Jun
11
Salaries, Caps, and Incentives
Filed Under Economics | Leave a Comment
Via Drudge, it appears Democrats both in the legislative and executive branches are eyeing government-imposed limits to executive pay, whether they are on the receiving end of government money or not. President Obama and many in his party hold to the fallacious notion that “excessive” executive compensation were a large component in the ongoing financial crisis.
Were there certain members of management in the financial sector that were rewarded lavishly for track records that were less than deserving? Of course. Then again, the same argument could be made for many a legislator…
But where such command-and-control policies such as executive pay caps go awry is their basis on the idea that the government can make decisions better than the people can regarding their own money. In this case, we’re talking about shareholders in the companies in question. In the end, CEO’s and their ilk are being paid with the shareholders’ money, and they decide (through elected boards of directors and more specifically compensation committees) how much their managers should be paid. To impose government controls on what management can be paid and how such matters should be decided is nothing less than the federal government telling the shareholders that they are too stupid to allocate their own money.
I am in no way advocating that those who drive their companies into financial ruin be rewarded. What I am advocating is that these people be shown the door by their employers, the shareholders who gained their equity and voting rights with their own hard-earned money, not the the Fed, the President, or Barney Frank.
An interesting spin on the issue is this story (also featured on the Drudge Report) of the suggestion of the feds capping union boss pay. Fat chance.
What I see as the more interesting undercurrent in this debate is the recognition by liberals that people do, in fact, alter their behavior when considering incentives. They realize that if CEO’s are rewarded for short-term results, they’ll get short-term plans. They follow the incentives. So how can the government crack down on pay for companies in financial trouble when the government was the one who rewarded bankrupt auto companies with huge taxpayer-financed takeovers?
If people respond to incentives, then what exactly are we rewarding with welfare?
If people will act in a way to gain money, will they not do the opposite when a behavior takes away money, as in taxation?
Cigarette taxes are meant to curtail smoking.
Carbon taxes are meant to curtail energy use and emissions.
Wouldn’t taxes on working, saving, investing, and employing have similar effects?
Perhaps the liberals believe government incentives somehow fall into another category. Perhaps raising taxes is good?
Then why wait to raise taxes? If its good, why not do it right away? If you’re not doing it now because its not good, are you promising that you will be doing something harmful to the economy in the future?
There seem to be a lot of inconsistencies with those currently in power as to whether people respond to incentives or not. But in the end, it is the American economy that will suffer for their ignorance.
Jun
2
GM Bankruptcy: Mission Accomplished
Filed Under Economics | 6 Comments
General Motors declared bankruptcy.
Let that sink in a little bit.
Words that would be considered ludicrous a decade or so ago yesterday became a reality, as GM filed for chapter 11. Congratulations to all of my American readers, who share ownership in a 60% stake in the automaker:
Monday, U.S. President Barack Obama defended government intervention in GM as the auto maker enters Chapter 11 bankruptcy, saying the actions are part of a “viable, achievable plan that will give this iconic company a chance to rise again.”
Under the plan, the government would own 60% of the new GM, but Mr. Obama said auto executives “will call the shots and make the decisions about turning this company around.” He said the government would refrain from playing a management role in all but the most critical areas. “Our goal is to help GM get back on its feet…and get out quickly,” he said.
Obama also described the government ownership, and therefore control, of the company as “unwelcome.”
But is this recession-era takeover really “unwelcome”? Or is Obama just refusing to let a good crisis go to waste?
When looked at critically, the GM bankruptcy and government takeover accomplishes many goals that make up the Obama agenda:
- Being able to dictate priorities in auto manufacturing will allow Obama to enforce his CAFE standards and help keep the “green” lobby
- As Rush pointed out (via The Other McCain), the restructuring deal put together by the Obamunists will put through plenty of protectionist measures that will do great economic harm, but keep in line with Obama’s positions on trade. RSM states later, “The sharp rise in long-term bond rates is only “puzzling” to people who know less about market economics than I do, and I’m a liberal arts major. But the list of people who know less than me, however, unfortunately includes the man Obama insisted must be in charge of the Treasury.”
- How does the UAW taking disproportionate ownership in GM play to the Obama agenda? Hmmm: “We’re ready to play offense for organized labor. It’s time we had a president who didn’t choke saying the word ‘union.’ A president who strengthens our unions by letting them do what they do best: organize our workers,” - Barack Obama, April 2nd, 2008
I’m sure there could be nothing more musical to the collective ears of Toyota, Honda, and Nissan than the fact that their largest American competitor is being run by a labor union and the federal government. But for what its worth, Moonbattery has a good idea for the next GM ad.
Update: Thanks to The Other McCain for featuring this post in the “headlines” section on their right-hand sidebar. Readers: Welcome to Zoominac!
