The Economist against the Economists

Old Blog Import

This is a nice quote on out-of-whack CEO stock-option plans from an article in the Economist:

The key assumption of the optimal-contracting view is that managers and shareholders, in effect, negotiate at arm’s length over pay. Basic training in economics is needed to blind one to the absurdity of this assumption. Top managers direct or at the very least influence the board members who set their pay: that means they will succeed in collecting some rent. The only question is how much.”

Basically, they are saying that you have to be an Economist to not see that power relations affect contract negotiations. Now, didn’t Marx say something similar about a hundred years ago? (Not to mention Weber and Durkehim …, and even Adam Smith.)