Wednesday, October 21, 2009

The Pay Czar Rules: It's Eventual Impact On You

Special master pay czar Kenneth R. Feinberg is about to rule on executive pay at Citigroup, Bank of America, General Motors, Chrysler and AIG. He is going to call for major pay cuts at these firms, according to leaks. (Although, it seems some of the top execs will get sizable stock positions, with middle management really screwed.)

Bob Murphy's comment highlights the major danger in all this:

Regardless of the legal niceties, this is a very bad development. Now the unruly masses get a taste of seeing the noble DC crusaders pushing back against the corporate fat cats. Hip hip hooray! People not profits!
The masses aren't likely to notice the legal niceties of these being bailout firms. It's smash the bad guys, to them.

It makes future demands for pay cuts at other firms, that had nothing to do with receiving bailout money, much easier for the egalitarian Obama Administration to push on later down the road. And it makes overall government meddling by, as Murphy puts it, "The noble DC crusaders" that much easier.

As for the characters at these firms that will be facing the cuts, the real problem started with the bailouts that should have never occurred in the first place. If a firm can't stand on it's own financial balance sheet, then true bankruptcy (not the phony gvt bankruptcies of GM and Chrysler) makes a hell of a lot more sense then the government propping up firms that can't survive on their own. But, it's all political now.

Every new crack the government slips into, the more inefficient the economy becomes, the more money directed to propping up politically favored losing schemes and the lower the standard of living for us all.

Don't be concerned about the Pay Czar cuts to these executives, be concerned about the precedent it is setting for further meddling . With the pay czar meddling resulting in cheers from the masses, more and more meddling, rest assured, will be on the way, and a march toward a lower and lower standard of living with it, for you and me.

Pay cuts for you and me won't be needed, there will just be less around for all of us to buy.


  1. This is great news. Executive compensation in the US is outrageous. Personally I'd prefer an across the board adjustment to income tax:

    $0-100k: No income tax
    $100k-250k: 50% income tax
    $250k+: 80% income tax
    $1M+: 90% income tax

    The dizzying difference between the wealthy and the middle class isn't healthy for a democracy. Something's got to give, and personally I have a hard time faulting the administration for punishing the people who presided over the near-collapse of capitalism.

  2. AustrianInvestor.comOctober 22, 2009 at 3:33 PM

    mulling it over: Not a good idea to tax the most productive members of society. They will just take their talent and capital to friendlier jurisdictions leaving you and I with less. By the way, what's so fair about taxing some at folks at 90% and others at 0%? May I suggest reading "Economics in One Lesson" by Henry Hazlitt?

  3. Mulling it over: this is a joke right? You are reading a blog on economic policy and you post a comment like this. What planet...I mean... geez.

    The dizzying difference between the wealthy and the middle class isn't healthy for a democracy.

    Please elaborate...
    (we live in a republic - BTW)

    also you said -

    ...the people who presided over the near-collapse of capitalism.

    wow. you mean the government, right? Since they are the ones who meddle in free markets and unfairly chose winners and losers. ...and the administration punishing... is a nice choice of words...