Run Away!
A couple days ago, I wrote that the LA Times shouldn't publish an article about conservatives hurting without proof. Now I've got to say that the Washington Post shouldn't do the same for Obama. Here's what they said:
President Obama's apparent inability to block executive bonuses at insurance giant AIG has dealt a sharp blow to his young administration and is threatening to derail both public and congressional support for his ambitious political agenda.
Derail his agenda? A huge claim. Perhaps they're right, but I'd like some actual evidence. For instance, a pronounced drop in the polls after the AIG news came out, or better, a direct poll where people said this hurts their view of the President. Instead, all we get is there's a general impression--especially among the press--this is bad for Obama.
I admit I'm shocked at how this story has exploded. The government spending hundreds of billions on a bailout program is a big deal; a few hundred million spent in ways the public doesn't approve (but could have been foreseen) seems a lot less important.
The question is will the anger spread to Congress and the White House. Certainly the politicians--from Obama on down--are wasting no time in expressing their "outrage." (Obama will no doubt repeat his feelings when he appears on Leno tomorrow night. It'd be more fun to have him on Jon Stewart.)
My favorite political response comes from Senator Charles Schumer. It might be expected that Schumer would react more extravagantly than most--don't forget this is the man who once called for a federal investigation into the high price of breakfast cereals. Here's what he's saying now:
"They should voluntarily return them (the bonuses). If they don't we plan to tax virtually all of it," Senator Charles Schumer, a member of the Democratic leadership, said in a speech on the Senate floor.
That sounds like a bill of attainder, or at least an ex post facto law, but perhaps there's some way to get away with it. And if they do, I hope that shows why we don't want the government to manage private industry.
posted by LAGuy @ 12:04 AM
11 Comments:
Actually, Chuck, here's what I'd like: First, I'd like you to voluntarily give back your pay raise. Then, I'd like you to remove any earmarks you added to the current budget bill that the President just signed. Yes, I know earmarks are just a small percentage of the overall budget but so are the AIG bonuses compared to their bailout funds.
And finally, I'd like you to take your colleague's advice and issue a public apology and then kill yourself.
Better yet, forget the apology.
Although I agree we don't want government managing private industry, there hasn't been much of an argument for private industry managing private industry lately -- at least not the financial industry. These are the same people who argue that they should get huge bonuses when they succeed in cutting union jobs or shipping jobs overseas because they are saving their company money. So what exactly did they do to warrant these bonuses?
The only good thing about this fiasco is that bankers should handily pass lawyers as the most despised profession. I'm looking forward to that.
To anonymous, I think it is simplytoo pat to suggest private business leaders are as incompetent and irresponsible as government leaders. The real difference between gov't and business leaders is gov't leaders are supposed to have an eye on the macro, long term picture, whereas business leaders keep there eye on relatively narrow (their business), shot term goals.
The crisis we have today results from business leaders taking advantage of boneheaded govt' policies of the last 20 or more years. When gov't (the Fed and Greenspan) decided to force interest rates to stay below the market normal for year after year after year, business leaders saw an opportunity to make money. Companies like AIG, with access to lots of cash, saw an opportunity to make money on the artificially undervalued commodity of money. They did what you want business people to do - make money. The bonuses (and high salaries) reflected only that these guys were making lots of money for their companies.
I think, left alone, business will move much faster to adjust the bonuses and salaries of its managers who are now losing money. Thousands have been out-right fired. Politicians don't work that way. Congress got raises this year. I'll be amazed if the rate at which incumbantsfail to win reelection rises significantly next year.
Dear DenverGuy -- I have found too glib for the last 30 years the constant refrain that government employees are naturally incompetent and/or corrupt, so I can relate to your distress.
"The government made me do it" is just not going to fly. No one forced corporate boards to incentivize their employees to make money up front by finding extremely high risk investments and either underestimating or misrepresenting their prospects.
"Left alone" assumes there is a utopian libertarian state in which government is not necessary. Absent government, however, we live under warlords. Furthermore, I seem to remember when Alan Greenspan was revered by business as a near-God.
Whatever the government policies, it is the function of the corporations and their boards to design a structure that will make money over time, and not have to come ask for a taxpayer bailout. When you do that, you have to expect to be asked: "Just what, exactly, did this executive get a $6.5 million bonus for?"
I'm reminded of the news reports we were treated to for many months after the bridge collapsed here in Minneapolis that: "There is no evidence that the design of the bridge was faulty." How about the fact that it's in the river? (And don't come back and tell me the government made me use the wrong materials and that's why it collapsed.)
Anon, let me explain the free market to you, and what government interference does.
First, corruption. Government employees are not necessarily any more naturally corrupt than private employees. It's just that the levers to punish corruption in the private world act more swiftly, thus government can and will be plagued by much more corruption. Also note that since economic matters are once removed from government's main mission, the more specific they get in running private industry, the more incompetent they'll be.
Second, as far as "the government made me do it" defense, this is exactly what happens in a free market corrupted by bad government regulation. (Will businesses support bad regulation if it helps them? Of course> Everyone will. That's why government should pursue free market strategies, not favoritism.) Let's say the government does anything to make some price artificially low (which is what happened). It's got nothing to do with incompetence or corruption if private industry takes advantage of it. It's what will naturally happen in a competitive market. If you do not take advantage of how the government has deformed the market, while your competitors do, consumers will go elsewhere and you will quickly go out of business.
What normally would happen, even with imperfect regulation by government, is businesses will try different strategies, and those that make mistakes will be punished--but if poor regulation, instead of being reformed, is replaced with massive, intrusive regulation, that you get massively bad reactions from markets, and a slower recovery.
I actually heard Schumer quoted as defending the contract clause so he seems moderate by comparison- This morning on NBC's Today, NY Rep Maloney said something like "Who cares? We impair contracts all the time" Admittedly the rest of the interview testified to the rep's lifelong struggle with expressing herself in English, so maybe she was misunderstood like Sen. Grassley on suggested suicide.
Sure, Schumer respects contracts. He'll just tax away all the money after the fact. Much better.
Dear Anonymous #2 ("Let me explain . . .") -- Thanks for your explanations! I don't remember libertarian-types complaining that Alan Greenspan was keeping interest rates unnaturally low and that this would lead us to a huge market collapse (or anything resembling that). I agree that government should not normally run private enterprise -- I said that up front. But again, there is a utopian ideal of "free market strategies" that has never existed in the real world. Furthermore, even if such a strategy were politically possible, I doubt we would really know what those policies should be. After the fact, we find out there was some dislocation that people weren't thinking of.
It just seems like a massive stretch to blame this downfall on the government "regulation" of too low interest rates. Government and business should form a series of checks and balances that take the shortcomings of both government and businss into account, instead of putting all the "goodness" on one side.
I'm just feeling the distress of libertarians who are concerned that they won the argument against regulation for many years and we have ended up here.
Show me where you complained about the governmental interference with the free market by Alan Greenspan before we knew the result, and we can talk.
Libertarians did win the intellectual argument against regulations year ago, but that never matters. There are always people who want to control things, no matter what the evidence shows. Libertarians don't claim there will never be busts along with the general booms. They just claim that in the long run things will be better if government has a lighter hand. Because people panic easily, though, the pro-heavy regulation side, no matter how weak their arguments, will always swoop in when there's any problem and promote their shortsighted solutions.
Incidentally, there were plenty of free marketers who complained about market-deforming regulations (which led to dangerous policies from Greenspan, even if they were monetarist-inspired) which helped lead us to today's meltdown. You can look them up in old copies of Reason magazine. Not to mention Reason being the moderate side of libertarians--there are plenty who have opposed the Fed having any regulatory power at all.
I'd like to see AIG adjust to less government intervention. "We could have let you fail. Then how big would your bonus be?"
I would add that i have been reading financial columnist Bill Fleckstein for years. Almost immediately after Greenspan responded to the dot-com bust by dramatically lowering interest rates (to avoid a deep recession for the closing years of the Clinton administration), Fleckstein was among several comentators saying this is wrong-headed. He predicted a large correction for a decade. He sighted the resulting skyrocketing prices of real estate as evidence.
Now, it is true, at any given moment in history, you can find a talking head saying anything and everything. But I think many business folks felt unease at the course the Fed was taking. That didn't mean they weren't going to take advantage of what was happening. I certainly tried to. And I pulled half my investments out of the market in June 2007. For a little while I felt dumb as there was continued market growth for almost a year after that while I was earning 3%. But now I feel dumb I didn't take the rest out of the market around June 2008.
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