But what defines overpaid? You? If there is an opportunity to not over-pay, you should be able to start your own firm and put overpaying ones out of business.
...Of course, we can actually be even more clever than this, if we want, and imagine models where we are both right (of course they might not be true).
For example, we might say the value provided by a manager is, on average, $1,000,000. However, this is driven mostly by the top 10 percentile who are worth $10,000,00 a year, whereas the median is actually slightly overpaid. We can justify this distribution by adding uncertainty on the signal. A more thoughtful model of this quick example exists: https://en.wikipedia.org/wiki/Signalling_(economics)#Job-mar...
So the next question would be: What is more likely? That people are overpaid, obviously, and the government needs to stop it? Or the market is behaving optimally under complex uncertainty, and the government, being no better at interpreting signal than these firms themselves, is likely just to make things more complicated and screwed up by entering? (I'll leave this as an exercise to the reader, but if you want to solve it formally follow the journal articles in the link I shared above).
>If there is an opportunity to not over-pay, you should be able to start your own firm and put overpaying ones out of business.
Sure, but first lend me a few hundred million in capital would ya?
I realize not every business requires that much but I work for an oil supermajor... so, little hard to do what you're suggesting without your help. The "capital" in "capitalism" keeps getting in the way.
If managers and executives are so overpaid, why aren't top firms outcompeted by companies that offer lower wages for such positions? Lower wages would allow those companies to offer the same services at lower prices and take over the market.
I think the correct way to think about it is not that nobody does anything wrong, it's that if people consistently do things wrong, and it's reasonable clear that they are doing things wrong, then their long run survival rate in a competitive market will be zero, as someone else will outcompete them.
If someone is making a claim that someone is clearly doing something wrong, the burden of proof should -- to some extent -- be on them to explain why despite this, they are continuing to be successful without going out of business (if that is in fact the case).
For example, it feels to me that the way FANG companies hire SDEs and place them on teams is inefficient and weird. Why are 24 year old 1337coders considered fungible to work on any project? It doesn't make sense to me. But it's hard for me to convince myself that my feeling is correct, given that there are billions of dollars on the table for anyone who can come up with a better strategy.
I think this argument fails because “firm-space” is sparse. There are many companies, but there are way more possible companies given all the degrees of freedom. Also, the number of “competition events” is small. Companies don’t have the opportunity to run gradient descent to optimize themselves. A bunch of companies can make the same bad decision for the same bad reason, and they will each succeed or fail because of a bunch of unrelated factors.
