Meet The New Boss

As our government goes into hysterics over the bonuses paid out to executives in the AIG Financial Products division, there is a new wrinkle to the story…

In today’s New York Times, there is an article describing a plan by the Obama administration seeking to put regulatory limits on executive compensation. This won’t just cover institutions that have received federal “bailout” money, but “all banks, Wall Street firms, and other companies.” This, as part of new regulations to supposedly strengthen federal oversight of the financial industry.

Yes…you read the previous paragraph right. The Obama administration wants to be able to dictate how executives at private companies are paid. I can somewhat understand wanting to have a greater hand in executive compensation at companies that have received federal monies. Even this doesn’t make total sense…no other institution dictates how a company that receives a loan can spend the proceeds…and weren’t we told that these bailouts were an “investment” by the American taxpayer? That we would get a return? Sounds like a loan to me…but I digress.

The very idea of anyone in government wanting to do this should be frightening to..well, just about anyone that works in the private sector (which, maybe is the point??). I hate to keep beating the proverbial dead horse…but once we allow the government to dictate to individuals in the private sector what they can and can’t make, we have started down a very dangerous slippery slope. If this goes through, and lets face it, the political environment is such that it could, since these guys are all evil, greedy, capitalists, what is to stop the government from expanding it? Obama says that health care costs are a large part of the economic problem…so, in an effort to control costs, why wouldn’t the government want to dictate how much health care executives make? Then doctors? Then nurses?

You could fill in the blank with just about any industry. Therein lies the problem. The whole point of private enterprise is that it is private, meaning not controlled by the public (government) sphere. It is one thing for the government to want to regulate commerce (in the interest of having a level playing field), but another thing entirely for the government to become involved in the inner workings of private enterprise.

“Wait”, you say, “these guys make way too much money and really screwed up our financial system.” First, who is to say they make too much money? You? Me? The President? The only people that have a right to dictate how much is too much are the owners of the company, i.e. the shareholders. Whether XYZ Company wants to pay their executives $1 Million or $10 Million each is really nobody’s business but the owners. No, I agree that their pay ought to reflect what they are doing for the company…if you make the owners lots of money, you should be compensated. If not, then maybe there is no bonus that year. And if the compensation system is out of whack, the owners (shareholders) ought to vote with their dollars.

Second, I would argue that the system is broken precisely because the government has, in all honesty. stuck its nose where it doesn’t belong. By attempting to dictate outcome, the government created the conditions for a situation that we now blame on “greed”. To be blunt, that is the whole point. One of the defining tenets of capitalism is that each person is free to maximize their own self-interest…if I can make $50,000 at one business or organization, and $100,000 at another, I ought to have the ability to decide to go with Company A or Company B. Now maybe I choose to stay at Company A, because there are other factors that contribute to my “self-interest.”  Again, it is MY decision to determine what my self-interest is. It is up to the sum total of our self-interests (i.e. the market) to determine winners and losers. So, our government decided that more people needed to “win”…and then, when companies lost because they made bad decisions, our government stepped in to keep them from the pain of losing…again dictating outcome. The government has forgotten that there is already a mechanism for determining what to do with companies that lose…called declaring bankruptcy and being sold off to the highest bidder.

Unfortunately, our society has been brainwashed into thinking that we ought not suffer from our actions or decisions. We are teaching our kids that from an early age. We don’t keep score in sports, and we don’t give grades in school. We try and protect their fragile little psyches from the pain of losing and the elation of winning. This, or course, has no bearing on real life. So the natural tendency of people who have been raised like this, as adults, is to not so much level the playing field but level the outcome. Hence the idea that the government (because the government is ALWAYS fair) ought to step in to make sure these people don’t make so much money. Which may seem like a good idea to many of us…until the government gets around to dictating how much lawyers can make…or doctors…or electricians…or secretaries. If we are putting in votes, I vote for the government to dictate how much athletes can make. How come Congress isn’t passing laws to tax A-Rod ninety percent of his salary because he took performance enhancing drugs?

I am sure that there are going to be all kinds of arguments trotted out by the administration and others that support this move. There will be ties made between this and “fiscal responsibility” (as if someone that trots out a $3 Trillion budget can say one word about it, in all seriousness), and that these people’s greed is hurting the rest of us. It will all sound good and helpful and…well, right. It still does not remove the fact that this step is another attempt to further government control over the private sector, and by extension, our private lives.

In closing, I refer you to a quote by James Madison, that describes the proper perspective between the government and the private sector. Perhaps our politicians would do well to read a little of Madison’s writings:

“The rights of persons, and the rights of property, are the objects, for the protection of which Government was instituted.” – James Madison

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2 Comments

Filed under Economy, Freedom, Politics

2 responses to “Meet The New Boss

  1. EC

    Hey. Good work and nice writing. Quick point. As to the use of loan proceeds, it is quite common for banks to legally limit the use of proceeds (mortgage, working capital, capital expenditure, etc). Also, I think the notion of the shareholder (owner of equity in the assets of the company) having a say in the workings of the company even so far as to limit compensation is not all too uncommon, though not as direct as O and gang. That said, I don’t agree with the limitations even though I think many execs are grossly overpaid. It’s the risk of a slippery slope when the gov gets into telling people how much they can make. For Americans, this sounds way too much like communism (even if O’s heart is in the right place, which I wonder).

    • Travis

      Your points are all valid. The point I was (at least attempting) to make was that these bailouts have been characterized as both investment (i.e, ownership) and loan. So, which one is it? And if it is a loan, which at least for the banks is how it is generally thought of, how legal is it to go back and restructure the terms of the loan without both parties’ consent? Granted, my knowledge of how loans and other structured financing of this size and scope is limited, but the basic premise of all contracts is that both parties know up front what the terms are, and that those terms can only be changed by the consent of both parties.

      The larger issue at play with this whole AIG mess is whether we are going to continue to follow the rule of law. I submit that the rule of law is fundamental to our American system. If the government can say one thing and do another, then what use is law? The emotional outburst (largely staged, in my opinion) we saw from our so-called leaders when the story of the bonuses broke is precisely why our founding fathers wanted to provide for the rule of law. It is supposed to reason out the ebbs and flows of human emotion. I still contend that the absence of the rule of law is how you get the French Revolution, instead of the American Revolution.

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