But doesn’t even that money need to be guarranteed somehow by Treasury holdings?

No. Basically, our money has value because we think it has value. That is we've designated it as a medium of exchange.

Seem more than a little high-handed; the rest of the article does not alter that impression.

Maybe, but I have no idea how they make pencils. I suppose I could go learn exactly they how it is done, but frankly I don't care. What I do care about is that I have pencils.

While I don’t disagree that immigration is an important factor in such discussions, is its impact (both in immediate $$ figures and societal/consumer confidence impact) really that much more significant than executive compensation?

Which do you think is more important, adding 8 million people at the lower ends of the income scale or a few hundred at the upper end? Granted some CEOs do make really big bucks, but those guys are probably less than 100.

As for not mentioning Yellen, one possible reason is that academics tend to be fairly mild when taking a colleague to task. Yellen is an important economist with some pretty substantial work with her name on it. She is also the head of the San Francisco Federal Reserve Bank.

The government creates it as we have a fiat money system. Creating too much money can lead to inflation. Decreasing the supply of money can lead to deflation.

But doesn't even that money need to be guarranteed somehow by Treasury holdings? Or have we moved fully into the all-credit, no-capital phase of economic evolution? :-)

And as for the graphite example, I may have overreached, but statements like:

If you cannot understand something as simple as making a lead pencil, why should you be surprised that you don’t understand why someone is making a lot more money than somebody else?

Seem more than a little high-handed; the rest of the article does not alter that impression.

Finally, I think that Sowell is reponding to the rather insipid comment by Janet Yellen about income inequality and her discussion of the role of CEO pay. CEO’s make up a very small fraction of the population and hence even if they were all paid $500 million would likely have a very minimal effect on income inequality.

Any discussion of income inequality that doesn’t factor in the issue of illegal and legal immigration is misleading and goofy as I’ve argued in the past.

While I don't disagree that immigration is an important factor in such discussions, is its impact (both in immediate $$ figures and societal/consumer confidence impact) really that much more significant than executive compensation?

Also, what is the Yellen comment? I don't see it in the Sowell article.

Money is like energy, it neither appears nor disappears - it must come from somewhere, and it must also go somewhere.

Sorry, but money can and does "just appear". The government creates it as we have a fiat money system. Creating too much money can lead to inflation. Decreasing the supply of money can lead to deflation.

As for the example, it is intended to show that the the idea of income inequality isn't always what we are lead to believe. In the example the people paying for the show get something that is worth at least the price of admission. As such, there is no inequality if you were to look at the welfare of the individuals. In practice we can't do this, so income becomes a proxy and also a crude way to try and measure the "fairness" of the economic system.

And finally Legion you are conflating what Sowell said with your own pile of straw. Sowell didn't say that people don't know understand the uses of graphite nor was he comparing graphite to human actions. He was comparing the lack of understanding of the human action of making a pencil to the human action of determining CEO pay.

Finally, I think that Sowell is reponding to the rather insipid comment by Janet Yellen about income inequality and her discussion of the role of CEO pay. CEO's make up a very small fraction of the population and hence even if they were all paid $500 million would likely have a very minimal effect on income inequality.

Any discussion of income inequality that doesn't factor in the issue of illegal and legal immigration is misleading and goofy as I've argued in the past.

Dale Franks has an amusing example:

More accurately: Robert Nozick has an amusing example. Dale Franks borrowed it. (to be charitable).

Income Inequality...

I thought at first that Dale's example was facetious, but it appears not - unfortunately it's also trite and straw-heavy... that musician doesn't just collect the ticket money, sing a few bars, and hum the chorus all the way to the bank - even in that example, the ticket money gets paid back out to rent the arena, pay the backup band, pay for instruments, etc., etc., etc. Money is like energy, it neither appears nor disappears - it must come from somewhere, and it must also go somewhere.

I do however agree with James (and James) - why do people get so worked up over CEO pay, but not athlete or Hollywood pay? I don't own vast amounts of stock, so I recognize that my opinions about CEO pay only go so far, but I am more likely to go see a game or movie - or not, if the prices are too high...

William Clay Ford Jr. is paid $0 in salary and last year, exercised $2.11 million in stock options. He is the Chairman, Chief Operating Officer, Chairman of Environmental & Public Policy Committee, Chairman of Fin. Committee and Chairman of Exec. Operating Committee.

The Chief Financial Officer, Exec. VP and Member of Exec. Operating Committee Donald Leclair was paid $916,000 and exercised $0 in stock options.

As for GM, G. Richard Wagoner Jr. was paid $2.2 million and exercised $0 in stock options. He is the Chairman, Chief Exec. Officer. Robert A. Lutz, Vice Chairman of Global Product Devel. and Acting Chief Exec. Officer of GM Europe was paid $1.55 million and exercised $0 in stock options.

If you are looking for the really big bucks try Richard D. Fairbank the founder, Chairman, CEO, and President for Capital One Financial who exercised $249.27 million is stock options. Of course, the company also had a profit margin of 22%.

First, I've known perhaps a half dozen Fortune 500 CEO's over the years (by “known” I mean they knew me by my first name and we lunched together one-on-one; I've also been to one such's home). They're overpaid.

Why do large company CEO's make so much? Well, because they like money (most people do) and have the votes on the board of directors to swing it (friendly CEO's of big companies on each others' BOD's, coincidentally, may have something to do with it). Stock-based compensation plans frequently mean that when the stock market goes up, regardless of why it goes up, CEO's get a raise.

A CEO whose company prospers gets a whopping raise; one whose company is failing is “helping the company weather troubling times” and gets a whopping raise. Consider airline execs, automobile company execs, and other companies who've been failing for a generation.

I think that attempts to rationalize this are amusing. Sometimes the rich are rich because they're rich.

The problem with the inflated CEO salaries is two fold: as a poster noted above, mostly it is not performance based, and the second issue is that the discrepancy between those that actually do the work that makes the company profitable and those that get the unmerited multimillion dollar bonuses is too great to be healthy.

You imply that there is something wrong with the values of people who are willing to overpay actors but not CEO's. I think there is something wrong with the values of people who are willing to underpay the people who do the work while grotesquely overpaying, with no accountability for performance, the CEO's.

My only argument against movie actors and sports stars is the COST to attend a game or movie. But, that's supply and demand...

But if I start manufacturing proprietary widgets that revolutionizes whtever they do, who has the right to tell me a couple of kajillion dollars is too much for me to have?

I think the real reason people aren't as outraged at the high salaries of actors and athletes is that they can clearly see the difference between the ones around them and the stars. On the other hand, the perception of CEOs is that they make millions for coin-flip-type decisions that seem to lose money as often as they make money. People then feel that the CEO is not doing anything that they couldn't do.