The federal government has run a deficit every year since 1961, except for the biennium 1999-2000, right before Republican George W. Bush took over the reins of the presidency and quickly proceeded to blow a hole in the federal budget that continues to gush red ink to this day under the leadership of President Barack Obama. Our current-year deficit has broken the $1 trillion barrier ($1.2 trillion, to be more precise), and the national debt now stands at nearly $12 trillion; both continue to move in the wrong direction — up.
With a managerial track record like that, Uncle Sam is not the person you want running your bank, your investment house, or your insurance company; in a position to dictate executive-level pay. Yet, that’s exactly what will happen if legislation that just passed the House and awaits Senate action, is signed into law.
The cleverly-titled “Corporate and Financial Institution Compensation Fairness Act” (who can possibly be against “fairness”), pushed vigorously by House Financial Services Committee Chairman Barney Frank (D-MA), and supported primarily (but not only) by Democratic members of Congress, would empower federal regulators to prohibit certain executive pay plans, including those with “incentive” bonuses for risky investments. You read that correctly – the same folks who were asleep at the regulatory switch for years while the mortgage meltdown took hold, would thenceforth be essentially running the same institutions they failed to regulate properly in the past.
Clearly, many of the financial institutions that have been the recipients of Chairman Frank’s ire, are more than deserving of such opprobrium. And he and the other advocates for this legislation are correct in concluding that the various schemes bankers, institutional investors and other “Wall Street Whiz Kids” concocted to make huge profits (often via bonuses) for themselves but at great risk to the institutions they represented, were a major cause of the mortgage and banking crises from which our economy is still reeling.
The question is, do we want to permit this problem to be employed as a vehicle whereby government becomes the “decider in chief” to determine how much money business executives earn? Do we really want government bureaucrats involved even more than currently, in the management of businesses? Can government officials ever make such decisions with no concern whatsoever for preferences and prejudices, and completely divorced from political considerations? Just look at their track record thus far — deciding that some financial institutions were worthy of being bailed out and others thrown under the bus; allowing huge bonuses to be paid for with taxpayer “bailout” dollars. Is there any basis in history or current policy that would lead one reasonably to conclude that government could do a better job than the private sector has done in this arena?
The answer to each of these questions, is a resounding “NO.”
There is a role for government in all this — providing a legal and regulatory framework within which businesses are run honestly and openly, and ensuring that our financial system serves investors in a similarly tansparent and honest manner. What needs to be done — but hasn’t been – is to ensure that such laws and regulations are actually, consistently, vigorously, and objectively enforced. Doing something quite different, such as putting the government in a decision-making role in U.S. businesses will, if anything, make matters even worse. And yes, no matter how bad things are, they can always get worse (just wait for “Obamacare”).