Paying the Price for Bailouts

Bailed out financial institutions are quickly learning what the states learned a long time ago about receiving money from the federal government: There are pesky strings attached. The prime example is a recent Wall Street Journal story noting the details of the decisions made by the government’s “pay czar” (Could anyone have imagined such a title two years ago?).

Kenneth Feinberg has been busy artificially capping the pay of executives in the bailed out firms he has been dubiously given authority over. The WSJ report repeatedly says “Mr. Feinberg” did this, “Mr. Feinberg” did that. His oversight power essentially changes the decision-making process for executive compensation to where it is now beholden to only one, unaffected man instead of several men and women on the company boards who have a vital stake in how their company compensates employees.

[picapp align=”left” wrap=”true” link=”term=kenneth+feinberg&iid=8095002″ src=”b/b/e/d/TARP_Administrator_Kenneth_80ac.jpg?adImageId=11655666&imageId=8095002″ width=”234″ height=”174″ /]And, in reality, that is too simple of an explanation. In a relatively free market system, employee compensation is typically beholden to leaders in individual firms who are swayed by the prices for labor that the market sets. If there was any doubt that such a free market exists in this country, it only gained credibility with the appointment of Feinberg last year. Instead of relying on the voluntary action of individuals in the marketplace to determine the price of labor, politicians thought it wiser to appoint one man to make that decision for individuals — backed by the authority of the federal government and its “power of the purse.”

One could argue that this is the price to be paid (no pun intended) for companies expecting taxpayers to rescue them. But there should be no doubt that not only were the bailouts ill-conceived and an unhealthy distortion in the market, but so is the centralization of labor pricing in the hands of one government bureaucrat.

If there is any irony to this forray into government meddling, it may be this fact: The same government that helped create the economic “crisis” by manipulating the extension of credit (often to individuals who could not afford the debt) is now once again manipulating the market — this time by fixing labor prices. The possible result from this will be to discourage the most talented individuals from working for the bailed out companies, and a talent drain is the last thing these troubled firms need right now to rebuild their viability.

At what point does the general public catch on to this never-ending cycle of unintended consequences resulting from government’s supposed “solutions” to our problems? If history is any indicator, probably never.

* The preceding was originally posted on the Young Americans for Liberty blog.

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