Wednesday, September 24, 2008

Galileo's Quick Take: Capping Pay Is Un-American

As for the denunciations of greed by John McCain, Wall Street trader Jim Cramer, and so many others, it is just so... un-American! America was founded on the principle of "life, liberty, and the pursuit of happiness." That means that each of us is free to live good, happy, and prosperous lives, to the extent of our abilities. It is no skin off anyone else's back if you or I make a lot of money. In fact, it helps other people because it means I am producing goods and services that other people want to buy.

Well, Congress wants to cap that, literally, by capping the salaries of Wall Street executives. Where does it end?


Chuck said...

And now another $25 billion for the auto industry, in federal loans. The auto industry excuse is that they are being forced by the feds to develop alternative cars and get higher gas mileage. That may be true, but the solution is to repeal those requirements, not to go on the dole to carry them out.

Also, I saw CNBC talking about Warren Buffet's taking a $5 billion stake in Goldman Sachs, and Buffet said he wouldn't have done this if he didn't think the $700 billion bailout was going to pass Congress. In other words, his economic calculations are based on massive government interventions in the economy.

This is exactly why we get malinvestments that lead to recessions and bankrupties down the road. The government makes rational investing impossible.

Paul Hsieh said...

There is a certain twisted logic to the pay-cap idea.

It's definitely wrong for the government to allow financiers to reap the huge rewards of taking risks that pay off, but then allow the taxpayers to foot the bill if they fail.

Of course, the correct solution is to allow the private sector to reap the full rewards and penalties of their freely-chosen actions, not regulate both the rewards and losses.

Galileo Blogs said...

Hi Paul!

You are right. There is a twisted logic in the pay cap. That logic is part of why regulation tends to progress until industries get taken over completely by government.

A very twisted application of this idea is in healthcare: If the government is paying everyone's medical bills, doesn't the government have the right to ban smoking or fatty foods in order to save money? After all, the money spent on medical care belongs to all of us.

Of course, you are thoroughly familiar with this illogic.

What is disturbing about the pay cap is the precedent of government regulating the pay of still ostensibly private corporations. Once that principle is established, it will be easier for government to regulate pay in all sorts of industries, even those not receiving an explicit subsidy.

The pay cap also implies that high pay for CEOs as a general principle, even if there are no government subsidies, somehow represents money taken from "the little people." It is a Marxist class-struggle concept enacted into law.