The Slippery Slope Goes Vertical
In the Obama era, the slippery slope has gone vertical. Instead of “eventually,” the feared extensions of government power come immediately.
When President Obama decided to convert George W. Bush’s bailout of General Motors Corp. and Chrysler L.L.C. into effective government ownership, critics warned that this could lead to political intrusion into the management of automobile companies, with decisions being made for political instead of economic reasons. The companies would get less efficient. The government might try to preserve jobs or engage in political grandstanding rather than build sound companies that serve consumers – eventually.
But there was no “eventually” about it. Before he had even secured government control, Obama fired the chief executive officer of General Motors. He decided what the ownership structure of the companies should be. He insisted that the companies build “clean cars” rather than cars that consumers want to buy. And as soon as a deal was concluded, members of Congress started trying to block the closing of inefficient dealerships and to require the companies to buy their palladium in Montana, use unionized trucking companies, remove mercury from scrapped cars, and so on. Politics reared its ugly head in the first moments of government control.
Now we have the federal government’s unprecedented intrusions into executive-pay decisions at seven bailed-out banks and automobile companies….
Read more at today’s Philadelphia Inquirer.
U.S. Cutting Pay for Bailed Out Company Executives
According to reports, executives from bailed out companies Citigroup, Bank of America, GM, Chrysler, GMAC, Chrysler Financial and AIG are going to see major pay cuts this year, which will be enforced by the president’s “pay czar,” Kenneth R. Feinberg. WaPo:
NEW YORK — The Obama administration plans to order companies that have received exceptionally large amounts of bailout money from the government to slash compensation for their highest-paid executives by about half on average, according to people familiar with the long-awaited decision.
The administration will also curtail many corporate perks, including the use of corporate jets for personal travel, chauffeured drivers and country club fee reimbursement, people familiar with the matter have said. Individual perks worth more than $25,000 have received particular scrutiny.
The American people have every right to be upset about generous compensation packages for executives at financial firms that are being kept alive by subsidies and bailouts.
But their ire should be directed at the bailouts, because that is the policy that redistributes money from the average taxpayer and puts it in the pockets of incompetent executives. Unfortunately, rather than deal with the underlying problems of bailouts and intervention, some politicians want to impose controls on salaries. This might be a tolerable second-best (or probably fifth-best) outcome if the compensation limits only applied to companies mooching off the taxpayers, but some politicians want to use the financial crisis as an excuse to regulate compensation at firms that do not have their snouts in the public trough.
This would be a big mistake. So long as rich people make money using non-coercive means, politicians should butt out. It should not matter whether we are talking about Tiger Woods, Brad Pitt, or a corporate CEO. The market should determine compensation, not political deal making. Markets don’t produce perfect outcomes, to be sure, but political intervention invariably produces terrible outcomes.
I debate this further on CNBC:
C/P The Hill
The Czar Will Rule
President Obama’s real czar, “pay czar” Ken Feinberg, who has real power, brushes aside such claims even as he prepares to issue his Gosplan-style edicts on future and even past pay agreements:
The Obama administration’s pay czar says negotiations over executive compensation with the seven companies that received the biggest federal bailouts have been “a consensual process’’ – not a matter of forcing decisions on them.
“I’m hoping I won’t be required to simply make a determination over company objections,’’ veteran Washington attorney Kenneth Feinberg told the Chicago Bar Association in a speech.
But note: he’s “hoping” he won’t have to impose his own view. He’s hoping the companies will accede to his power without complaining. But the fact remains, he doesn’t have to get their consent. He “has sole discretion to set compensation for the top 25 employees of each of those companies,” and his decisions “won’t be subject to appeal.” Or, as Feinberg himself puts it,
The statute provides these guideposts, but the statute ultimately says I have discretion to decide what it is that these people should make and that my determination will be final. The officials can’t run to the Secretary of Treasury. The officials can’t run to the court house or a local court. My decision is final on those individuals.
That’s power. So where is Doonesbury? We need him to update his classic 1970s “energy czar” strips.
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