Hence the inflationary executive pay packets. Shareholders hire stock
manipulators - euphemistically known as "managers" - to generate
expectations regarding the future prices of their shares. These snake
oil salesmen and snake charmers - the corporate executives - are
allowed by shareholders to loot the company providing they generate
consistent capital gains to their masters by provoking persistent
interest and excitement around the business. Shareholders, in other
words, do not behave as owners of the firm - they behave as free-riders.
The Principal-Agent Problem arises in other social interactions and is
equally misunderstood there. Consider taxpayers and their government.
Contrary to conservative lore, the former want the government to tax
them providing they share in the spoils.
They tolerate corruption in high places, cronyism, nepotism, inaptitude
and worse - on condition that the government and the legislature
redistribute the wealth they confiscate. Such redistribution often
comes in the form of pork barrel projects and benefits to the
middle-class.
This is why the tax burden and the government's share of GDP have been
soaring inexorably with the consent of the citizenry.
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