The problem with government tampering with the free market is that it sets off a series of unintended, and usually negative, consequences.
It was wrong for Congress to bail out big companies to the tune of $700 billion through the so-called Troubled Asset Relief Program. By not letting private companies struggle or even fail after they had performed badly and by propping them up with tax dollars, Congress only encouraged further bad behavior and set the stage for future crises.
But now, the government is compounding the problems created by the bailout. The so-called “pay czar” has released “pay guidelines” for dozens of executives at five bailed-out automotive and insurance companies. The vast majority of the executives will be limited to cash salaries of less than $500,000, plus stock.
Now, that is not a “puny” salary, and you might not feel sympathetic toward someone earning that level of pay. But wouldn’t it be wise to set aside animosity or envy and consider what the actual effects of the “pay guidelines” will be?
What do you think will happen when extremely talented workers — the very type of workers the bailed-out companies need if they are to become more stable and efficient — have to choose between working at one of those companies for government-restricted pay or at a different company that pays more? They’ll do exactly what most of the rest of us would do if we were considering positions with different companies: They’ll select the higher-paying jobs.
That will leave the bailed-out companies with less skillful employees who are less able to turn things around — which ironically will increase the odds that Congress will bail out those companies again.
The solution, of course, is not to bail out companies in the first place if their own poor market performance or unethical behavior got them in trouble. What most certainly is not the solution is following an unwise bailout with unwise “pay guidelines.”