FRONT PAGE CONTRIBUTOR
The Moratorium on Brains
I become increasingly convinced that a socialist USA would have no better morals or ethics than the former USSR. There is no decency, inherent to us as a people, that would cause us to pass laws and enact policies similar to what was done in Russia, under the Bolsheviks, and get anything different than the Gulag Archipelago as a result. This new and creepy form of American Exceptionalism from the Left must be killed before it thrives.
Where does this mendacious and evil twaddle first get a foothold? It grows like kudzu when people are angry, envious and afraid. The ignorant ranting of class-envying hacks empowers the government to surject illegitimate authority onto transactions best governed by private contract law.
Today’s Wall Street Journal offers us an example that should make us all fear for the well-being of our economy and our nation. The government now intends to set pay scales for all banks and financial institutions. I wish I were joking, Comrade Smith. I’m not. The sordid details follow below.
The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.
This, our friends on the Left assured us, would never happen. Also, if it does happen, the bankers just have it coming anyway. Here’s a textbook example of that sort of reasoning.
I post to Leftist blogger Fabius Maximus.
KOTM: “…let’s see how Senator Claire McCaskill’s proposal that Congress set the pay of banking executives that except TARP for their firms flies in the coming weeks?”
I go on to add “It’s a test case, Fabius. They are seeing what they in fact can get away with. You start small, nibble a little bit at a time, then, once people haven’t objected to the initial forays, you go whole hog.”
Fabius Maximus replies: This is absurd. These large banks are zombies. The US citizens will spend trillions to recapitalize them, and should receive the gains that result. This is the policy followed by everybody else, plus the US (in S&L crisis). Take them over, replace management, repair, sell them off. A post going up later shows that even Russia is following this model.
For some masochistic reason, I continued arguing. I cited an earlier report showing that Congressman Frank from Massachusetts was already attempting legislation to set restrictions on executive compensation for all US companies.
Fabius Maximus replies: Who cares what the hired help are paid? Would the world stop spinning if their compensation vs. average workers returned to 1980 levels (which I very much doubt will happen, as this is probably just smoke for the proles).
No, Fabius; the world didn’t stop spinning during The Little Ice Age either.
All such efforts to abjure the rights and steal the property of others begin with a similar sense of grievance and entitlement. While the President decries a reckless executive culture and a “quarter-by-quarter mentality”, on the part of executives, the policies of US government regulators reflect a much deeper antipathy and desire to control. Fed Chairman Bernanke reveals the true aim of the current administration’s policies.
“ask or tell banks to structure their compensation, not just at the very top level but down much further, in a way that is consistent with safety and soundness — which means that payments, bonuses and so on should be tied to performance and should not induce excessive risk.”
Risk, in this case, gets defined by the government. Defined by a government that saw no particular risk in running up a $1.8Tr deficit in just 100 days. Risk gets defined by a government that deliberately understated the economic difficulties we operate in to fudge the numbers when it passed the spending leading to the $1.8Tr deficit.
Risk gets defined by a government that then deliberately used unrealistically optimistic economic scenarios in its bank stress tests. They had to match the unrealistically optimistic economic scenarios that underpinned the aforementioned blatantly disingenuous budget projections. When Ken Lay engaged in similar behavior, it was termed fraud; not policy.
I’m all in favor of letting this bunch define what risk management properly entails. I’ll favor it particularly when they get back to me with a compelling answer to Philosopher Plato’s age old question: “Who will guard the guardians?”
Yet what makes this worse than greedy, worse than dishonest and worse than tyrannical is the fundamental disincentive against effort and achievement that is always implicit in any government cap on profit or compensation. This proposal does not represent a moratorium on risk; it does not represent a moratorium on greed. The policy, at its core, represents a moratorium on effort and a moratorium on brains.
People innovate, people strive and people do their best – when they see the possibility for a reward at the end of the rainbow. Christopher Columbus, in 1492, sailed across the ocean blue. He did this to help expand Spain’s trade empire and to make himself a regal fortune. He did this for no other compelling reason.
We can have a nice, safe economy, where no one does anything risky. It’s a good thing that hadn’t happened to the world before Thomas Edison, Jean Carnot and or Alexander Graham Bell were born. I’m glad fire became a popular cooking implement before Timothy Geithner showed up. He would have implemented a “responsible” risk management strategy to govern and thereby curtail its widespread usage. Our nanny state wouldn’t want too many honest working people getting burned.
I won’t argue athwart the fact that Barack Obama, Barney Frank and their enablers, such as Fabius Maximus, feel a deeply held sense of grievance. The behavior of some hedge fund traders and highly-compensated CEOs at loss-magnet corporations has imposed major negative externalities that depress the commonweal.
I remind them, however, that oppressed peasants in Zimbabwe felt the same way towards white farmers. Letting those resentments get taken out in trade led only to anguish, misery and tears. It’s something all the Lou Dobbs wannabees need to cogitate on. Otherwise, Mikhail Gorbachev may not remain the only leader of a former super power who goes down in history for having to order his armies out to harvest the rotting potato crops.