President Barack Obama on Wednesday imposed a salary cap of $500,000 for top executives at companies that receive large amounts of bailout money, saying that some executives were being "rewarded for failure," in part with taxpayer-subsidized money.
"We all need to take responsibility," the president said as he prompted Congress once again to act on his economic stimulus program and repeated his comments that some Wall Street executives had shown "the height of irresponsibility."
"We don't begrudge anybody for achieving success, and we believe that success should be rewarded," he said. "But what gets people upset - and rightfully so - are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers."The President thinks top executives should not be rewarded for failure. Fair enough. What the heck then is the stimulus package doing there in the first place? More importantly, this fallacy of thinking of wealth as something static is very destructive. For instance, if a mother was sitting at the dining table with five children and ready to cut the cake in front of her, each kid would wish that his brother would get a smaller piece which would leave more for him. It is out of a common pot, in this case a common cake, that the benefit is ultimately distributed from. This is the governments' method which completely divorcing effort from reward leads us straight to the tragedy of the commons. The notion that wealth merely needs to be distributed is patently false. Wealth like, the cake or any other thing should be first created before it distributed. Thus, if anybody has more of wealth, then he has deserved it by producing an equivalent amount of value worth trading for. This is justice. However, in the governments view, it is the exact opposite of justice that prevails -- where the best among many are overlooked, or even worse neglected. When Obama said, "But what gets people upset - and rightfully so - are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers." It is time to ask the question why should the taxpayers pay for the mistakes for private companies? If they deserve to fail in the market selling an inferior product, just why should an innocent tax payer have to bear the brunt of it? In a proper private company, the shareholders decide how much an executive or if he should be paid at all. But how can the government think the pay is "too much". How the heck do they know what is "too much" and what is "too little". I mean, when is there no mechanism to fix salaries based on market pressures, any arbitrary salary will do. Its like wanting to swim in the water without getting into the swimming pool!
Even if Obama is well-intentioned, the result will acheive its exact opposite. For instance, if the stimulus package is designed to protect the "major" companies from competition; save people from unemployment and retain the business a tailor or another proffessional would have existed had the person not been unemployed. Still the package would still fail. Henry Hazlitt in his book, "Economics in one Lesson" teaches that its important to look long range than the range of the moment effects. Supposing Obama actually did save the workforce, it would not change the fact that taxpayers paid for those workers to stay in employment. If they would have saved that extra tax money they gave away, they would spend it on something else that they dont have today. This makes way for employment in other sectors and new industries. No new job is created by the stimulus package, but all we are left with is an unfit subsidized company which is unable to conquer the market, but still is in business.
This is what Obama chooses to call "basic common sense", then it is the perversion of justice; innocent tax payers paying for the mistakes of private companies. When the government starts financing a private company with the taxpayers money, it goes without saying -- anything goes, especially causes that the government is propagandizing -- like CEO pay.