So, Toyota, builder of one of the most dependable machines in history, is being pummeled in the press for a quality problem that can’t quite be isolated. The U.S. government, which is constitutionally incapable of keeping its nose out of other people’s business, is not content to let the horror of bad publicity and Toyota’s legendary engineering do the job of righting things–the politicians have to pile on:
“This is very serious,” (Transportation Secretary) LaHood said at a breakfast with reporters in Washington. “After I talk with (Toyota’s CEO), they’ll get it. We’re going to keep the pressure on.”
Mr. LaHood said Transportation Department officials flew to Japan in December to meet with Toyota executives and remind the company “about its legal obligations.” The agency, he said, “followed up with a meeting at DOT headquarters in January to insist they address the accelerator pedal issue.”
Because, if the senior U.S. transportation bureaucrat didn’t tell them to do it, Toyota would gladly continue allowing the quality issue to fester, destroying seven decades of branding as the highest quality car manufacturer in the world, and killing off customers as an added bonus.
But there is, no doubt, more to this spectacle than meets the eye.
While the perk angers some shareholders, the reality is that executives at banks and other large companies routinely collect dividends on shares they don’t own.
Let me guess which shareholders:
“People at places like Goldman Sachs are going to reap windfalls in dividends from stocks they haven’t earned yet,” says Tony Daley, an economist at the Communications Workers of America.
The union fought similar payouts at General Electric’s 2007 annual meeting after CEO Jeffrey Immelt was paid $1.3 million in dividends—equal to 40% of his salary—on shares he didn’t own. It lost.
“It makes no sense to pay people dividends on shares they don’t own,” Mr. Daley says. “Shareholders should be outraged.”
No sense? How about this: if management is awarded beaucoup restricted shares, which by definition they can’t collect for a time, their fond hope is for an appreciation of those shares until they vest. And the one lever they most directly control in that appreciation is dividends. Dollar for dollar, the less dividends they pay out, the higher the shares will go. Soooo, if those communications workers prefer dividends, they should push for the holders of restricted stock to get those dividends, too. To eliminate the perverse incentive to chop or hold back on dividends. Which is why boards began awarding dividends on unvested equity, folks.
That part of the rationale was not mentioned in the article. They didn’t ask me.
Kenneth Feinberg, the Treasury Department’s special master for compensation, will lower total compensation for 175 employees by an average of 50%, these people said. As expected, the biggest cut will be to salaries, which will drop 90% on average.
I’m sure that Mr. Feinberg, like any good fiduciary, carefully examined the value of each of these 175 executives, individually determined their cost relative to their value, evaluated competing alternatives for their talents, including more entrepreneurial venues (e.g., hedge funds) where they can make gobs of money away from public scrutiny, then evaluated the risk associated with losing each of these people, and the cost to the shareholders of doing so.
Or, more likely, Mr. Feinberg was told by the politicians who ran a different calculation that he had to cut those executives’ pay in half, regardless of the financial consequences, and he figured out how to deliver that result.
The political calculation went something like this: “If we slash the pay of these executives enough to grab headlines, and lose 35% of them, e.g., to competitors, early retirement, etc., then taxpayers-as-shareholders may lose about 25% on their investment relative to keeping that talent. But, of course, the taxpayers-as-shareholders will never know what they’ve lost because if they thought like prudent investors we government officials could never get away with the crap we pull on them all the time. On the other hand, headlines that say we really stuck it to the bankers can get us a 4-6 percent voting edge in competitive districts where we might otherwise be vulnerable to political challengers.
In short, the politicians have figured out yet another way to buy our votes with our dollars. And our largely innumerate media pretends like these decisions are made purely based on the public good.
This morning’s headline in the Wall Street Journal made me wipe my eyes and blink a couple of times to make sure I didn’t wake up in some sort of Kafkaesque twilight zone.:
Pay Czar Targets Salary Cuts
That appeared right above a headline about how the government wants to restrict gifts to bloggers. Nice.
Relative to the title of this post, Pravda, of course, would have reported on the glorious plan of a commissar instead of a czar, but that is a fine distinction for our purposes. The more relevant distinction is that the pay czar story is really two stories. The nominal story is about a government official who has ideas about how individuals in private firms ought to be paid, when most everyone agrees that the way they had been paid is defective. It’s stated as a matter of fact problem-solution story. The second, more subtle story, is about a government official harnessing state power to implement his ideas. This is about the unstated premise that it’s a good idea for government officials to implement their good ideas about how people should be rewarded in companies representing a significant chunk of the economy. Those who read the nominal story in its narrow sense will say, “Hey, these measures only apply to firms with significant government investment.” True enough, but that ignores the trend in government intervention in pay practices over the past couple of decades under Republican as well as Democratic administrations. The intent about this pay czar’s reach is clear:
However, the Obama administration is hopeful that Mr. Feinberg’s pay structure will be viewed as something of a “best practice” and that other firms may voluntarily seek to use similar methods in determining compensation.
And what if firms don’t seek to do so voluntarily, and generally shrug off these suggestions as they have every other government suggestion for how to structure the pay of the most sought-after talent on the planet? The trend is not good.
Kenneth Feinberg is a bright guy. He claims to have the best interest of taxpayer-as-reluctant-owners at heart:
At a speech before the Chicago Bar Association last week, Mr. Feinberg said he will not have done his job if companies react to his decisions by saying “that’s great, we’re going to lose all our people and we’re not going to be competitive.”
But the commissars who drew up the Soviet five-year plans wanted their companies to succeed, too. They wanted their economies to thrive. They considered it their patriotic duty to insure that success. For many of them, success was literally and personally a matter of life and death. But the commissars failed, and turned Soviet Russia into an economic basket case. Ken Feinberg has never designed a corporate incentive plan. He has never had his compensation ideas market-tested. But this morning’s headline reports his intent as if none of these things matter. All that matters is what was stated in the lead, that Mr. Feinberg is “clamp(ing) down on compensation at firms receiving large sums of government aid.” Because the people could not tolerate paying their proxy functionaries so much.
If Baucus’ bill passes, I would get a fine if I didn’t buy insurance (I currently am uninsured). Now, if I didn’t have the money to either buy insurance or pay the fine — or if I justly refused to pay the fine — then what? Defenders of his plan have to agree that the government can then come and arrest and threaten to kill me in my own home, in front of my wife and children, because I don’t want to buy insurance — or because I can’t. To support something like that is evil. Pure and simple.
I think this points to something we should all consider when we say that the government should do this or that: is it worth killing someone over? Because, in the end, that’s what we’re talking about. That is what we’re always talking about when we say the government should or should not do something. If you don’t comply, you die. As George Washington said, government is not reason, it is force.
Another way of thinking about it: what actions can another take that you can legitimately kill them over? If someone tries to murder, rape, or steal from you, you can kill them, and you will find few who think you can’t. But should you be able to kill me if I refuse to help you help someone else? Yet, we agree to let out governments act that way.
Mr. Camplin, you may not understand the concepts of insurance and democracy. Democracy is not doing whatever you like, but being part of a larger community that creates certain duties as well as rights. Should you be forced to pay taxes? Should they be voluntary as well, so that you could opt out of being defended by the military and our diplomatic corps? Should Social security be optional, so that, were financial disaster to befall you in old age, you would be left at the roadside, sleeping under park benches?
And for health care, should insurance there be optional as well, so that, were you to choose to opt out and get a dire disease or injury, you would again be left in a ditch, bankrupted by the medical system and then discarded? Right now you rely on emergency room care that is open to all. However wealthy you may now be, that may change in a heartbeat, and then where would you turn? Just what kind of society do you want to live in?
Wow, Burk, you live in a pretty hateful society, where the only people you can count on to help are the police and bureaucrats. In the society I live in, there are all sort of generous people and organizations, ranging from my own family to churches. What country do you live in where all the elderly were lying in ditches before the government created social security, and the uninsured sick (as were everyone before insurance was created) were also lying in ditches, unhelped by anyone before, thankfully, such marvelous people as Congressmen and Senators, bureaucrats and policemen came along, lifted those poor, sad people up out of those ditches (must have taken them a long time!), washed them, put them on their feet, fed them, clothed them, and gave them the medical care they needed which nobody before them had ever done for them (nor had they done it for themselves). That must be a pretty awful society, full of people not even people in their awesome helplessness. I would invite you to come visit my society, where private individuals are able to work and feed themselves, provide for themselves and their loved ones, and give to each other. There is so much love and generosity over here, something I fear you must be unfamiliar with wherever you live, where the best you can hope for is that a bureaucrat will call your serial number after you’ve waited in the doctor’s office for 12 hours after your 18 month wait to even get an appointment — and if you do try to get better care by paying for it, you find yourself shot in the head after you resist arrest for having tried to better your life (which is, after all, illegal).
Democracy is not community. They two are utterly different. And a just democracy is not a majority forcing its will on everyone else, no matter what. That is mob rule. Nor is it a minority of government officials trying to force people to do what those officials think is “best” for them — that is tyranny.
burk offered no response. I wonder what could he say?
The U.S. Senate voted to charge $10 to visitors to the U.S. to promote…U.S. tourism. Really.
Lawmakers said many international governments aggressively help tourism in their countries by subsidizing promotional programs, but the United States leaves that work to the private sector and to state and local governments.
One might read this to say that the U.S. is looking to close the gap in freedom between us and the rest of the world by funneling more spending through Washington. But this tax would land on tourists, not Americans.
Which is why the EU is threatening retaliatory taxes on American tourists going there.
Confiscatory taxation: What is going on in Great Britain.
Contrast this with
Socialism: Using state power to penalize success and reward failure.
Using the threat of violence to take an extra $50,000 from someone making $1 million is not considered a crime if implemented by authorities elected by the people who are, for the most part, not being taxed at that level. In fact, these people call their confiscation the patriotic or moral thing to do. They will claim that most of the people being taxed are actually OK with it; but they don’t dare let the class of people paying it vote on whether they should all do so. They will claim that those who do not wish to pay it lose their claim to their money by virtue of their selfish desire to keep it; but they don’t see the irony of their preferences forcibly imposed on others as a baser form of selfishness, abetted as it is by coercion.
But the victims of this self-justified view of theft-disguised-as-patriotism-or-morality won’t sit still for the grasping hypocrisy. They will leave. They take their money and, more important, their wealth-creating talents, to friendlier climes.
As anyone who has studied it knows, Cash for Clunkers program doesn’t accomplish any of its stated goals. It does not materially reduce energy consumption because the difference between the mileages of the cars getting traded in versus the cars getting bought does not account for:
– The fact that the net difference in energy use and carbon dioxide emissions, etc. must more than outweigh the energy needed to build the new car, which includes mining the basic materials, transporting them to the factories, running the assembly plant, etc.
Once the environmental rationale gets swept away, then we are left with two items. One of them is: Even if it doesn’t help the environment, at least it creates jobs.
Wrong. The $15,000 used to replace perfectly good “clunkers” with new cars is money that could have been used to buy other stuff–1,000 nice steaks, 2,000 peach cobblers, 5,000 romantic candles, etc. The money you spent on a car is no longer available to the butcher, baker, and candlestick maker, which impoverishes them and the people selling to them about as much as it enriches the auto makers. And because the cash-for-clunkers program represents a centrally planned, non-market allocation of resources, 11 or 12 B-B-CM jobs may easily have been destroyed for every 10 auto jobs created. The difference, of course, is that most of the 10 jobs were union jobs in plants one can point to, whereas the 11 jobs destroyed were at dispersed bakeries, paraffin processors, etc. around the country–those that are not seen.
There was a wonderful article in the WSJ yesterday comparing veterinary care to human health care in Britain. The care of humans was found wanting:
As a British dog, you get to choose (through an intermediary, I admit) your veterinarian. If you don’t like him, you can pick up your leash and go elsewhere, that very day if necessary. Any vet will see you straight away, there is no delay in such investigations as you may need, and treatment is immediate. There are no waiting lists for dogs, no operations postponed because something more important has come up, no appalling stories of dogs being made to wait for years because other dogs—or hamsters—come first.
The conditions in which you receive your treatment are much more pleasant than British humans have to endure. For one thing, there is no bureaucracy to be negotiated with the skill of a white-water canoeist; above all, the atmosphere is different. There is no tension, no feeling that one more patient will bring the whole system to the point of collapse, and all the staff go off with nervous breakdowns. In the waiting rooms, a perfect calm reigns; the patients’ relatives are not on the verge of hysteria, and do not suspect that the system is cheating their loved one, for economic reasons, of the treatment which he needs. The relatives are united by their concern for the welfare of each other’s loved one. They are not terrified that someone is getting more out of the system than they.
The last statement is particularly insightful. The overwhelming rationale for socializing health care is the sense of fairness it’s supposed to satisfy in our society. Yet anyone who has experienced socialized anything knows that the system reinforces the notion that we are all playing in a zero-sum game, that what you get must come at my expense, which it does, of course, when we’re paying for each other’s stuff, and there is no way to economize except by rationing.
My only quibble with this magnificent piece is the repetition of this canard:
A few simple facts seem established, however, even in this contentious field. The United States spends a greater proportion of its gross domestic product on health care than any other advanced nation, yet the results, as measured by the health of the population overall, are mediocre.
Well, that’s what you get for measuring the health of the population overall. You get dubious statistics about British life expectancy being comparable to that of Americans, or the French having an even higher life expectancy, and the Japanese even higher. But when we look at health by population segment, the picture looks quite different: French-Americans live longer than French in France; British Americans live longer than the average Brit across the pond. And the Japanese, who have the longest life expectancies on earth, don’t live as long as Japanese-Americans. No need to resort to convoluted and unconvincing excuses about lifestyle and diet.
What the health care reformers don’t want to tell us, and possibly don’t want to know themselves, is that equalizing health care for all will mean worse health care for most so we can provide better health care for a few. One may or may not believe that is the way to go, but we should at least be honest about the trade-off we are considering in this debate.
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