Broken Windows and American Oligarchy
Some years ago I gave a talk to a group of businesspeople — I don’t remember the occasion — and afterward, during the drink and mingle part of the event, had a conversation about executive pay. Quite a few of the businesspeople themselves thought that pay had grown excessive, but what has remained with me was the explanation one guy offered, more or less seriously: it’s all the fault of Monday Night Football.
His story went like this: when games started being televised, the financial rewards to winning teams shot up, and star players began being offered big salaries. And CEOs, who watch a lot of football, noticed — and started saying to themselves, “Why not me?” If salaries were set in any kind of competitive marketplace, that wouldn’t have mattered, but they aren’t — CEOs appoint the committees that decide how much they’re worth, and are restrained only by norms about what seems like too much. Football, so my conversation partner averred, started the breakdown of those norms, and we were off to the races.
By the way, the timing is about right.
Now, this sounds ridiculous — surely huge historical changes must have deeper roots. But I found myself thinking about this conversation when reading this interesting post by Vera te Velde on tests of the “broken windows” theory, which says that people are more likely to break social norms if they see other people violating norms, even if there’s no direct connection — you grab handbags if you see graffiti, you litter if you hear people ignoring noise ordinances, etc.. As she notes, there is now overwhelming experimental evidence for that theory. So it’s not crazy to think that CEOs might start violating pay norms because they see quarterbacks getting big checks.
OK, you don’t have to place sole emphasis, or any emphasis at all, on football. The real point here is that the eruption of top incomes that began around 40 years ago need not have solid causes — it could be a case of contagious norms-breaking. This might also explain why movements of top incomes are so different in different countries, with the most obvious determinant being whether you speak English; think of it as an epidemic of broken windows in the United States, which spreads to countries that are culturally close to America but not so much elsewhere.
Very loose speculation, the sort of thing that once upon a time a serious economist wouldn’t put out there in the public sphere. But I see all these people saying stuff, and figured that I might as well … OK, never mind.Broken Windows and American Oligarchy - NYTimes.com: