Tuesday, August 4, 2009

What Are They Thinking?!! – Socializing and Destroying Our Economy

On Friday, the House voted to give the government sweeping control over pay in the private sector. This plan continues the radical-leftist Congress’s assault on free enterprise and the capitalist system. Essentially the bill, H.R. 3269, prevents large companies from rewarding their employees in ways that may cause excessive risk taking. What excessive risks are is undefined.

Such a power grab greatly hampers the abilities of companies to structure their businesses according to what works best. While companies certainly have, and will continue, to make mistakes, there is no reason to assume that the government can make better decisions. In fact, there is much reason to believe that government interest does not coincide with what is best for a company. Governments have a whole host of groups that they must pander to; including, constituents, lobbyists, party members, and others.

Government meddling in corporate business strategy can only lead to bad situations where politics trump good business sense, sapping initiative and dampening the industrious and innovative American spirit. In such instances, the government role is inefficient, impractical, and downright foolish. It brings politics into a realm where they don’t belong. The very motivation for greater government involvement is completely imbued with political motivations. Such bills are precisely motivated by the populist rage that the Congressional Democrats are nurturing and harnessing, rather than any objective logic. Destroying the fictitious ‘fat-cat Wall Street’ apparently wins votes, even if it hurts the very Americans who cry for blood.

The damage that this bill could cause is foreshadowed by the government’s meddling in the relationship between Citigroup and one of its prime breadwinners, Andrew Hall. Hall, who runs a division of Citigroup called Phibro, which often earns a large chunk of revenue for the company, is admittedly a well compensated man (he owns a castle). He is now demanding a contractually committed bonus of $100 million. Citigroup, which received a lot of taxpayer cash through the bailout, is under immense pressure to renege.

The tensions in this are obvious. However, whether he is right or wrong, Hall, and his massive amounts of revenue, will leave Citigroup if his contract is not upheld. Citigroup is naturally in a tough position– stuck between the same populist anger that is pressuring the government and a large capital outlay that may reap future rewards. This tough decision is only complicated by the presence of government decision makers who, motivated by reasons not necessarily in line with Citigroup’s financial success, can severely influence what happens.

Proponents argue that government intervention is necessary to mitigate excessive risk taking on Wall Street. However, the excessive risk taking that this bill attempts to eradicate, is the very same excessive risk taking that Congress has helped build into the system. The financial bailout and other such programs encourage risky behavior. After all, if one knows one will not have to suffer the consequences, one will be more likely to take risks. When the suffered consequences do not match the risk level it encourages individuals to have a surplus of hazard. The bailout encourages just that.

Congress is in the process of establishing such a backwards system. If a system cushions the consequences of missteps, it simultaneously encourages missteps to be taken. Ultimately, people and institutions need to be able to feel the pinch in order to learn to avoid behavior in the future. The only alternative to eradicate risk is to have one party dictate every action– compensation, production, consumption. This is a failed political system often called communism.


  1. Quite an education for a retard. I'm betting your parents paid a lot for you to become a shithead.

  2. Like I have said in the past, I love to hear disagreement, questions and discussion; but such immature and base commentary is unacceptable. If you disagree with my opinion, by all means, express it- I would love to hear your perspective. If you can't form a coherent counter-argument, maybe you should spend some time listening and learning rather than resorting to name-calling. Your commentary offers no way for my readers, you, or me to learn anything.

  3. It’s very apparent that our country is headed in a new direction, ultimately I am not sure where it will go and I am not sure of what to make of the direction of the Obama administration. I never supported the bailout, but I do believe that the restrictions should have only applied to banks that accepted government aid. I can understand the reasoning behind this bill, but small steps like this make me nervous, government creeping into the private sector scares the shit out of me.

  4. David~

    I think it is very scary. The government can't do a better job than the private sector in most areas (public goods aside). The reasoning behind this bill is scary to me. It doesn't seem based in any economic logic or rational thought-process; but entirely in political motivation. That is one of the most dangerous type of policy. Our country is headed in a bad direction if we decide policy based on raw emotions, fired up by politicians who just want to win another election. We need to make smart decisions, based on rational policy goals. Such a bill is going to do far more damage than the perceived benefits.

    Thanks for your comment.



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