It has been a while since I have sat down at the old qwerty keyboard and tapped out random key sequences that are decipherable to some, meaningful to few, and relevant to none, so I thought I would come back to wasting the time of the few friends who will still bother to read this.
Yet again I am irritated, and I will lay out in some detail why. It began with watching the news this morning and noticing on the scroll at the bottom of the screen that the CEOs of banks that took federal money would be restricted to a maximum salary of $500,000 per year. I do not argue with the right of the federal government to attach provisions to money that they give out - that is exactly what they should be doing, but the provision of wage control has gotten this country into trouble in the past, at least twice that I can recall in great detail without having to do any research whatsoever. I am sure that there are other occasions of this, but I will lay out the two that immediately come to mind (and lest you believe that this is just another nCr on my part, you may want to note that one of the culprits of this asinine policy is a Republican, the other a Dem, and for my money, the Republican implementation had far more grievous repercussions).
But before the history lesson, just the stupidity of this restriction - you are not penalizing the people who got us into the mess, you are penalizing the people who are supposed to get us out. If you cannot attract the best minds with the best salaries, then you might get second class CEOs who can't figure their way out of the mess that Congress and the public, as well as Wall Street, got us into. In fact, lower compensation packages generally lead to more shady dealing in the finances because the people running the companies feel justified in "taking what they deserve". This is not to condone that attitude, but putting policies into place that foster that attitude are disastrous (as you will see later). In fact, many have argued that both the Executive and Legislative branches should be better compensated to lessen the desire to line one's pockets through political influence - I don't know whether I agree with that or not, but it is a strategy that has been in play in many European countries (with mixed results). But back to the main topic of this paragraph... if you want to penalize people, penalize the CEOs that got the institutions in to trouble, not the ones who are trying to get you out!
How about an analogy - You are financing a football franchise, and the head coach and GM monumentally mismanage the team to the point where they are long-time losers. You fire that coach and GM, spend a bunch of money on the franchise and hire a new coach and GM. But as you do that, you decide to put a bunch of restrictions on the new people, and basically try to manage the team yourself, even though you have no idea how that business should be run. All these restrictions serve to screw things up even more, because you really didn't understand the complex nature of the business, and you end up worse off than before you fired the bad guys - and then you get... the Oakland Raiders. Yep, Congress is just another version of Al Davis, and lest we want our nation to follow in the footsteps of the Raiders, we might want to look twice at what we are doing.
Obviously that analogy is a bit tongue in cheek, and really doubles as a shot at Al Davis, but the point is still the same - don't punish the guys who didn't do the crime (visiting the sins of the fathers on the sons, anyone?) especially if you were partly responsible for the f----ups in the first place (regulations on how lending occurred from Fannie and Freddie set up by Congress did contribute a lot to the mess on Wall Street).
But to the history of wage controls... the first example was a Republican president; Eisenhower. He had an idea of fairness where people who had the same job should be paid the same wage - which sounds good until one realizes that there is no way to reward people who are better at a particular job, and no way to penalize someone who is mediocre (unlike France, you could still fire the incompetent). Of course, companies still wanted to attract good employees, so they started providing benefits packages that could not be officially categorized as wages - thus giving birth to medical insurance, and eventually to HMOs and such (which, incidentally, are about as close to socialized medicine as you can get -and if you think that nationalized health care will fix the HMO problems, you are sorely mistaken, but I will speak to that at another time). Obviously, this was a much more sweeping policy and had much greater impact, but the point is still the same - wage controls suck.
The next incident was in 1996, a piece of legislation that Bill Clinton favored, and signed that capped salaries of corporate officers at $1,000,000 per year in all but two industries. Actually, it didn't officially cap them, but it might as well have. Salaries for a business are part of the operating expenses of a company, and therefore are not taxed as profit (because it is the cost of running the business, and the individual earning the salary pays personal income taxes). What the 1996 law did was to disallow salaries over $1,000,000 as an operating expense - making it a part of the company's profit even though it did not actually go into the company coffers. Of course, it then becomes virtually impossible to pay salaries above this mark, and to attract better people, companies began to offer things like stock options. Now CEOs personal income was, in many cases, tied directly to the value of the stock. Obviously, if your personal financial well-being is tied to the stock, you start to do things just to increase stock value, not because it will help the company. While not everyone would succumb to that temptation, the policy set up an environment that was extremely tempting for many even moderately ethical businessmen. You would not make the alcoholic the guy in charge of your liquor cabinet, would you? Nor would you put the recovering sex addict in a position involving quality control of strippers. A bit silly on the examples, I know, but you get the idea... making your personal wealth directly tied to the stock price, coupled with the fact that employees got similar bonuses made it very easy for CEOs to rationalize - the stock price is high, my employees are happy, I am happy, the investors are happy... whoops, the bottom fell out, we're all screwed - thus the bubble burst of the late 90s. Incidentally, the two industries that were exempt from this little law - movie studios and athletic franchises (two major Clinton contributors, but let's not beat that particular dead horse anymore). Also, as I write this, that law may have passed in 1993, not 1996, I can't remember for certain, but you can look it up.
So, long story short, wage controls don't work, and it is the wrong approach. BTW, my best time with a 3x3 Rubik's Cube is now 45.7 seconds, my best time with the 4x4 is about 4 min, 15 seconds, and I am averaging 11 minutes on the 5x5 cube (though it can hardly be called an average - I just figured it out and have solved it 6 or 7 times - still need to practice to get faster, but it is easier than the 4x4).
See you later, and I look forward to the slings and arrows to come...
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3 comments:
Re. "slings and arrows of outrageous fortune...", you'll get none from me.
1. This wage cap is at best symbolic.
2. The wage cap is a provision of the bailout. My understanding is that the wage cap caps only those corporations that receive bailout money.
3. Corporate CEO's and top executives rake in the dough via stock options, NOT wages. This is all-in-all a symbolic gesture.
I have to say, now that my inauguration euphoria has subsided, I'm truly pissed at this ridiculous stimilus plan.
1. Though I love infrastructure investments, these jobs are at best limited to small segments of the economy even when you include peripheral entities. These are not on-going jobs...these jobs will die when the stimulus money disappears.
2. 50 billion dollars of PORK!! That is ridiculous. In fact, one can argue that we're looking at 700 billion dollars of PORK!
3. The stimulus package does NOT address problems within Healthcare, foreclosures, financing and borrowing, and true job growth.
4. I actually want Obama to follow through on his promise to cut taxes to middle america.
This is not to say that I haven't liked any of his moves so far because I very much do, but re. this stimulus package, IT SUCKS BALLS!
BTW, good to have you back! and get back to me when you can get the Rubik time down to sub-30.
My point exactly - I do not like the bailout for a number of reasons, similar to the ones you enumerated (BTW, despite the rhetoric Bush's cuts were targetting the middle class as well, you can look at the data from those years to verify).
The wage caps are only on those companies that received money,but they still only apply to new employees, and do not change compensation packages of current employees (thus my point about visiting the sins of the father on the sons).
The point of this blog was not the stimulus package, which I could lambast for any number of reasons, but a general indictment of the philosophy underpinning the symbolic gesture which serves only to strengthen class divisions.
And, by the way, the stock option CEO compensation is new (within the last 15 years) and is a result of government wage controls. I will talk more on the stimulus package at a later date, but it is very similar to the FDR model, and that kept us in the Great Depression for 10 years :)
Oh, yeah, infrastructure jobs and bailout cash will only lead to inflation if this is implemented - printing money and throwing it at the problem just devalues the currency, and right now all we really have is belief that our currency system is real, since we live in a society based on intellectual rather than actual value. Therefore our currency may be subject to much more fluctuation than it did in the thirties (but even then, as FDR changed from the gold standard, the valueless currency system was being set up). Not that there is anyting inherently wrong with a symbolic system - one might argue a gold standard is symbolic... its only value was scarcity, and, while it has practical applications now, its value is still largely determined by artificial forces (desire rather than need).
But that is a much longer and headier philispohical discussion.
BTW, It was the Revenue Reconciliation Act of 1993 that Clinton signed (and was a major backer of) that lead to this explosion in CEO bonuses - though, to be totally honest, the stock option deal started in the 80s because it was cheaper than giving millions of dollars in cash, but the the official government change shifted to dramatically more stock options - there are a number of research papers on both sides of this issue, but the numbers that I have seen lead me to believe that the 1993 act did some serious damage.
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