My new NBR blog post on capping executive pay

Steve Horwitz

It's now up on the PBS-NBR site. A little snippet:

The irony is that bank executives weren't the primary cause of the crisis, the very politicians and Federal Reserve who are now on their moral high horse were. Capping executive pay may make them feel good, but the consequences will be that the talent needed to restore confidence in the financial system will not see the lower pay as worth the trouble and will take their skills elsewhere.

Comments

[Greg Ransom]

The bank executives had the Congress in their back pocket -- they gave sweet heart loans to Senators, they bankrolled their campaigns -- and they used that influence to block regulations of the derivatives market (blocking the central part of Sen. Gramm's reform effort) and to block reform at Freddie and Fannie (Bush's reform effort) -- and the did nothing to fight Acorn or the CRA. Instead the bankers road these pathologies all the way to multi hundred million dollar bonus payouts.

The bankers backed and bankrolled this corrupt system from beginning to end -- and road it for all it was worth. The supported Greenspan, thy supported the derivatives corruption, they supported the Fannie Freddie corruption, they supported the whole house of cards.

They victimized the country and the whole world. Let's not cry for the bankers. Let's cry for what they have done to our country.

[Pablo Kuri]

My questions for the law makers is: how will you determine excessive pay or even low? what objective measure can you use? who´s to decide the right amount and why this person?

I guess the average person loves hearing their congressional representatives are ¨doing something¨ to stop these greedy, exploiter capitalists. Ask your grocery clerk, the cab driver, any average person and they´ll answer that they must.

The battle for the hearts and minds is essential to reverse the politicians medeling with the privates individuals affairs.

[Mario Rizzo]

My new view (born largely of frustration) is to rejoice in the operation of the slippery slope. As Barry Goldwater used to say, "With federal aid comes federal control." This is happening with GM's policies too.

[Roger Koppl]

I still want to know how this "cap" plays out in reality. Is this really a pay cut or just clever theater? Cash will be replaced by stock for some of these guys. How will that stock be valued? What about "deferred compensation"? Are they all going to get a big fat check after the mid-term elections? What are the details?

[Roger Koppl]

Forgive the double post, but it's hard to square this pay cut with public choice theory. Maybe I'm missing the incentives at work, but I just don't see how it is the material or political interest of the Obama administration to put in real pay cuts. Water does not run upstream. We are talking about a few named persons (Obama, Geithner, and a few others) who may act contrary to their material and political incentives out of stupidity, perversity, arrogance, or principle. It's possible, yes. But it seems so unlikely that I keep thinking, "What's really going on here?"

[Boniface Kiprop]

Roger - genuinely confused as to what you are getting at! - Why isn't it Obama's political interest? Probably a majority of the electorate will applaud pay cuts for "fat cats." And if it can't be explained by public choice, maybe that just means it can't explain everything. But, as I say, wouldn't these pay cuts be very popular with the median voter?

[Roger Koppl]

Boniface,

I don't think the median voter is so far left, which only adds to the paradox. Anyway, I was thinking of special interests. In a representative democracy, elected officials generally have an incentive to concentrate benefits and disperse costs. They serve special interests. Here we have some rather concentrated interests focussed on the very persons who are supposedly going to take this big hit. Perhaps it makes perfect sense if you do the public choice calculus properly. On the face of it, though, it seems to contradict the basic logic of concentrating benefits and dispersing costs. It looks like water is running uphill.