Not only do government wage controls not work, they usually backfire. Perhaps worse, like a lot of ill-conceived government schemes, they often punish the wrong people. The Federal Reserve yesterday announced a bank pay limits affecting every bank employee in America in (over)reaction to controversy to big bonuses at a few big banks and insurance companies.
On the backfire “front,” the government has tried three times in recent decades to limit executive pay:
- First, in the 1980s Congress limited “Golden Parachutes” because of public outrage at a few outrageous examples of executives at merged firms getting outsized payoffs. The result of the regulation, however, was to legitimize the once-rare practice until 70% or more of CEOs had such agreements.
- Second, in 1993 the Clinton Administration capped tax deductions for compensation at $1 million, and effectively insisted that compensation above that amount be paid in stock or options. As a result, when the stock market boomed in the 1990s and again through most of this decade, executive pay skyrocketed.
- Third, the Securities and Exchange Commission in 1992 required companies to compare executive pay to “peer” corporations. Since everyone thinks they are above average, executive pay rose, especially for the lower half of executives. (Many observers call it the “Lake Wobegon Effect”: all the executives are above average).
There is no excusing Wall Street Executives who took shockingly huge paychecks while driving their companies into the ground. The problem is that government pay controls can’t fix the problems, and they often make it worse. The culprits in the current pay controversy are top executives at a few large banks and insurance companies bailed out by the government. Frankly, those executives are not entitled to any pay at all: the alternative to the government bail-out was bankruptcy, and the executives likely would have lost their jobs and their fancy pay packages. Most of those folks now have salaries controlled by the government Pay Czar.
The problem is that stringent pay caps won’t work either: executives simply leave the firms, which are now having trouble hiring qualified replacements. This is one more reason why the bail outs were a bad idea.
Even worse, the Federal Reserve Board has now issued a pay policy that effectively punishes lower-level employees at every bank in America for the excesses of Wall Street execs. As the Wall Street Journal puts it, small town bankers are having to pay for the sins of the big banks. This too, is unfortunately typical of the government: over-reacting to a controversy with an overbroad, one-size-fits-all mandate.
It is no excuse for the big bankers’ pay grabs, but the government fix won’t work, and it punishes the wrong people. The government rules will hurt the whole banking sector, and they still won’t stop unscrupulous executives from taking outsized pay by skirting whatever rules the government devises.
Politico’s Mike Allen and Jim VandeHei report today:
President Obama is working systematically to marginalize the most powerful forces behind the Republican Party, setting loose top White House officials to undermine conservatives in the media, business and lobbying worlds.
With a series of private meetings and public taunts, the White House has targeted the U.S. Chamber of Commerce, the biggest-spending pro-business lobbying group in the country; Rush Limbaugh, the country’s most-listened-to conservative commentator; and now, with a new volley of combative rhetoric in recent days, the insurance industry, Wall Street executives and Fox News.
Obama aides are using their powerful White House platform, combined with techniques honed in the 2008 campaign, to cast some of the most powerful adversaries as out of the mainstream and their criticism as unworthy of serious discussion.
We are in no way the first to point this out, but this Obama administration strategy is taken directly from the pages of Chicago community organizer Saul Alinsky’s book Rules for Radicals. It identifies thirteen rules for progressive activists including, “The thirteenth rule: “Pick the target, freeze it, personalize it, and polarize it.” Explaining just how far progressives must be willing to go to marginalize their “enemies” Alinsky explains a few pages later:
Many liberals during our attack on the then-school superintendent, were pointing out that after all he wasn’t a 100 percent devil, he was a regular churchgoer, he was a good family man, and he was generous in his contributions to charity. Can you imagine in the arena of conflict charging that so-and-so is a racist bastard but then diluting the impact of the attack with qualifying remarks such as, “He is a good churchgoing man, generous to charity and a good husband”? This becomes political idiocy.
And then in his final chapter, Alinsky reveals what progressives really think of the average American: “Our rebels have contemptuously rejected the values and way of life of the middle class. They have stigmatized it as materialistic, decadent, bourgeois, degenerate, imperialistic, war-mongering, brutalized, and corrupt. They are right.”
Contempt for average Americans, and the desire to marginalize their common sense questions, is both at the core of the Progessive vision for governance and completely antithetical to the values of our Founding Fathers. Thomas G. West, author of The Progressive Revolution in Politics and Political Science, explains:
The Founders thought that laws should be made by a body of elected officials with roots in local communities. They should not be “experts,” but they should have “most wisdom to discern, and most virtue to pursue, the common good of the society” (Madison). The wisdom in question was the kind on display in The Federalist, which relentlessly dissected the political errors of the previous decade in terms accessible to any person of intelligence and common sense.
The Progressives wanted to sweep away what they regarded as this amateurism in politics. … Only those educated in the top universities, preferably in the social sciences, were thought to be capable of governing. Politics was regarded as too complex for common sense to cope with. … Only government agencies staffed by experts informed by the most advanced modern science could manage tasks previously handled within the private sphere.
…
The Progressives did not intend to abolish democracy, to be sure. They wanted the people’s will to be more efficiently translated into government policy. But what democracy meant for the Progressives is that the people would take power out of the hands of locally elected officials and political parties and place it instead into the hands of the central government, which would in turn establish administrative agencies run by neutral experts, scientifically trained, to translate the people’s inchoate will into concrete policies.
This is why you have Obama’s Energy Secretary telling auto makers how they must build cars. This is why Obama’s health care plan empowers a panel of “experts” to reorganize one-sixth of our economy from the top down. Commonsense questions like, “Won’t our electricity bills go up if we mandate power companies use more expensive alternative energy sources?”, and “Won’t our health insurance premiums go up if everyone is charged the same price and nobody can be refused coverage?” can’t be tolerated. People voicing such criticisms must be isolated and silenced. That’s what the White House campaign the Politico identifies today is all about.
Quick Hits:
- Neil Barofsky, special inspector general of the Troubled Asset Relief Program (TARP), warns that the $700 billion bailout program has damaged the government’s credibility, won’t earn taxpayers all their money back and has done little to change a culture of recklessness on Wall Street.
- President Obama raised between $2 million and $3 million for Democrats during a $15,200-per-plate dinner in new York last night.
- According to a new Washington Post poll, 63% of Americans say the Obama administration does not have a clear strategy for Afghanistan.
- Government Reform Chairman Ed Towns (D-NY) locked Republicans out of the committee room after the minority tried to force a subpoena vote in the committee regarding a Countrywide Financial investigation.
- According to a new study by the University of California, Berkeley, the children of Hispanic immigrants fall behind their peers in mental development by the time they reach grade school, and the gap tends to widen as they get older.