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Barack Obama, CEO of Wall Street?

February 5, 2009

All those who believed that Wall Streeters have no soul know better now: a number of them have sold theirs to the government in exchange for TARP. Only a market that allows both for tremendous profits for succeeding firms and huge losses for failing firms attracts the most talented individuals and gives them incentives to do their best. When accepting help from Washington Citigroup, Bank of America and their likes have opted out of the “huge losses” part. Now President Obama has set an upper limit on the “profits” part and we can kiss the fruits of a free market goodbye. “But fair is fair”, you say. “Hold on a minute!”, the French Cowboy says.

First of all, Washington has actively participated in the creation of the financial mess and in part it is theirs to clean up. So while the Great Obama condemns “golden parachutes” on Wall Street, did he also set a cap on Barney Frank’s salary? And Chris Dodd’s? When was the last time Congress got paid in accordance with their performance? Last year Congress’s approval ratings were way below President Bush’s and yet they gave themselves a pay raise, smack dab in the middle of the financial maelstrom. Yet instead of wagging his fingers against those whose official job description is to represent the interest of the American people, President Obama chastises the ones who are not in business because they want to create a better society but to – quelle horreur! how vile! – make money for themselves.

And even if lawmakers had been completely innocent in the collapse of the financial sector, the event threatened to destroy the entire economy and thus became their problem. Washington didn’t invent TARP because they just care so much for people who wear ties for work. Had Wall Street lain on its back with half-closed eyes (as it did) and whispered in a strained voice: “No, Washington, let me die, it is only right.”, do you think the Reid-Pelosi gang would have just nodded sadly and said: “Yes, we understand. Rest in peace and know that, despite all the things we said about you, we loved you after all.”? No, the meltdown of the financial sector was (and is) such a genuine threat to the entire economy that even hard-core libertarians wouldn’t have wanted to take the responsibility of doing nothing about it.

Furthermore, even though they have poured enormous amounts of money into those financial institutions it is not for Washington to decide where spending cuts should be made in order to get them back on track. M Obama has never really worked in the private sector, certainly not as an executive, and doesn’t seem to understand that the “shameful” wages he capped are what makes talented and competent people to fuel what Obama called “the greatest economy the world has ever known”. He is no Mitt Romney who might claim to possess the experience that allows him to judge a group of companies from the outside and to tell them how to improve their performance. (And Romney would know better than to do that.)

But, of course, the goal of capping Wall Street’s wages may not be to improve their efficiency at all but to create “fairness”. If taxes are a matter of fairness in the Obama worldview then it is likely that wages are too. And apparently, high wages for highly trained people aren’t fair when less trained workers earn only above-market union wages. But, says Obama, “This is America. We don’t disparage wealth. We don’t begrudge anybody for achieving success” – oh, really? It is only “executives being rewarded for failure” that bother him? Then why this:

Mr. Obama said he later will propose compensation restrictions even for companies that don’t receive government assistance.

How foresighted! All those companies the executives of which will eventually fail with just a little help from Obama’s economic policies.

When wages are set on a non-meritocratic notion of fairness incentives get distorted and people systematically get into positions they shouldn’t be in. M Obama’s urge to kneecap high earners in the name of fairness does no good to an economic system that is successful precisely because huge rewards are given to achievers. And who is he to judge how much the work of those individuals whose pay he capped is worth?

The population of a nation is not like a family in which the parents work for their children because they love them. In rough and tumble reality people work for themselves, not because they want to contribute to the welfare of the other 300 million or so living in the country. And yet – quel miracle! – they happened to do just that. (And, yes, it gets even better with international trade.) Maybe M Obama should read Adam Smith’s Wealth of Nations again. (Actually, the French Cowboy doubts that he ever did.) Bulldozing unequal people to equal pay levels is a crude way to usher in soviet-style “prosperity” and why would the President want that?

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