Obama administration pay czar sigh Kenneth Feinberg has detailed his plans to cut cash salaries and calibrate bonuses at seven bailed-out companies, including Citigroup and AIG.
Its obviously untenable for companies that depend on government money for their existence to pay out private-sector salaries and bonuses as they please.
But the Obama/Feinberg solution is equally untenable. Private-sector companies need market discipline that is, the fear of failure. Instead, the government, through command-and-control, is imposing rough political discipline.
This strategy further blurs the line between the public sector and the big-company private sector. It's not a good development for the economy, especially when large companies already are recovering faster than small businesses.
Investors are going to assume that since President Obama and Congress seem happy enough asserting control over outrage-inducing pay packages at these seven big companies, they wont bother doing the harder regulatory work of making sure that these large private-sector firms, and others, are no longer too big to fail.
But outsized bonuses were a symptom of that particular problem an industry insulated from competition not the problem itself. Attacking the symptom wont solve the problem. The government distortion that a market-immune financial sector creates will just show up somewhere else in the economy.
Where are the Republicans? As Reiham Salam noted yesterday, only one House Republican voted recently for a bill to impose even the weakest regulations on unregulated financial instruments. Prudent, consistent regulations make the economy as a whole more robust to a financial firms failure and eliminate the need for political controls of market-resistant zombies.
Congressional Republicans have an opportunity to stick up for market forces rather than political forces.
Original Source: http://corner.nationalreview.com/post/?q=MjhhYjk1YWJlMTU2MDMyMDhhYjkyNWNjNmI4YTJhNDk=