When the Obvious is wrong

This blog is hard to post because about 90% of my readers (probably mostly conservative) will disagree with it. But with all due respect who are YOU to decide what is "fair" for company executives to be paid?

It angers me when all I hear is how people are so mad that AIG executives are getting huge bonuses when they in fact are one of the big reasons our economy is in the dump. I agree that they made some terrible mistakes and that their management should be punished. But let the owners of the company (stockholders) make those decisions. First for you who are reading this blog and have not read many of my past postings, you must read my blogs on CEO pay from many many months ago. With that in context, executives of the largest companies in the world make millions for a reason and so they should if the market calls for it. At the same time, contracts for these executives are sometimes considered "unfair" because to get these highly coveted executives requires huge payments or they will miss out on the best available leaders for the company. Keep in mind that sometimes bonuses are due regardless of a companies success in a given year.

Most importantly, if Government did not bail out these companies every time they made bad decisions, these companies would not reward executives who made terrible business decisions. But if the American federal government is going to give them our tax dollars, why should they not partially use that money to pad their own pockets when knowing that they soon are going to be let go? The solution- government stay out and let these businesses fail and if enough fail, stockholders might decide to pay closer attention to decisions being made and thus executives will not make stupid decisions that put their companies in trouble.

The reason it angers me is that politicians know how stupid we are and will cater to our feelings of anger towards executives and demand instead that they not get those bonuses. We then get excited because those politicians hear our complaints and are working so hard for us! The only problem is that the real PROBLEM is not being solved. That is, government stop standing by these companies and stop bailing them out and these over paid bonuses will not happen. Our attention is turned to the emotional issues of millions of dollars being paid to executives when it is the billions and eventually trillions of dollars that the government will spend to "fix" this economy when they are responsible in fact for causing the problems that needs to be fixed!

The other issues can not be explained so easily. But if you read my blogs from time to time you will know that economics is about costs and benefits. And even if you were to agree that government has gotten this one right and that these executives should not be allowed to receive these bonuses, there is a cost to government making those decisions. If government makes that decision why not other decisions? WHat about healthcare? What jobs are to be created? Prices of goods? That sounds like Socialism. Look at the countries that are socialistic. Is that what you want to live like? The cost of capitalism is that sometimes the free market might get it wrong. But the benefit of Capitalism and Free Markets is that it gets it right far more times than government does.