The meaning of money depends on who has it

By James McCusker

Herald columnist

Decade after decade, a movie made in 1941, “Citizen Kane,” is consistently voted the best film ever. The reason, we suspect, is that it portrayed some fundamental truths about people.

One of those truths was that money doesn’t have the same meaning or value for everyone. The rich see money differently from ordinary people who don’t have much of it.

There is a scene in “Citizen Kane” that shows just how different those views can be, remembering, of course, that when the movie was made a million dollars was a lot of money — at the outer reaches of imagination for the vast majority.

Kane, played by Orson Wells, is a very rich young man who has suddenly gotten it into his head to own and publish his own newspaper, he buys a big one. He is visited by his banker and legal guardian, Walter Thatcher, who had just been looking at Kane’s financial statement. He is puzzled as to why Kane bought the money-losing newspaper in the first place and why he is holding on to it when it is losing a million dollars a year.

To the second question, Kane replies, “you are right, Mr. Thatcher. I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, that at the rate of a million dollars a year I’ll have to close this place down in sixty years.”

When numbers grow large enough to escape the gravitational pull of our experience, they don’t have the same meaning for us. Clearly Kane’s attitude toward a million-dollar loss was different from Mr. Thatcher’s — and most moviegoers’, too.

While it usually involves money, the change in meaning takes place irrespective of what is being measured. Whether it is bushels of wheat, barrels of oil, cups of coffee, or people, once the numbers reach the billions, they slip their moorings and become abstractions — and trillions become abstractions of abstractions.

This characteristic explains why the U.S. debt of nearly 22 trillion dollars doesn’t seem to attract people’s concern. It lost its impact because it lost its meaning once it drifted into increasing levels of abstraction.

When the amounts involve Other People’s Money, the abstraction effect is compounded and visible in private enterprise as well as the public sector.

In the private sector, for example, we have headline-making contracts for movie and television stars, professional athletes in major sports, and things like CEO compensation, which rarely make headlines but often involve unreal, abstraction-level amounts of money.

One of the characteristics of abstraction-level payments in the private sector is the intersection of three factors affecting decisions. One is the attitude of “I don’t care what it costs. I want the best because we can’t win otherwise.” Another is the belief that “you get what you pay for in this world.” Lastly, there is the payment recipient’s track record, or resume, and its ability to predict future performance.

All three of those factors are at work in the compensation that large corporations shell out for their CEOs. The Economic Policy Institute, which keeps track of such things, calculated that in 2017 “the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation.

This might not seem to be an outrageous amount, if the CEOs delivered the goods. Time after time, though, analysis of the data has shown that there is no apparent relationship between CEO compensation and either corporate profit or stock price.

There is a strong similarity between the markets for corporate CEOs and the head coaches of collegiate “money sports” — primarily football and basketball. It isn’t rare, for example, for a football coach to be the highest paid individual at a university.

In all of these markets where the numbers are touching the limits of reality’s gravity, we find very similar thinking processes in the selection of leaders and key personnel. The thinking processes often result in “buying the resume” and the resulting outcomes are often disappointing.

We are already seeing the “buying the resume” pattern showing up in ordinary workplaces. The use of computer algorithms in reviewing applicants has accelerated this effect, and the introduction of artificial intelligence into the mix will boost it even further.

The combined impacts of the abstraction effect and “buying the resume” on our economy are not yet clear. The often disappointing results seem to create more “churning” of management and that probably has a negative effect on productivity.

What is clear, though is that we need to keep an eye on these two effects because they have the potential to reduce our competitive edge just when we need it most.

James McCusker is a Bothell economist, educator and consultant.