File this under the category of Red Herring:

 “Obama: Excessive pay ‘does offend our values’”—Associated Press article on MSNBC.com, October 22, 2009

Before we parse this bit of fluff, let it be said that no one should have any sympathy for bailed-out organizations. In order to keep the “too-big-to-fail” enterprises running, the State intervened in the normal course of business and kept them alive. This is simply favouring some economic participants at the expense of the rest. It is wealth distribution and privilege bestowed by the all-powerful State.

Government’s sticky fingerprints have been on the financial industry since at least the nineteenth century in the United States, and the culminating lesson in today’s comments by President Obama is: “What the government subsidizes, it must control.”

Let’s parse. Values can only be held by individuals not mobs, gangs, tribes, ethnic groups or other populations of people. There are no collective minds. Some people do value the pay rates that the “offending” executives received, foremost among them the executives. The same could be said of the individuals on the Boards of those companies.

The inescapable fact is that at least two parties in a position to agree made the business decision that particular executives were worth the ascertained rates. They are in a position to know, and if they made an error the relevant business may suffer for the mistake.

Ah, but you say like the President does, that these rates offend you personally. I’ve actually heard third-party observers say that some executive compensation rates are “obscene”. By what standard does one make this judgment? How do you know what is inoffensive? Can you determine that figure without being arbitrary? If it’s offensive to you I say, “so what”? You are not a party to the transaction. (I’m leaving aside the public argument that as a taxpayer, you pay their salaries now.)

The only thing offensive in my view is that the State is involved in the first place. The institutions that were bailed out deserved to fail. If that had been allowed to happen the American economy might well be pulling out of its horrible recession today with many smaller, but more efficient private institutions to replace the lumbering state-sponsored relics.

Whether the compensation is excessive or not is again a judgment call related to the amount of offense taken. By introducing the term “excessive” in arbitrary fashion you ought to be prepared to back it up with some precision. There is no better way of achieving that precision than leaving the employer and the employee to work this out.

The intervention of Obama’s Pay Czar to the mix can in no way add to the value of the agreement. He does not possess the knowledge of the executive and the board that determines compensation by negotiation. Eventually, as is likely the case, undervalued executives will find their way to less-regulated financial institutions in Hong Kong or Singapore.

Of course, if you were to consider the relative impact of executive compensation on bailed-out institutions compared to the amount of government largesse bestowed in the first place, you might ask what all the fuss was about. Coupled with the fact that the recession is not over, and that domestic and foreign problems dog the Obama administration, you may conclude that this bit of “newsworthy” grandstanding represents the art of legerdemain.

©Copyright 2009 Edward Podritske