Free Markets, Free People


Final Thoughts

Final as in the last thing I’m thinking about when I go to bed. I’ve been toying with the idea of doing a bit of a brain dump at the end of the day, instead of writing about the hottest topic du jour, so consider this a flagship post (N.B. even though my not-so-well-thought-out-or-composed trial balloon was pretty much a flop).

I have very mixed feelings about the announcement from the Pay Czar today that 7 of the firms receiving TARP money would have their salaries dictated to them, resulting in as much as a 90% pay cut (although I’ve also heard 90% was the average).

On the one hand, I figure if you dance with the devil, then you can’t complain when he calls the tune. And since in my estimation these firms should have been allowed to fail in the first place, I’m not exactly shedding any tears over their lost compensation. If they wanted to have control over their businesses, then they shouldn’t haven’t gotten involved with the government in the first place. Whatever Paulson said in that room that fateful day, the decision-makers still had a choice. That they chose poorly is really not my problem, and I don’t feel one bit sorry for them.

Yet, I have no way of knowing if any of those salaries being cut would be going to mismanagers or saviors of the bailed-out firm. Clearly if these firms are going to survive (and the taxpayers are going to have any chance of getting their money back), then we would want the smartest, most industrious, and capable workers in there plugging away, whether it’s in the mail room or the board room. But how is that supposed to happen if these people aren’t getting paid their market rate? Why wouldn’t they go somewhere else, or start their own private companies?

More importantly, what sort of precedent does this set? I understand that the Pay Czar’s actions are legitimized by Congress in the statute setting up the TARP program, but what constitutional authority ever gave any of them the right to dictate pay? The Commerce Clause? The General Welfare Clause to which Congress is now hitching its hopes on forcing people to buy health insurance? The answer to that question only raises much deeper and frankly hair-raising questions.

If Congress can constitutionally give the Executive Branch the power to dictate the pay of those who receive federal funds, what else can it do to those being subsidized? If the federal government is picking up the tab for any portion of your health insurance or health care, for example, what limits can it place on the way you live your life? Can it force you not to smoke? Not to drink? Maybe you won’t be allowed to go skiing or rollerblading without a special permit. Would motorcycle riding still be allowed? How about eating fatty foods of any sort? What happens to student loan recipients? Will their classes be decided for them? Their future employment?

Scoff if you must, but if the government can dictate what your intellectual and physical efforts are worth, then why can’t it also dictate what your actual life is worth? And don’t be confused into thinking that decisions concerning how much the government will pay for your health care, or what you will do to earn a living, are anything but a determination of how much your life is worth.

Like I said above, I’m ambivalent about the Pay Czar actions. While I’m not crying over some Wall Street fat cats having the their lucre cut off, I am worried about the seeming ease with which Americans are taking this news and their apparent lack of interest in what it could mean for them (and me!). Governments are dangerous, no matter what goodies you think you might personally get from them. A government that exercises control over any of our lives with fanfare from the constituents, or worse, with their apathy, is by far the most dangerous. Which government and which polity do we have now?

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18 Responses to Final Thoughts

  • They should be acting like investors. end of story.

    • Bingo.
      They should have demanding things up front and then the company could decide if they could live with it or not.

  • The problem with what is going on is where do you stop?  There are countless firms operating on what could be considered tax breaks.   If you call them tax breaks, does the government now have control?
    There’s a lot of places where people get personal treatment analogous to a bailout, although they may not consider it that way.  For example, its amazes me how many people revile corporations for seeking loans from the government, but have no issue with themselves getting an FHA loan or Student loan.  Basically in both those cases you’re getting loans at very low interest rates that would be too high and unsupportable if you obtained them privately.  The government is taking on the risk of you defaulting and will be stuck with the bill if you do.  There much in common from that perspective to many of the bailouts.
    Does the government have a right to tell you how you can conduct your education or where you get a job or what changes you can make to your house, arbitrarily after the fact?

    • Same problem as last time, the paragraph spacing isn’t coming though from FireFox.

    • The problem with what is going on is where do you stop?  There are countless firms operating on what could be considered tax breaks.   If you call them tax breaks, does the government now have control?

      Yeah, that’s what worries me too. For example, the feds now have de facto control over hugh swaths of what private universities do, just because they take federal grant money of one sort or another. Theoretically, the universities could get out from under that control, but practically speaking, they don’t see it that way because none of them do. And the politicians and bureaucrats find new ways to interfere with them every year.

      • There is at least one college that has freed itself of federal intrusiveness. Hillsdale College decided some years ago to cut all financial ties with the feds to avoid the heavy hand of government. This  includes Pell grants and other aid to the student, which obligates the school . They increased their own scholarships and seem to be doing quite well. They also send out a free monthly publication, Imprimis, which is interesting.

        http://www.hillsdale.edu 

  • MichaelWIf they wanted to have control over their businesses, then they shouldn’t haven’t gotten involved with the government in the first place. Whatever Paulson said in that room that fateful day, the decision-makers still had a choice.

    Did they?  My understanding of the situation was that Paulson made some pretty blunt threats and effectively forced them to take the money.  Yes, I suppose they could have told him to p*ss up a rope and dared him to do his worst, blissful in the knowlege that, even though they were signing up their companies (and themselves personally) for a protracted round of federal investigations and lawsuits AND refusing to take the only lifeline that would save their failing businesses and keep thousands of employees in jobs, they were taking the moral high road.  But I suggest that most people are not too eager to call down the wrath of Uncle Sugar, go down in history as the man who let a huge company fail, and live with the fact that his principled stand led to thousands of stockholders losing their money and thousands of employees losing their jobs.

    MichaelWWhile I’m not crying over some Wall Street fat cats having the their lucre cut off, I am worried about the seeming ease with which Americans are taking this news and their apparent lack of interest in what it could mean for them (and me!).

    I absolutely agree.  In my opinion, one of the key requirements of a successful democracy is that people MUST adhere to the notion of fair play and refuse to allow different rules for different people.  Just as some pigs should not be more equal than others, some pigs should also not be LESS equal than others.
    I think (hope!) that more Americans are uncomfortable with the pay cuts than perhaps you suspect.  No, there aren’t demonstrations or mass meetings; people aren’t angrily storming their congressman’s office to demand that this be reversed.  However, the fact that even MiniTru admits that this policy is very controversial tells me that many Americans don’t like it on a gut level.

    MichaelWA government that exercises control over any of our lives with fanfare from the constituents, or worse, with their apathy, is by far the most dangerous. Which government and which polity do we have now?

    There is much food for thought here.  How and why do people become apathetic or even cheerleaders for malicious government policies?  Is it because they are cowed and frightened into submission?  Is it because humans have a fundamental need to hate “the other” (Oceania, the Jews, the Negro, the rich, the aristos)?  Some combination?
    Partisanship* has been much derided lately.  My belief is that partisanship – the seperation of people into political groups based on shared ideology and goals – is natural.  However, when partisanship leads to the outright violation of the rights of “the other”, then it’s gone too far.  By arbitrarily cutting the pay of those corporate executives, TAO and his thugs have gone too far.
    —-
    (*) Defined popularly as “opposing democrat policies”.

    • Pay is not the issue; contracts are. If the government can invalidate legally established contracts between private parties then we’re all on a path that’s not going to end well for any of us.

      • I agree.  For all practical purposes, it makes a business climate not dissimilar to that in a lawless country.  Why should anybody enter into a contract when, for political reasons, it may be altered or invalidated at any time?

        • The government has been so invasive with our own money, many of us could be considered to be getting money from the government depending on how lax you definition is.  (Student loans, FHA loans, unemployment, Small Business loans, …)

          The only thing they need to justify screwing you over is garnering enough political will with the public to offset negative political fall out from the idea of the thing.   But it won’t take long before they don’t need that to press the issue.

  • I would prefer the government get out of it all together, on the other hand, for these seven firms the pay change could be a good thing in as much as it allows adequet compensation in the form of stock which is the way it should be.
    I hate government meddling, but sometimes the cupidity and mass arrogance of the private firms brings it on.  The era of giant payouts and golden parachutes was not a sound time for the fiduciary interests of the stockholders.  Some of the men who got tremendous pay outs ran their companies into the ground, and that was even before the crash.
    If you want to preside over a 10% decreas in sales, and a 25% decrease in profits you don’t need a multi milion dollar CEO for that, you could hire a kid with an MBA and pay him 100k.

  • If you think this is bad, wait until the health care debacle and cap/tax.  If the government can regulate how much CO2 is put out, it will regulate to the n’th degree.  The logical conclusion will be individual carbon credits for everything from having a pet to having children.  And once you’re under the gov’t health system, the busybodies will try to regulate everything else.

  • So, they are intent on ensuring that the companies fail anyways.  If you are going to chase off all the talent and recruit people who are so incompetent they will do the job for effectively nothing, you are effectively setting the company up to fail.  Why didn’t they just let the companies fail in the first place and save us a trillion dollars?

    The real question, though, is are they still “too big to fail?”  Meaning, when this insane idea causes even more losses and puts them back on the shoals, will we be expected to pour another trillion dollars into this boondoggle?

    • gotta disagree with that, there is no evidence that people earning less money than the most highly paid CEO’s do a bad job. In fact there is circumstantail evidence to the contrary, since some of the most high profile firms failed and some of the smaller firms, with more modest payrolls, survived.

  • “Would motorcycle riding still be allowed?”
    If they come for my bike, there will be hell to pay.
    2007 BMW F650GS (the single)

  • when have the taxpayers ever gotten their money back? 

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