Saturday, October 24, 2009

Capping executive pay, You asked for it.

The federal government’s new Pay Czar, Kenneth Feinberg, has determiined that executives at several bailed out firms must take substantial pay cuts. This has predictably sparked a heated debate about whether the government should be involved in pay decisions and what constitutes “excessive pay”. I believe Wall Street has made its own bed, and now must lie in it.

When firms accept themselves as “too big to fail” and take money from taxpayers through the federal government, they lose any right to make free market arguments. These firms turned their backs on the free market system because they didn’t want to face the pain of failure. Now they have to accept their new masters.

Will government meddling and bureaucracy make the situations at these companies worse? Probably. Will talent walk away? Of course. Then again, it was the alleged “best and brightest” that helped create this fiasco. What about “mission creep”? What if the government decides to cap pay at companies that weren’t bailed out? The optimum time to put the brakes on the government takeover of the free market was before they started doling out TARP loans. Where were the shouts from the free market champions back then?

Eventually the government will wind down its takeover of big business because it will fail. Whether it’s this administration or the next one, reality will set in over time. For now, we’ll get a demonstration of what happens when entrepreneurs are replaced with czars and committees. I believe individuals are entitled to every dime they can make honestly in the free market, but I also believe that individuals and companies have to take the consequences of their actions and inactions. If you want out from under the thumb of the government, give the money back or find a new career.

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