States Visited

Thursday, February 5, 2009

Good P.R., Bad Unforeseen Consequences

So, it appears that the Great, Enlightened, Infallible, All-Knowing Rulers in Washington have decided they know how to handle executive pay better than the companies themselves and are instituting wage controls on the companies that receive bailout money.

So what, they should be held accountable, right?

Well, think of it like this - what would happen if laws were passed that set the limit on what baseball teams in the American League could pay their players at $500,000. How long do you think it would take for the really great, or even really good, players in the American League to start making their way to the National League? How much time would pass before the National League, which has no pay limit, attracts all the talent leaving only marginal players in the American League?

If you were a top-notch executive and your income just got capped by the idiots in Washington, would you stay at that job when someone from another firm called and offered you substantially more?

One of two things will happen as a result of this, either a) the companies will find a way to pay the executives (and take the risk that they will all be labeled as greedy pigs) or b) the better executives will leave and take better paying jobs without government interference. Brain drain.

Although...not too long ago Congress passed that little set of laws that allows the government to confiscate the property of people leaving the country. So, if you are a top-notch executive and you've had enough of the idiots in Washington and you get a huge offer to come run a bank or investment house in Dubai or Hong Kong or Singapore then you've got a tough decision. If you take the job and become an expatriate the government is going to seize a big chunk of your assets.

God, I'm so thankful we live in a free country. Bwahahahahahahahahahahahaha!

And, as if giving the best executives every incentive in the world to leave the companies that may need them the most isn't enough, there is the added problem of what this means to New York and New York City. It seems that the state and the city reap HUGE amounts of income taxes from executive pay and executive bonuses and Washington's brilliant idea is taking millions in revenue away from local governments. So much for the notion that rich people don't pay taxes! Politically, I'm curious to see how the Democrats, who love to foster that very idea in the voting public, try to get around this. If rich people don't pay taxes how can the state and city governments be going broke without the revenue those people generate? As interesting as watching politicians make asses out of themselves can be, it bothers me because now New York state and New York City will both turn to Washington with their hands out asking for money.

Good intentions will not and cannot change the 'laws' of economics. Apparently, we are going to learn this the hard way.

Just jump. You can fly. I promise. Trust me, I'm from the government. We know what's best.


Brandon said...

I found this quote this morning: If execs don't like the pay caps, let them back away from the trough.

It would be nice if this pay cap worked as an incentive to keep these companies from taking our money in the first place, since our government has no qualms with passing it out as fast as they can print it.

redfish321 said...

Nice thought Brandon

I agree that the government should not regulate any payroll but its own (and I hope someday that it will do just that). I am still not convinced that the US Government should have gotten involved with a bailout in the first place.

However, I think that your argument is flawed. You are assuming that the cap on wages would cause the “top-notch executive” to quit his job and go elsewhere. But, these are the top executives of failing companies. Their companies could have (should have) failed had the government not bailed them out and they would have then been forced to look for other employment. I would argue that these are not our best and brightest and had the government not gotten involved they would be gone anyway. Further, if this cap causes the mass exodus you predict, I think the influx of new blood (and new ideas) could be a boon for our economy.

Also, let’s look at this from an investor’s point of view. If you were the major investor for a company and did not believe that the executive staff was performing on a level equal to its salary, would you not put similar measures in place? Personally, I would be doing some extensive cuts to the executive staff, but that’s just me.

Just a side note – I agree with the many industry experts who think Baseball does need a salary cap.

redfish321 said...

Oh, and continuing to overpay incompetent business executives so that New York City and other local government employees can persist in wasting more tax dollars is not a very convincing argument either.

Steven Rodgers

I don't have any idea if the executivs of those firms are top-notch or complete morons and neither does Washington. At this point, how would anyone outside the boardrooms of those companies really know? Perhaps the failing companies would have collapsed long ago if it wasn't for the brilliant moves of one executive or another. My intention was not to defend the actions of the executives in question but to point out the absurdity of Washington thinking it understands the performance of the executives better than the boards of directors. Even if the boards are in on the game and serving up sweetheart deals to their buddies, how does replacing one set of criminals - a set that can at least be removed by the shareholders almost at will - with another set of criminals in which no one in the country has recourse make sense?

And, it sets a horrible precendent. If our government has taught us anything it is that if you give them an inch, they will take 1 trillion miles. They will not stop taking. Ever. The income tax was supposed to apply to the top 1% or so, the alternative minimum tax was suppose to apply to the very highest income earners, Social Security was only supposed to provide a very minimum of income. This is an extremely long list...

Once government has its foot in the door, it doesn't leave. What is the difference in Washington determining the executive pay of companies receiving bail-out funds and companies receiving government contracts? I think this is just the first step in a loooong line of government interference in all kinds of things in which they do not belong and will only serve to make horrible worse.

As for the effect on NY and NYC, I really couldn't care less. I would NEVER argue that someone should get paid well just so they can pay taxes! I just think it is hilarious that the falling income of people that "don't pay any taxes" is about to push the city and state into bankruptcy.

Brandon said...

Along the lines of the government won't stop...I just read last night that Barney Frank is already pushing the idea of expanding the cap to financial institutions that did not receive any bail-out money. And so it goes.