Wednesday, February 04, 2009

As Wall Street Bonuses Go, So Goes the Liberty of All of Us

[See update to this post below.]

“There will be a time for [Wall Street executives] to make profits and there will be a time for them to get bonuses. Now is not that time.” So said President Obama on January 29 to reporters (source: “The Kudlow Report,” CNBC).

So we receive President Obama’s declaration that Wall Street bonuses must be cut. According to him, now is not the time for those bonuses, although he allows that there will be a time – determined by him – when bonuses will again become acceptable.

When Obama arrogates to himself the authority to determine whether, when, and in what amount payments shall be made by an employer to an employee, do not think that such power will only be used to lighten the wallets of Wall Street executives. Such a power demanded today becomes one that will be used in the future to cut the wage or bonus that any American is paid, if doing so should please the Presidency.

If you doubt that, consider that at several times in history the American government fixed the wages of nearly all Americans. It happened during World War II and it happened again in the early 1970s. It is neither a Democratic nor a Republican issue, with the former happening under Democratic President Roosevelt and the latter under Republican President Nixon.

It needs to be said, because Americans have become so used to having their liberties encroached: a man’s ownership of his labor is parcel of the ownership of his own life. If he cannot freely contract with an employer to offer his labor at voluntary, mutually agreed upon terms, then his life is no longer his own. Instead of being a free agent offering his services at a voluntary, mutually agreed upon rate to a willing employer, he becomes a serf, whose labor and life is controlled by his lord and master.

That is the meaning of Obama’s attack on Wall Street bonuses. Attacking the private right of employer and employee to voluntarily agree on salaries and bonuses is an attack on the freedom of both parties. In calling for Wall Street executives to be treated like serfs, President Obama is setting the precedent that will make all of us serfs in the future.

Do not be fooled by the issue of government bailouts. Government had no right to hand out that money. It does not belong to government; it belongs to each one of us. Moreover, this crisis would have ended on its own without any government “rescues.” Recessions always end through the economic adjustments of all participants in the economy. It happens on its own, without a “rescue” or despite it. The current recession is no exception and will end, despite Presidents Bush and Obama’s profligate showering of trillions of dollars of taxpayer money on the problem.

However, government committing a wrong by handing out bailout money does not give it the right to compound its wrong by using that as a justification for further violating the rights of employers and employees. Government should not be handing out bailouts, nor should it be telling employers whether they can pay bonuses.

No one, including President Obama, has the right to forcefully tear apart the private employment relationship between employer and employee. When a private individual does it, it is considered fraud or theft. When the President does it, he takes on the scary personage of a dictator.

*****

2/4/09 UPDATE: President Obama now says companies that have been given (or forced to take) bailout money must cap the pay of their senior executives to $500,000 salary plus $500,000 bonus. For the morality of that, see above. In terms of its effect, government will get the quality of executives that it pays for. Guess who runs Wall Street now?

We could see this coming. See my October 27, 2008 post, "The Man Paying the Bill Gets to Determine Who's for Dinner."

*****

This post is re-posted. It was originally posted at www.simplycapitalism.com on February 1, 2009. Also published at www.capmag.com on February 4, 2009.

5 comments:

Helene said...

While I believe less is more when it comes to government intervention, on this issue I wholeheartedly agree that income and perks should be limited for those who participate in the bailout until the money has been repaid.

For example: If you loan me money to assist me in paying my mortgage because I’ve fallen on hard times (e.g. unemployment) and I turn around take a trip to Paris and buy a new porche, you’re right to be outraged and upset. Worse still, if someone else compels you to loan me the money (the government) and I turn around and take that trip and make that purchase you’re likely to be even more upset because you had no direct, immediate say in the loan.

Yes, you elect the officials who sign off on these decisions, but once they make decisions like this that you don’t agree with you’re stuck until their terms are up.

When the government decides to loan MY tax dollars to institutions which I have no direct interest in, I demand that reasonable restrictions be attached to their acceptance of my hard earned money.

Suggestions4Obama.com said...

While I believe less is more when it comes to government intervention, on this issue I wholeheartedly agree that income and perks should be limited for those who participate in the bailout until the money has been repaid. A good start but It's time to do more. How about the stocks and other options that could easily add up to millions of dollars?

Galileo Blogs said...

Helene and Suggestions4Obama.com,

Are you the same person, or have you cribbed your comment from the same source? I see that each of your responses begins with the exact same sentence, "While I believe less is more when it comes to government intervention..."

Regardless, my response to Helene is essentially this: "Two wrongs don't make a right." Government had no right to hand over bailout money, nor does the fact that it(improperly) handed over such money give it the additional power to dictate how companies should be run.

Government should stay completely out of economics, so as to avoid this type of situation involving the creeping expansion of government power. First, government takes our money and distributes it to Wall Street firms (and other firms). Then, using that as a justification, it arrogates to itself the right to dictate salaries. What's next?

We are all vulnerable to government dictating how we live our lives if government can get away with this. Today, it is the salary of Wall Streeters, but with that precedent established, it can be any one of our remaining freedoms, such as the right to negotiate our own salaries with our employers, decide how much to charge for goods that we sell, and so on.

I will also add that governments always find a convenient scapegoat in times of crisis from which to expand their power. Today it is easy to attack Wall Streeters for all their alleged and real imperfections. There is also a lot of plain old envy here given the amount of money many of them make. I am sure it was also easy for the Nazis to attack the Jews, given the strong strain of anti-Semitism and envy at their wealth (real and imagined) that has existed for centuries in Germany.

I don't make that analogy lightly. It is entirely valid. Look where it led Germany. Consider where similar sentiments may be leading America.

We cannot have rights if each one of us does not have rights equally. That is why the right of any employer and employee to negotiate compensation is inviolable and shall not be violated by government or anyone else.

Michael Labeit said...

Perfect proof the bailouts were not necessary. If the CEOs and CFOs of these enterprises are earning billions in capital gains, let them use these funds to prop up their businesses, not tax dollars.

Galileo Blogs said...

Hi, Michael. I am not familiar with the facts you are referring to. Most of the people I know achieved capital losses over the past year.

Regardless, it does not matter whether the CEOs and CFOs have made money or not. They should not receive bailout money because morally it does not belong to them. It belongs to others (namely, all Americans who pay taxes) who are having their money taken from them by force (through the process of taxation and inflation).

But, the immorality of the bailouts is matched by their impracticality. They destroy wealth by taking money from the more productive and giving it to those who are failing. It is a reward to failure. That destroys wealth.

Now, there is a different context here in which the bailouts have some legitimacy, although they still cannot be justified. That context is the fact that *government* created the economic mess that is sinking both poorly run and well-run companies alike. It is *unfair* that the government has done this. In that sense, it is unfair that certain companies fail just as it is unfair that certain people lose their jobs.

However, that still does not justify stealing money from still other people to give to these victims of government's interference in the economy, which caused this crisis.

The principle is similar to how one should treat the victim of a robbery. One ought to give that victim (assuming he is an innocent victim) one's sympathy, but their victimhood does not give them a claim on our wallets for compensation.

Again, as I stated above, "two wrongs don't make a right."

(Finally, there is yet another context to look at this, one often raised by good economists. That is the fact that government does not have the ability to properly pick winners and losers. Government cannot make good "allocation" decisions for capital because government officials cannot hold all the relevant information in their heads that many self-interested market participants can. Moreover, government officials become corrupt when they hand out looted funds to politically favored parties. So, for these reasons any government "bailout" or subsidy of any nature is economically destructive.

It is both economically destructive and immoral.)