Schooling Matt Miller from Center for American Progress

Matt Miller wrote this letter in Financial Times on Tuesday, April 21st, 2009.
I felt compelled to respond. You can read the whole article here (subscription might be required). Here is my response:

In the first paragraph he is discussing about the poor stewardship of Wall Street. While it is true that Wall Street's track record is not great, the government's track record is even worse. I mention the government here because reading his last half dozen articles gave me this inescapable impression that Miller is a big government socialist.

Miller's three basic thesis are that it's in business' interest to 1) cut executive compensation, 2) give workers job security and health care (post employment) and, 3) give jobs that can't be outsourced/increase compensation for the middle class.
It's obvious to me that either he doesn't understand anything about economics (despite having an undergrad degree in the dismal science) or he completely sold his soul (figuratively speaking of course) to a socialist organization (Center for American "Progress").

1) Executive pay is the business of the board. The board is elected by the shareholders. Executive compensation is a very difficult principal - agent problem. While the current credit crisis and recession turned out to be pretty ugly, some of the executives and deposed executives benefited from golden parachutes enshrined during the golden age of market boom. This problem is self correcting, as executive compensation lags economic activity and firm performance in general. Basically it's a self correcting system and obviously none of his business (unless he is a shareholder).

2) "A new social contract". Businesses main goal (and only goal according to many) is to make a profit for their shareholders. It is hard to nearly impossible to make a profit when the employees are not happy with the work conditions. Employers can provide job security, but only at a price (lower salaries). On the other hand, employees who cherish job security can provide their services to the government or left wing "think tanks" where hard work and dedication are not sought after, but a nice steady job is.

Unfortunately, given the situation of the world economy, there are many professionals and fewer jobs, so from a supply/demand standpoint the employers have the upper hand. Also the employees benefit from unemployment insurance and other government schemes, so why should the management beat the dead horse?

While it is true that the US health care system is in need of repairs, they should come from increased competition and diminished powers given to the American Medical Association. Incidentally, apart from Fannie and Freddie, AMA has been the biggest lobbyist in the last 10 years. Its power stems from the monopoly powers given by state governments to regulate the medical profession and by forcing medical schools to keep enrollment low despite increasing population.

Also, the fact that insured patients pay only a limited percentage of the health bill decreases their incentives to shop around and decrease their costs. I don't see what employers can do to insure their former staff. However, the government could fine health care providers who charge uninsured patiens more than the money they receive from insurers or Medicaire (very simple thing, never done).

3) Middle class jobs that can't be offshored. Over the last 15 years or so the middle and lower class benefited enormously from trade with emerging markets. While it is true that some jobs have been displaced, the biggest enemy of jobs is the high profit tax that US companies are subjected to and encroaching regulation. A weaker dollar will ensure that US companies' benefits from offshoring shrink towards zero. Let's not forget also that the Tax code is 70,000 pages and most tax experts have no clue of the loopholes in it. For more information, please read this article.

Miller's direct demand of higher wages flies in the face of reality (especially given his other request that businesses provide job security as well). It's one or the other: job security and lower wages or higher wages and less job security.

His threat that without job security, the executives would face direct physical threats from angry employees or other (poorer) citizens is ridiculous. We thought that 12 years of "free" government education produced enough civic minded individuals concerned mostly with their life, liberty and pursuit of happiness not to worry about these trifles.

Miller's totalitarian suggestion here is evident: pay your employees/ the socialist voters/ the mob more or they will come after you (while the administration presumably looks the other way). I wonder why he didn't suggest similar things to movie stars, many of them making more than executives: get paid less or angry movie goers will come after you. It must be the socialist ideology that many Hollywood actors and Miller most likely have in common.