Why Limiting Executive Pay Is Not A Good Idea

One thing you have to give credit to Obama for is that at least his administration is trying things. However, I still have this strong feeling that his measures are half-hearted and that he and his advisers are still too tightly wed to the old system and the Wall Street "good old boys." It is still too early to make any evaluation of the moves taken in regard to GM and Chrysler since we don't know many of the details. However, one can't help but notice how differently Detroit is treated when compared to the financial firms.

What seems like a decisive and populist/liberal move, limiting executive pay is, I believe, the wrong approach. As I have pointed out earlier, the disparity between the average CEO and the average worker has increased about nine times over the last 25-30 years and the wide gap in wealth in this country is one of the most important problems we need to fix. However, I believe there are two problems with the proposal to limit executive pay. First, it is certain to raise a firestorm and I suspect that there are serious legal problems with it. Off hand, I can't see any constitutional support for such legislation since it would be a real stretch to claim authority under the power to regulate interstate commerce. It is sure to invite legal challenges and Bush has left us with a largely conservative Federal court system. I suspect that, even if such legislation did survive legal challenges, it will have to go all the way to the Supreme Court and could be tied up in litigaion for many years. Secondly, it is much too narrow. Again, as I have suggested earlier, we need to do something about all high incomes, not just CEO pay. Also, to pay for the programs that are needed and to try to keep the deficit from exploding, revenue has to be raised from somewhere. Since the rich have gotten the vast majority of the benefits from government actions over the last 25-30 years, we should increase tax rates on the rich and greatly increase the rates for the super rich. Using tax policy is a much better solution than limiting pay/lincome.

Finally, I would like to highly recommend the Bill Moyer's interview of William Greider on Bill Moyers Journal March 27, 2009, which should be available at pbs.org. Also highly recommended is The Quiet Coup By Simon Johnson found in the May, 2009 issue of The Atlantic (also available on line). In both of these you will find brilliant insights, because they happen to echo what I have been saying (plus they have some additional things to say that I agree with). Instead of listening to Summers and Geithner, I think Obama should be listening to people like Johnson, Greider, Paul Krugman and Joseph Stiglitz, all distinguished economics thinkers (Krugman and Stiglitz have Nobel Prizes in economics).