The Obama administration’s multi-pronged attack, designed to place private American corporations under federal oversight and control on a model reminiscent of Benito Mussolini’s approach in the Italy of the 1920s and 1930s, raced ahead this week as Treasury Secretary Timothy Geithner said the administration will ask Congress to give shareholders a "nonbinding" voice on executive pay and to require corporate compensation committees to stand independent of company management.
The second proposal would give the Securities and Exchange Commission authority to strengthen the independence of panels that set executive pay — and not merely for firms that have accepted federal bailout funds.
Separately, the administration is preparing to issue new, more specific regulations governing pay at financial institutions that have received infusions from the $700 billion Troubled Asset Relief Program. Those regulations, following legislation already passed, would limit top executives at these companies to bonuses no greater than one-third of their annual salaries.
An official said the administration will appoint a "special master" to oversee compensation at firms receiving large amounts of government assistance. The pay overseer would have the power to reject excessively generous pay plans.
Fans of the policy actually characterize Wednesday’s announcement as a victory for free markets, since this supposedly more moderate approach is reported to have won out over a proposal to nationalize the banking industry, outright.
We’re also supposed to believe the Post Office is now an "independent, quasi-governmental" operation called the "Postal Service," whose employees should not be counted as government workers, and that the taxpayers were not on the hook to make good the obligations of Fannie Mae and Freddie Mac, since they were not, officially, government agencies.
In fact, this is all about harnessing the populist outrage against "corporate fat cats paying themselves big bonuses while the little guy suffers," with minimal allowance for likely real-world outcomes. And it’s all the more ominous because the financial crisis which the administration now seeks to "solve" was largely manufactured by government interventions in the first place.
Mr. Geithner said the efforts would reinforce administration compensation guidelines, also released Wednesday, that encourage corporate boards to adopt pay packages that reward long-term performance rather than short-term gains and to better manage the relationship between risk and incentive. Those well-meaning guidelines, or principles, are supposedly not mandatory but are instead merely "meant as a message" to corporate boards and to shareholders, the secretary said.
"We are not proposing an ongoing government role in setting policy in compensation," Mr. Geithner said, soothingly. "We do not believe it’s appropriate for the government to set caps in compensation. We’re not going to prescribe detailed prescriptive rules for compensation. All those things would be ineffective, could be counterproductive in some ways."
This from the administration that declared, only months ago, that it had no interest in running General Motors — but which today finds itself assigning flunkies to run General Motors. This from the administration that two months ago fired Rick Wagoner, CEO of the then-private corporation known as General Motors — a power not previously known to rest with the White House.
Despite all his disclaimers, what Mr. Geithner is really saying, according to D.W. MacKenzie, who teaches economics at the U.S. Coast Guard Academy, is that "Obama and his staff know how to plan an economy."
But, unfortunately, "The idea that wise statesmen actually possess the knowledge needed to manage the economy was debunked long ago," Mr. MacKenzie continues. "Friedrich Hayek explained the undeniable fact that modern economies are complex beyond anyone’s comprehension. The idea that officials need only the will to carefully design and thoughtfully conceive regulations or other policies is absurd when you consider all the factors relevant to such policies. We live in a country with over three-hundred-million consumers, and an uncounted number of products, each the outcome of a lengthy and complex process of production. …
"What this means is that supposedly carefully designed and thoughtfully conceived regulations will produce unanticipated reactions, which in turn produce unintended consequences. Unintended consequences of policies typically require further intervention to achieve the goals set by state officials," et cetera, ad inifinitum.
"As Hayek put it, ‘It is not necessary, for the working of the price system, that anybody should understand it. But people are not likely to let it work if they do not understand it.’ "
Try telling a group of arrogant children that if they will just leave something alone, it’s designed to correct itself and keep running quite satisfactorily. All they have to do is keep their hands off of it. …