address this shortage, including lowering standards and recruiting overseas.
It does not indicate any plans to raise wages, which would be the textbook way to address a shortage of workers. Lack of job security could also be a factor making it difficult to attract qualified teachers, since some people have gained celebrity status as a result of the pleasure they take in firing teachers.
Paul Krugman makes a good point comparing the economy's performance under President Reagan and Obama. He shows the path of unemployment was actually worse under Reagan than Obama. This is to show there is no real basis for praising the Reagan record. Krugman then concludes the piece by saying, "anyway, I’m surprised that this chart isn’t more widely discussed."
Actually there is a good reason the record is not more widely discussed. The employment to population ratio is still much lower now than it was before the downturn. This is true even if we restrict the analysis to prime age (ages 25-54) workers to reduce the impact of demographic change.
Employment to Population Ratio: Prime Age Workers
Source: Bureau of Labor Statistics.
If we focus on the EPOP rather than unemployment rates, then the economy still has a long way to go before it recovers. Since it is implausible that millions of prime age workers suddenly decided they don't feel like working, we need to do much more to get back to something like full employment and a labor market that is tight enough for workers to achieve wage gains.
For this reason many of us are focusing on emphasizing the problems with the labor market rather than trumpeting the comparisons with Reagan, although Krugman is right that the Reagan record is nothing to boast about.
Catherine Rampell seems to want to turn trade issues between China and the United States into a he said/she said in a column citing complaints by Chinese businesses over U.S. practices. While there are undoubtedly many instances of U.S. practices that are protectionist, the overall picture is very clear.
China continues to run a large trade surplus. We usually expect fast growing developing countries to run trade deficits. The logic is that they offer a return on capital, leading to large inflows, which drive up the price of their currency. This makes their goods and services less competitive, causing them to run trade deficits.
China's central bank has bought trillions of dollars of foreign exchange in order to keep its currency from rising. This is why the country continues to run trade surpluses in spite of having a growth that far exceeds that of almost all of its trading partners.
Holding $4 trillion in reserves is not a subtle point. It is not affected by the fact that the United States may have unfair protections in a small number of industries.
Of course it would, since deception is the only way to get large cuts in this incredibly popular program. This is why we find the Post applauding New Jersey Governor Chris Christie for his:
"cogent defense of his plan to trim old-age entitlement benefits for wealthy seniors, explaining that the system must be shored up for the poor."
Of course what Christie said was far from cogent. Christie first totally misrepresented the program's finances by saying that it held nothing by "IOUs." Actually, the program holds more than $2.8 trillion of government bonds. Mr. Christie may call government bonds "IOUs" but that is not the common term for them. In any case, the financial markets consider government bonds to be a very valuable asset which is why they pay a low interest rate. Unless the U.S. government defaults on its debt, the program would be able to pay all scheduled benefits through 2033 with no changes whatsoever.
After that date it could pay more than 75 percent of scheduled benefits indefinitely. If we imposed the same sort of tax increases as President Reagan did in the 1980s it would also be sufficient to keep the program solvent indefinitely.
Christie's proposal about taking away Social Security for people who earn above $200,000 a year was close to complete nonsense. There are very few people in this category. While this group does make lots of money, they do not collect much more Social Security than the rest of us. This is because the program has an income cap and a progressive payback structure.
In order to have any noticeable impact on the program's finances it would be necessary to redefine "wealthy" to something like $40,000. This is likely Mr. Christie's intention and the Post apparently wants to help him in that cause.
In case you were wondering whether we can substantially improve the financing of Social Security by means-testing benefits, as Governor Christie advocated in the Republican candidate debate, CEPR has the answer for you. We did a paper a few years back on this very issue.
The key point is that, while the rich have a large share of the income, they don't have a large share of Social Security benefits. That is what we would expect with a progressive payback structure in a program with a cap on taxable income. When we did the paper, less than 0.6 percent of benefits went to individuals with non-Social Security income over $200,000. Since incomes have risen somewhat in the last five years, it would be around 1.1 percent of benefits today.
However we're not going to be able to zero out benefits for everyone who has non-Social Security income over $200,000, otherwise we would find lots of people with incomes of $199,900. As a practical matter, we would have to phase out benefits. A rapid phase out would be losing 20 cents of benefits for each dollar that the person's income exceeds $200,000.
This would mean, for example, that if a person had an income of $220,000, they would see their benefits reduced by $4,000. This creates a very high marginal tax rate (people are also paying income tax), which would presumably mean some response in that people adjust their behavior since they are paying well over 50 cents of an additional dollar of income in taxes. If this was a person who was still working and paying Social Security taxes, the effective marginal tax rate would be over 70 percent.
By our calculations, this 20 percent phase out would reduce Social Security payouts by roughly 0.6 percent of payouts, the equivalent of an increase in the payroll tax of around 0.09 percentage point. That's not zero, but it does not hugely change the finances of the program.
This is the question that Neil Irwin raised in a discussion of efforts to reduce inequality by constraining C.E.O. pay. Irwin comments that Walmart CEO Douglas McMillion:
"makes more than $19 million a year (including unvested stock grants) to run Walmart, a company with 2.2 million employees and half a trillion dollars in revenue. That’s a lot of money, no doubt. But 26 Major League Baseball players make more than that. It is a safe bet that the future of the United States economy depends more heavily on how well Mr. McMillon does his job than how well Albert Pujols does his, even if Los Angeles Angels fans might disagree."
Asking whether the work of a CEO or a great athlete is more important to the country actually misrepresents the issues involved in the determination of CEO pay. We can grant the ensuring that Walmart is well-run is more important, but that is really beside the point. The question is how much to we have to pay to get someone to do a good job running Walmart.
If the New England Patriots did not have Tom Brady, there are few, if any, other people who could do a comparable job as quarterback. This means that they would either have to pay the Tom Brady substitute a comparable salary or get by with a quarterback who would not be nearly as effective in scoring points for the team. (We're ignoring the deflation problem here.)
By contrast, it is not clear that if Mr. McMillion left Walmart that the company could not find a comparably talented person to run the company. In this case, Walmart need only pay Mr. McMillion the amount that would be needed to attract another comparably talented person.
The example of firefighters can be seen as presenting a similar situation. Firefighters do incredibly important work, often at great personal danger. Certainly pulling people out of burning buildings has to be seen as more important than winning a football game. However firefighters do not receive multimillion dollar salaries because there are other people who are prepared to do this work at a relatively modest salary. This means that if any individual firefighter were to insist on a multimillion dollar paycheck, they could be replaced by someone who could do a comparable job at a far lower salary.
The argument on CEO pay is that the corporate governance system in the United States does not lead to the same sort of market pressures. Board members have little incentive to pressure CEOs to take pay cuts even when it is quite likely that they could get equally comparable replacements at a much lower wage.
Board members can count on six figure paychecks for attending a small number of meetings every year, even if they allow the CEO to be paid far more than is necessary. The fact that well-run and highly profitable companies in Europe and Asia typically pay their CEO's far less than companies in the United States suggests that it is not necessary to have such exorbitant CEO pay to attract competent managers.
Note: Brady's first name has been corrected to be "Tom" rather than Jim. Thanks to those who called my attention to this one.