Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, June 10, 2006

Department of "Huh?"

Progressive Liberal and Mark Thoma both get medieval (and not in a good, Chaucerian way) on Tom Nugent and Robert Clarke of National Review:

Angry Bear: if Nugent & Clarke think that issuing options to CEOs does not have a cost to the shareholders of the company, there are not qualified to write about executive compensation. Which is of course why they get to write for the National Review.

I think that Nugent and Clarke are trying to be clever: they think they can dance around and say that "compensating [CEOs with options]... has not come at the expense of company profits" because stock issues and repurchases are not income-statement but balance-sheet events. Hence what they say has truthiness: the loss of shareholder value that comes about through ownership dilution produced by CEO options does not "come at the expense of corporate profits." However, it has the same effect on shareholder wealth as an equivalent salary payment to CEOs that does come at the expense of company profits.

They hope that their readers will overlook this.

Which is, of course, why they get to write for National Review. If you're fooled once by believing something you read in National Review, shame in them. If you're fooled twice, shame on you.


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