A Modest Proposal
Dean Baker has ideas for some fetters congress might want to put on the bailout package:
The government can set whatever conditions it wants on participating in the reverse auctions. One of the conditions it should set is that executive compensation be severely constrained at any financial firm that participates. For example, it can set an absolute limit of $2 million in total compensation for any executive at any firm that takes parts in the reverse auction.
Since participation in the auction is completely voluntary, this would make the cap voluntary. Furthermore, there need be little fear about losing good talent, because well-managed firms would not have to participate in the reverse auction.
It turns out not to be the case that the Chinese character for “crisis” is formed by combining the characters for “danger” and “opportunity.” Nonetheless, people always repeat that idea because it’s genuinely insightful. This financial crisis is a great opportunity for progressives to gain some leverage over a set of economic problems that it’s normally difficult to devise a workable method of addressing. I’m not holding my breath out for congress to make the most they could out of this opportunity, but for the moment progressives out to be drawing attention to the fact that the opportunity exists.
32 Responses to “A Modest Proposal”
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September 20th, 2008 at 3:45 pm
No, we should obviously entrust the better part of a trillion dollars to a Bush Jr. administration bureaucrat and former CEO and impose no regulations on him doing whatever he wants, because, you know, like, this is a crisis and shit.
And what harm could come from deregulating the spending of $700 billion dollars on whatever the Bush Jr. bureaucrats and former Wall Street CEO wants to do?
Surely what we’ve learned from this crisis is to let high officials do whatever the hell they want with staggeringly gigantic amounts of money.
I mean, that’s the lesson, right?
September 20th, 2008 at 4:13 pm
The urgency of this puts the Democratic Congress in an ideal position to demand a lot of things. Let’s see if they use their advantage, or simply cave in. My bet: the latter, in which case the jig is up.
September 20th, 2008 at 4:14 pm
>>It turns out not to be the case that the Chinese character for “crisis” is formed by combining the characters for “danger” and “opportunity.”
Crisis = 危机 (wei1 ji1)
from danger = 危险 (wei1 xian3)
and opportunity = 机会 (ji1 hui4)
Or do you mean that the combination is not necessarily the root of the word ‘crisis’ in chinese?
September 20th, 2008 at 4:16 pm
I don’t see what that would accomplish Matt. The proposed mechanisms for CEO over-compensation, super-star effects or corporate governess structure, both suggest that super-high CEO salaries are the stable equilibrium.
So at best, this produces a temporary dip in average CEO compensation(I actually attack a very low probability to this outcome).
More likely, this produces bizarre accounting tricks(Off hand, I can imagine they begin outsourcing decision making to “consultants” that they pay heavily).
And this isn’t really the best time for that sort of thing, no?
September 20th, 2008 at 4:20 pm
Ahhh…. I shoulda googled first then posted. Indeed that’s what is meant. Same characters but that it is not correct assign 机 to ‘represent’ opportunity.
Nevermind.
September 20th, 2008 at 4:23 pm
If memory servers me correctly there is a bill that has been tied up in congress for a few years now that would keep executive salary at twenty times that of the lowest paid worker in the company. Basically, if the executive wants a raise, he has to raise wages for every worker below him. Sounds like a good idea to me.
September 20th, 2008 at 4:23 pm
I have a better idea, Matt. Why don’t we require companies who participate in the reverse auctions to adhere to Rawls’s Difference Principle in their pay structure? You liberals must all be doing crack these days.
September 20th, 2008 at 4:28 pm
If you really want to lower average CEO pay, it would be best to tackle the structural processes that actually lead to outrageous CEO pay.
The main reason CEO’s get paid so much, is because there are so few CEO’s with *proven* talent in managing large businesses(Which is a completely different thing than a lack of talent).
When a company hires a new guy as CEO, he creates information about the guy’s ability. Since this creates benefits for other companies that does not go to the original company, companies have a reduced incentive to hire new people, and salaries of CEO’s will be higher than socially optimal.
A subsidy for hiring new blood, maybe funded by a corporate tax surcharge, would likely correct the problem. (And unlike most proposals in this field, would likely be better for the economy).
September 20th, 2008 at 4:30 pm
I repeat my proposal in an earlier thread. Bush has already dumped $5 Trillion in debt on us.
Therefore the Democratic COngress should raise $2 Trillion over the next 4 years to pay for the Bailout by imposed a income surtax on the wealthiest 3 percent of the population.
George W Bush is their puppet –let them pay for him.
September 20th, 2008 at 4:31 pm
I’m not sure how this proposal is supposed to work. Presumably the company has a contract that specifies the compensation of highly paid CEOs, including provisions about how much the company must pay if it’s breeches these contracts. This isn’t a case where you can force companies to decide whether to pay CEOs exorbitant sums or participate in the auction. They’ve already bound themselves to pay packages when they hired their top executives. Baker’s proposal just sounds like a recipe for denying those companies that have CEO with big pay packages access to the bailout, but since lots and lots of companies do that, that’s a de facto exclusion of most major firms. But excluding most major firms just removes the rationale for the bailout itself. It’s because the major firms are in trouble that we even need a bailout.
September 20th, 2008 at 4:33 pm
One other thing on the idea I just posted, it would also boost corporate profitability, since companies get to spend less on CEOs. It literally is a Pareto improvement for all the companies involved(though not the individual CEOs…)
So I’m not sure why it wouldn’t pass.
September 20th, 2008 at 4:36 pm
And since I don’t have a $250,000 check to write to Chris Dodd –and I doubt if any of you do either — then the only alternative I see is to hold a gun to the leadership’s head.
By threatening to vote for Ralph Nader if they give Bush $2 Trillion to bailout Wall Street and Superrich investors without balancing that with a $2 Trillion income surtax on the Superrich to raise the money.
OTherwise, we get stuck with the shitty end of the stick by the very people who are claiming to be on our side.
September 20th, 2008 at 4:37 pm
I desperately need someone to convincingly tell me this is not real, that it’s all some sort of dream or freshman fiction paper. I don’t imagine it will happen, though.
September 20th, 2008 at 4:38 pm
This financial crisis is a great opportunity for progressives to gain some leverage over a set of economic problems that it’s normally difficult to devise a workable method of addressing.
Well, given that Congress has essentially been set a one-week timeframe to pass the $700bn wealth transfer from taxpayers to Wall Street, that the GOP House and Senate leadership are on record that they’re going to whine and whine if there’s any amendment, and Bush will presumably veto any amended bill, the opportunity for leverage is, in reality, nil.
How about passing a six-month bill that releases a fraction of that money?
September 20th, 2008 at 4:46 pm
Re pseudo’s comment “$700bn wealth transfer from taxpayers to Wall Street”
———-
They’ve ALREADY blown $700 Billion –in the previous weeks. This is ANOTHER $700 Billion — $1.5 TRILLION total. and it will go to $2 Trillion at least.
MAKE the Democrats in Congress Stick the Superrich with the bill — by threatening to vote for Ralph Nader otherwise.
I know. I know. Ralph is a moron who should have been pushed in front of a bus years ago –but I’ve finally found a use for him.
September 20th, 2008 at 5:12 pm
I hate to say it Don, but you’re not helping at all. This topic should be for mature posters only.
September 20th, 2008 at 5:36 pm
Certainly, making a political campaign link between the bailout and the increase in taxes for the upper income levels should not be hard to make. The rich should have to pay some higher taxes on their “wealthfare” payments.
“It’s our money; we should get something for it.”
September 20th, 2008 at 6:32 pm
Here’s how to end the crisis at no cost: increase the tax on the wealthiest to fund the bailout. 10 seconds after that passes, the crisis will be declared over.
September 20th, 2008 at 7:36 pm
I agree with the proposal to limit exec pay to 2 Million to participate in the fund. It will force execs to renegotiate their contracts or incur the rath of the shareholders. Obviously they’ve not done a very good job or their companies would not be in this mess. I’m sure there are exceptions.
September 21st, 2008 at 3:06 am
…limiting DEO pay to $2,000,000.00. Hmm. They have been in charge for years, raking in lots and lots of money. The Ponzi scheme goes sour and they don’t get fired? As in filling out unemployment forms to get $400 a week for 26 weeks? If they stay at the company at all they should be limited to twice the median income of the county they work in… The fabulous bonuses paid out in the past few years should be looked at too. This didn’t happen overnight, it’s taken years of not so careful planning to build up all this bad debt. Figure out some way to go back and tax those at rates that cover most of the guarantees the government is now thinking about handing out. Or how about “no bonuses all around for the next three years and then they are taxed at 75% the 4th year, 50% the fifth year and have a 10% surcharge on whatever the marginal tax rate is until the whole mess is paid off”
It’s probably a good thing to keep AIG in business. Probably a good thing to suddenly guarantee money market accounts. I don’t see why I should have to pay for it. I haven’t made any profits, not ones that showed up as a check in my mailbox, on any of this.
September 21st, 2008 at 6:28 am
This financial crisis is a great opportunity for progressives to gain some leverage over a set of economic problems that it’s normally difficult to devise a workable method of addressing.
Somebody page Naomi Klein.
September 21st, 2008 at 1:20 pm
asdafs,
Seriously.
She’s gonna have to write a sequel, but it should be easy. She can just do a find and replace:
_____ use economic crises to push through their ______ policies!!!!1111one
September 21st, 2008 at 6:13 pm
Ought, not out.
September 21st, 2008 at 10:11 pm
Whoa! Shock Doctrine, anyone?
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