Dishonest Disclaimer

by Don Boudreaux on March 14, 2009

in Regulation

Here's a letter that I sent yesterday to the Wall Street Journal:

To the Editor:

 

You
report that "New York State Attorney General Andrew Cuomo is in
discussions with Rep. Barney Frank and other lawmakers on a plan to tie
Wall Street pay to the long-term performance of the firms" ("Cuomo, Frank Seek to Link Executive Pay, Performance," March 13).
But lest anyone conclude that Messrs. Cuomo and Frank propose giving
government excessive power, we're assured that "A person close to Mr.
Cuomo said change is needed but the intent isn't to micromanage or
interfere with the private sector."

 

Reality
is not changed by dishonest disclaimers. Suppose that I threaten to
break my neighbor's knee-caps if I determine that the weekly allowance
he gives to his children is too high. Should he be reassured if my
threat is accompanied by an announcement that my intent isn't to
interfere in his private life?

 

Sincerely,

Donald J. Boudreaux

I wonder how Mr. Frank and his fellow members of Congress would react to a proposal to tie their pay to the long-term fiscal soundness of the U.S. government.

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{ 27 comments }

Adam March 14, 2009 at 9:48 am

"I wonder how Mr. Frank and his fellow members of Congress would react to a proposal to tie their pay to the long-term fiscal soundness of the U.S. government."

Or to Congress' approval rating from the public.

Daniel Kuehn March 14, 2009 at 10:13 am

The logic of your letter to the editor is completely sound. You're right that "reality is not changed by dishonest disclaimers".

But reality is also not changed by paranoid interpretations of honest disclaimers or paranoid interpretations of a policy change.

You labeling the disclaimer as dishonest doesn't prove anything, just like my insinuating your paranoia doesn't prove anything.

So what you say is true – but it's trivially true! Of course a dishonest disclaimer doesn't help. But why don't you do some real intellectual heavy-lifting and back up your case that it was dishonest in the first place.

Don Boudreaux March 14, 2009 at 10:38 am

Daniel Kuehn,

It strikes me as blatantly obvious that if, in one breath, a politician expresses an interest in using government to regulate the pay that private firms offer to their employees, and in the next breath insists that he or she disclaims any interest in interfering in private affairs, the case is clear that the disclaimer is dishonest.

Randy March 14, 2009 at 12:32 pm

Blatantly obvious indeed. And just what are those congressional browbeatings supposed to be if not a scolding of employees?

Miko March 14, 2009 at 1:00 pm

I wonder how Mr. Frank and his fellow members of Congress would react to a proposal to tie their pay to the long-term fiscal soundness of the U.S. government.

You mean, something like the Fiscal Responsibility Act of 2007 or the many similar bills proposed? I'd imagine they'd let it stay in committee forever.

Martin Brock March 14, 2009 at 1:22 pm

But lest anyone conclude that Messrs. Cuomo and Frank propose giving government excessive power, we're assured that "A person close to Mr. Cuomo said change is needed but the intent isn't to micromanage or interfere with the private sector."

Reality is not changed by dishonest disclaimers.

The statement is so packed with dishonest disclaimers that selectively unpacking it becomes a political art.

Executives of large banks, and many other financiers, are in "the private sector" in only the most politically correct sense of these words, and their exit from a more traditional "private sector" didn't occur last year either. It happened decades, even centuries, ago.

But apologists for the nominally "private" sector continually conflate the income of these titular lords with marginal productivity as though they were peasant farmers growing fruit from last year's seed to sell in the local market.

Martin Brock March 14, 2009 at 1:29 pm

I wonder how Mr. Frank and his fellow members of Congress would react to a proposal to tie their pay to the long-term fiscal soundness of the U.S. government.

Their pay is already tied to their popularity with voters. If they're unpopular for only one day every few years, they lose the pay altogether.

Citigroup's share price is down 95% from its high over the last year. Madoff's "investors" suffered similar losses, and he's off to jail. How many Citigroup executives have lost their job?

"Private sector" my ass.

Mesa Econoguy March 14, 2009 at 1:47 pm

Given the flagrant, borderline criminal dishonesty of both Frank and Cuomo (who, as I mentioned, almost single-handedly destroyed the auction rate securities market via extortion), it is quite amazing that one or both aren’t currently in jail.

To Don’s point, if you wish to apply this standard in the private sector, you must also apply it to yourself.

Oil Shock March 14, 2009 at 1:48 pm

Martin, Have you heard of the congressional pensions?

As far as I know, Ron Paul is the only congressman who has declined this loot.

BoscoH March 14, 2009 at 1:48 pm

I wouldn't be surprised if some firms aren't complicit. If a monkey can't get a pay raise for taking his darts to another firm or start his own, maybe he stays in his cage with the darts he has. Sounds like a win-win.

Oil Shock March 14, 2009 at 1:48 pm

Martin, Have you heard of the congressional pensions?

As far as I know, Ron Paul is the only congressman who has declined this loot.

BoscoH March 14, 2009 at 1:49 pm

Sorry. "I wouldn't be surprised if the firms were complicit." I think I meant that instead of what I typed.

Martin Brock March 14, 2009 at 2:25 pm

Martin, Have you heard of the congressional pensions?

Yes. I'm not defending it. The average pension is around $50k annually. I'd love to see that cut to nothing. Let them eat 401kake.

By contrast, Citigroup CEO Chuck Prince received $29.5 million on the day he left in 2007, and that was only the severance package. He also receive a $13.2 million "incentive package" in 2007 and a similar package in 2006.

In 2008, Citigroup shares lost 95% of their value while the company receive tens of billions of dollars from taxpayers, but I suppose Prince isn't returning any of that "incentive pay".

I'm supposed to believe that he only received his marginal contribution to Citigroup's momentous productivity?

Don Boudreaux March 14, 2009 at 2:44 pm

My understanding is that Cuomo and Frank are proposing that government tie the pay of executives of most (all?) publicly traded firms and not just the pay of executives of firms that receive government largess.

Chris March 14, 2009 at 3:20 pm

I'm all for tying Congressional pay to the results that they have. How do we make it happen?

vikingvista March 14, 2009 at 3:47 pm

"You labeling the disclaimer as dishonest doesn't prove anything"

Planning to tie Wall Street pay to anything *IS* micromanagement and interference with the private sector. There is no further argument to be made as this is a straightforward case of Orwelling doublespeak.

vikingvista March 14, 2009 at 3:56 pm

It is important to note:

1. This effort by Congress to control pay postdates the TARP "agreements"

2. Some proposals have been made to apply the controls to companies regardless of their receipt of government money.

3. Receipt of TARP was neither voluntary nor desired by some of the receiving companies.

This is a case of private individuals being punished for doing what they were told. Whether or not private individuals benefited from it, politicians made ALL of the decisions, so politicians deserve ALL of the blame.

Mesa Econoguy March 14, 2009 at 4:11 pm

Exactly true, Viking, thank you.

In addition, I will add that what Cuomo and Frank are doing is laying the groundwork for elimination of bonuses in the financial industry.

As I work in the financial industry, I do not want people like Mr. Frank & Mr. Cuomo determining my compensation. Neither are qualified to do so.

Further, by limiting/eliminating bonuses, they are ensuring depletion of talent in the financial industry, and making it extremely unattractive for bright new talent looking for challenges.

Mesa Econoguy March 14, 2009 at 5:52 pm

And thank you for writing this letter, Don.

vidyohs March 14, 2009 at 7:57 pm

"wonder how Mr. Frank and his fellow members of Congress would react to a proposal to tie their pay to the long-term fiscal soundness of the U.S. government"

Ha Ha Ha Ha Ha to infinitum. Funny and spot on.

Actually sir Don, et. al., congress has reated to the idea of tying their pay to their efficiency!!

Oh yes, they did. They passed the law that says the president will propose a pay increase for congress, and it will pass unless voted down. Guess how many times that proposal from the president has been voted down? Ha Ha Ha Ha Ha, yeah right!

By not voting nay, and by disappearing from D.C. when that vote is brought to the floor, or by voting present, all the subterfuge the assholes use, they give themselves a raise by doing nothing.

Oh they know and they fixed that.

vidyohs March 14, 2009 at 7:58 pm

Sorry, should have been:

"congress has reacted"

vidyohs March 14, 2009 at 8:56 pm

http://edlabor.house.gov/blog/2009/03/the-generations-invigorating-v.shtml

http://www.freerepublic.com/focus/f-news/2206670/posts

Achtun! Der future belonging to der Fueher…feuher…f..ker….oh hell…der leader.

Mesa Econoguy March 14, 2009 at 11:36 pm

Thank you, vidyohs. We are devolving into a bicameral society of those who “get it” and muirgeos.

Mesa Econoguy March 15, 2009 at 1:06 am

Since it’s Saturday, let’s put it this way, (join me, Mr. Vidyohs):

If you try to steal my most recent bonus, Barney and Chuck, and Andrew, that’s fine.

Come get it.

Please do not be surprised when you have numerous 30 ought 6 pointed square at your head.

vidyohs March 15, 2009 at 1:37 pm

Mesa,

To that I lift a good glass of domestic Syrah (Cycles Gladiator), and say

AMEN!

BTW, did you guess (accurately) at the caliber? LOL.

Martin Brock March 16, 2009 at 11:00 am

My understanding is that Cuomo and Frank are proposing that government tie the pay of executives of most (all?) publicly traded firms and not just the pay of executives of firms that receive government largess.

Which firms don't receive government largess? Goldman Sachs? GM? GE? Lockheed-Martin? GMU?

I prefer a marginal consumption tax to central planning of executive pay. If corporate officers manage to loot a corporation of its value, maybe the corporation was better looted, but I don't want the looters entitled to expand their castles or otherwise to build monuments to themselves. That's not a capitalist's job. It's an abuse of his authority.

I want the new lords employing the same ingenuity and relationships, that they used to game corporate entitlements to their benefit, to reorganize resources seeking profit. They can even bid on the resources of the corporate they looted when it slips into bankruptcy.

L Burke Files March 16, 2009 at 12:38 pm

It is all most unfortunate and predictable when we elect people who have NEVER had to prove their their worth and survive in the private sector. They do not understand the difficulty of making payroll than missing your child's game on Saturday since you are in the office doing government compliance and reporting paperwork.

There are many articles on what George McGovern faced when he left government – and went into the private sector. It is worth the hunt and chuckle as you find and read them.

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