“Every single day, I’m pushing this economy forward, repairing the damage that’s been done to the middle class over the past decade and promoting the growth we need to get out people back to work,” Obama said.
Contrast with this, from one of Hayek’s discliples:
There were two great triumphs, two things that I’m proudest of. One is the economic recovery, in which the people of America created — and filled — 19 million new jobs.
An accident of history places Federal Express and UPS under different federal laws governing labor relations. UPS is under the National Labor Relations Act while FedEx is under the Railway Labor Act, which is slightly more forgiving in enabling one to resist a unions’ organizing campaign. A bill in Congress is looking to level the playing field by allowing UPS to also be governed by the RLA. Just kidding; could you imagine a Democratic Congress doing such a thing?
Of course, the Democrats in Congress, aka, the other union employees, are trying to pull FedEx under the NLRA. It’s easy to see why UPS would be lobbying hard for such a change. They know that they are at a tremendous competitive disadvantage with their unionized work force versus the largely non-union FedEx. One can also see why the Teamsters union would favor a shift that would make it easier to win a cut of a new, large employer’s payroll.
The House bill would place some of FedEx’s drivers and other employees under the National Labor Relations Act, allowing employees to organize locally. UPS drivers are governed by that law. The Teamsters union has said the bill would ensure fairness across the industry.
Fairness? The union’s argument here is a tacit admission that competition is important, and that the union undermines competitiveness. “It’s only fair that we have a chance to degrade the other guy’s operations to the same level we have done with those companies that we already work for.”
The Senators from FedEx’s home state of Tennessee are set to prevent this change with the threat of a filibuster. The Teamsters should have sold their charms with a more compelling pitch than “share the poison.”
[T]o pay for the costs of winding down troubled financial institutions, the IMF proposed what it called a Financial Stability Contribution”—a tax on balance sheets, including “possibly” off-balance sheet items, but excluding capital and insured liabilities. That tax would seek to raise between about 2% to 4% of GDP over time—roughly $1 trillion to $2 trillion if all G-20 countries adopted the tax.
On top of that, the IMF proposed that nations to adopt what it called a Financial Activities Tax, levied on the sum of profits and compensation of financial institutions. That would be paid to a nation’s treasury to help finance the broader costs of a financial crisis…
The IMF said that a nation didn’t need to put in place a specific resolution authority. Instead, the tax money could go to general revenues and used in case of financial crisis. But the IMF warned that the money would be spent by the time a problem arose.
OK, so let’s see how this would work. Congress levies massive new taxes on every major bank. Congress would then spend that money on…stuff. A financial crisis hits, and certain TBTF banks get into trouble. Congress bails them out, having to borrow gobs of money to do so because the tax revenues that were nominally for “Financial Stability” were in fact spent on…stuff.
So, how is this different from what happened last time? Hard to see. Does it do anything to reduce the systemic risks that regulators insist were at the root of the last crisis? No. Does it strengthen the banks to make them better able to weather such a crisis? Not likely when so much money of their capital–enough to raise between 2% to 4% of GDP–is being sucked out of their coffers. At least if the money were being held in a trust fund instead of dumped into general revenues, it would be there for frenzied politicians to disburse based on the rational workings of the government. But, of course, the money will not be there. It will have been spent not to support the financial system, but to support the reelection of incumbent politicians–the most short-term actors on the planet.
Oh. Yeah. THAT would be the difference.
So the lesson from all this appears to be: When it comes to a justify raising taxes, any excuse will do.
“I don’t want this to be a distraction” to the work of Congress, Ms. Pelosi said. But she also asserted that such violence and threats of reprisal have “no place in a civil debate in our country” and must be rejected.
She is certainly correct that civil debate cannot co-exist with threats of violence. But one can’t help but see the irony of Ms. Pelosi and many other Democrats (and a few Republicans, I might add) not equating the imposition of laws as a threat of violence. Harry Reid, for instance, is totally clueless on that distinction.
The Senate Banking Committee is now taking up the Dodd bill to re-make the financial services sector more into the image of how the government thinks it should be run, e.g., more beholden to Congressmen. Senator Menendez (D-NJ) offered an amendment to include disclosure of pay disparity, i.e., the ratio of CEO pay to the pay of the average (non-CEO) employee in the company. It’s clear that this amendment is meant to inflame passions about CEO pay, and nothing more. It won’t change what CEOs are paid because the premise behind this amendment, like so much else about pay regulation–that CEOs are paid arbitrarily high amounts–is wrong. CEOs are, on average, paid what the market says they’re worth, a law of supply and demand that Congress cannot rewrite or amend, only distort.
One of the many possible distortions that come to mind would be an increasing trend to outsource low-skilled (and, therefore, low-paid) help, either to temp or admin agencies, or overseas. That would help reduce that ratio. It would also help to bring in-house the employment lawyer who will have to make the silly legal distinctions between who is an “employee” for the purposes of this bill. Would a part-time worker be included? Interns? A lawyer skilled at such useless arcana would presumably bump up the average.
Hey, Senator, if you’re looking for useless ratios, why not mandate disclosure of the highest price product sold by a company versus its average priced product? Or something slightly more productive like the ratio of the highest tax versus the average tax jurisdiction they operate in?
I was at a CFO conference on Thursday where the keynote speaker was CFO of the Department of Energy, Steve Isakowitz. You’d think a CFO, even one in government, would talk about things like accountability or controls for spending, especially with $36 billion in stimulus funds dropped into his department’s lap. Instead, this CFO ran a cheerleading session about all the investments the government was making on “green” initiatives and energy independence, which he acknowledged had a history of failure, but not one word about accountability.
At the end of his talk, I got up and asked him: “What controls will you have to monitor the returns on these investments? And how will you keep from crowding out private investment in similar energy projects?”
His answer: “The private sector is not making these investments. In fact, one of our screens for making any particular investment is that the private sector is not financing such projects.”
When I sat down, a couple of the CFOs sitting at my table shrugged and said that it appeared that he didn’t want to answer the question about accountability for returns, or that he chose to answer it with with a highly questionable assertion about lack of private sector involvement.
I felt that his answer was clear. He basically said that the government has created a huge venture capital funds–rivaling Kleiner Perkins, Sequoia, NEA, etc.–and that this fund will only make investments that no private investor would touch.
What upset me wasn’t that he failed to answer my question, because I think he did after a fashion, but that his answer was intended to satisfy a finance audience. And what really upset me is that it appeared, aside from a few of us cranks, that it worked.
OK, incentives at banks have been deficient. I’ve seen them all: bonuses based on loan volume; banking fees based on a percentage of the debt issued; traders being richly rewarded for unsustainable performance shortly before getting fired. So, granted that such incentives can motivate counterproductive behavior, how does it follow that having every major bank in the country submit their incentive plans to Fed review makes sense?
What is some Fed governor who, by law, can have no personal stake in the welfare of any particular bank going to see that the CEO or directors of those banks are going to miss? Some 29-year old with a check list in the bowels of the federal government will be looking over incentive plans that took a CEO, Chief HR officer, and General Counsel many hours of review after several months of design and implementation, with all the lessons learned from the recent debacle, and that bureaucrat will send them an opinion saying, “I don’t think this plan is good for your firm or the economy.” And these people, the ones who were good enough to survive the crash, with years of experience in their particular bank, and with a significant portion of their personal wealth tied up in their firm, these people are to expect to gain some insight from this GS-11 examiner, supervised by people who have never in their lives created and market-tested executive compensation plans?
Apparently, the people drafting these rules sincerely believe that Fed bureaucrats are going to give these major banks that edge. And people apparently believe that the Fed will offer its opinions completely absent any political interference.
I’m not saying it couldn’t happen. I’m just wondering who out there believes that it is worth having every major bank submit their incentive plans to prior judgment by federal officials. Especially when there is zero evidence that incentive plans actually contributed to the financial crisis, and plenty of evidence that the Fed did contribute to it.
Elizabeth Warren is discouraged. Not with regards to her job of overseeing TARP spending, on which the Harvard professor has done a decent job. Instead, she is “speechless” at the prospects that certain bankers may get record bonuses this year.
“I do not understand how financial institutions could think they could take taxpayer money and turn around and act like it’s business as usual,” Warren says. “I don’t understand how they can’t see that the world has changed in a fundamental way - it’s not business as usual. All I can say right now is they seem to be winning this argument.”
It’s not an argument, Liz; it’s a business model. The financial services business model is actually quite simple: employees get 50 percent of net revenues. The stable portion of this net revenue is paid out in “salaries” and the uncertain, variable portion of this net revenue is paid out in “bonuses.” The “bonus” portion gets split in rough proportion to who brought in the revenues. All this goes on regardless of how “the world has changed.” Last year, net revenue was lower, and bankers on average got much less. This year, net revenues are higher, and bankers (the ones who survived the carnage, anyway) get more. What’s not to understand?
Warren’s block is not the arithmetic. Warren’s block is that she hates bankers. Her real problem is that the world has not changed the way she wishes it would have changed, where the money that a bank makes flows to someone other than the bankers.
People reading the news may be forgiven for thinking that we are having a kind of national conversation about executive compensation. In fact, we are having two conversations. One of them is about corporate governance. The other is about wealth redistribution by non-market means. Both of them sound like they’re about compensation because the word is used often in the story, but they are different.
This is nominally about compensation. It has the words “CEO” and “pay” in it. In fact, this is a story about a study released by the Institute of Policy Studies, which is a progressive organization dedicated to revamping society along socialistic lines. They simply hate the idea that some people make a lot more than others. Governance is simply a side show for them:
Governance problems do need to be resolved,” notes IPS Director John Cavanagh. “But unless we also address more fundamental questions - about the overall size of executive pay, about the gap between the rewards that executives and workers are receiving - the executive pay bubble will most likely continue to inflate.
But. It’s about the size of pay. A colleague of Cavanagh wrote:
Shareholders have no reason to begrudge executives like these their fortunes. But the rest of us do.
For IPS, it’s not about the shareholders. It’s about social justice, which is code for democratizing pay. I get to vote on how much you make, and you get to vote on how much I make, regardless of how we “vote” in our revealed preferences via the market place.
What annoys me about this is not the nominal aims of the progressives. I too would prefer a world with less extreme distributions of income. What annoys me is that this sentiment is not really about income–it’s about state power versus market power–it’s simply reported as if it’s about income.
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