Cafe Hayek - Latest Comments in They don't know what they're doing

Re: They don't know what they're doing

Charlie — Fri, 20 Mar 2009 11:29:21 -0000

""I asked my lawyer friends and they said that this will clearly pass constitutional muster, "

-Charlie

...and I'm pretty sure their are plenty of other "lawyer friends" who would disagree with yours."

Interestingly, the argument still fails. If the law doesn't pass constitutional muster, then it will be stricken down and can't have the negative effects Tim worries about. If it does pass constitutional muster, then the government had the right all along.

Re: They don't know what they're doing

Hammer — Fri, 20 Mar 2009 09:44:57 -0000

"I agree, Sam. I just don't buy the facile pretense that the CEO of AIG is "not a politician" because he's "in the private sector". I don't at all believe that a massive corporation of this kind is somehow a more omniscient central planner just because it's nominally "private"."

Martin, I agree that AIG is every bit as useless at central planning as a politician. However, the difference between a private sector entity and a politician is that the politician can force you to do what his whims dictate, while a private sector entity can not. The CEO may bribe politicians to do what he wants, but he can not simply decree that you must give him money to spend on something, for example.

Re: They don't know what they're doing

MWG — Fri, 20 Mar 2009 09:18:50 -0000

"I asked my lawyer friends and they said that this will clearly pass constitutional muster, "

-Charlie

...and I'm pretty sure their are plenty of other "lawyer friends" who would disagree with yours.

Re: They don't know what they're doing

Superheater — Fri, 20 Mar 2009 08:29:15 -0000

I asked my lawyer friends and they said that this will clearly pass constitutional muster, and if that is indeed the case then the government already has the ability to tax in this manner. That is, the same thing will stop them in the future as has stopped them in the past democratic review.

Its either a bill of attainder or its a gross violation of the fourth amendment's prohibition against unreasonable search and seizure. We have a legislative body, enactly a tax that targets a few individuals who receive income in the form of a PERFORMANCE bonus (primarily because the last time the D's had Congress and the White House, they enacted code Section 162(m), which requires, among other things that wages in excess of 1M to be "performance based" in order to be tax deductible to the employer".

In short, these are not DISCRETIONARY bonuses, they are AGREED-UPON WAGES paid in a peculiar way because the government told them to pay it that way.

The Bar has become a parasitic cartel, a medievel guild bent on total control of society. There's a reason "first kill all the lawyers rings so true". Perhaps its not AIG execs, but lawyers that should be taking Chuck Grasshole's advice.

Re: They don't know what they're doing

Charlie — Fri, 20 Mar 2009 06:55:31 -0000

"But there are a couple of other issues here. One is the idea of precedent. If it's okay for government to go back and tax an individual because they made too much money in a way that offends us, then what's to keep government for taxing excess income for other "sound, social reasons"?"

I don't think this argument works. I asked my lawyer friends and they said that this will clearly pass constitutional muster, and if that is indeed the case then the government already has the ability to tax in this manner. That is, the same thing will stop them in the future as has stopped them in the past democratic review.

Re: They don't know what they're doing

Superheater — Fri, 20 Mar 2009 05:19:10 -0000

A firm being bailed out has to accept government hassle and oversight--

Yes, the FIRM needs to accept "oversight", but does that include summarily rescinding contracts with employees? How about insisting that there's a 90% tax on politician's and PAC's who received "donations".

Re: They don't know what they're doing

Tim — Fri, 20 Mar 2009 03:56:59 -0000

I certainly don't think the AIG execs "deserved" bonuses for bringing their company to the brink of non-existence. And if, indeed, they are the "best and brightest" talent, I would think/hope that, as individuals, they would see the folly in taking the bonuses under the current circumstances.

But there are a couple of other issues here. One is the idea of precedent. If it's okay for government to go back and tax an individual because they made too much money in a way that offends us, then what's to keep government for taxing excess income for other "sound, social reasons"?

Additionally, I would hope that someone considers challenging the law in court. Congress passing a law that interferes with a (bad) contract that was previously agreed to by all parties, may fit under the idea of an "ex post facto" law. If I'm wrong on that last point, I'd appreciate correction.

As I said, I think what AIG agreed to was unsound and unconscionable. That doesn't make it right for government to do the same. Laws and contracts form the institutional structure of an economy, helping to shape decisions. If those institutions become subject to political or emotional whims, excess uncertainty is introduced and problems can evolve from that uncertainty.

Re: They don't know what they're doing

Xmas — Fri, 20 Mar 2009 02:52:25 -0000

According to the following Washington Post story, the people getting bonuses are those that stayed to help untangle the mess caused by the Credit Default Swaps. The people that caused the problem are all long gone.

The head of the Financial Products division is worried that his people will return their bonuses along with resignation letters. They'll then go work for the counter-party companies and pretty much take AIG for all they can.

WaPo Story

Re: They don't know what they're doing

Sam Grove — Thu, 19 Mar 2009 20:48:47 -0000

If AIG were in the private sector, it wouldn't be.

Re: They don't know what they're doing

Martin Brock — Thu, 19 Mar 2009 18:56:23 -0000

I agree, Sam. I just don't buy the facile pretense that the CEO of AIG is "not a politician" because he's "in the private sector". I don't at all believe that a massive corporation of this kind is somehow a more omniscient central planner just because it's nominally "private".

For the fathers of classical liberalism, the people we call "politicians" today, elected in our biannual plebiscites, hardly existed at all, because the American Revolution hadn't happened yet. The word "politician" obviously had other uses then.

Re: They don't know what they're doing

Sam Grove — Thu, 19 Mar 2009 17:53:30 -0000

Politicians are very good at giving the impression that they know what they are doing.

In fact, they are very good at making deals with other politicians.

Re: They don't know what they're doing

Martin Brock — Thu, 19 Mar 2009 14:07:36 -0000

Martin - one of the pillars of America is that contracts are honored. If you take that away, we are one step closer to banana-republic status. Do you really want us to be like Putin's Russia?

Spoken like a true man of system.

Actually, contracts are broken routinely without any interference from central authorities. Contracts with unrealistic or counterproductive terms should be broken, and many agreements called "contracts" turn out not to be contracts at all when examined by courts, because they violate some public policy, like they're made under duress or by an incompetent or they enslave someone or something.

"Banana republic"? "Putin's Russia"? No, I don't want us to describe ourselves with these words. We're too good for that.

Re: They don't know what they're doing

Dave — Thu, 19 Mar 2009 13:16:23 -0000

Apart from the fact that this is a bill of attainder by any realistic definition, and apart from the fact that Congress has been a wee bit "selective" in choosing to single out these folks over all the other recipients of Federal spending, this will have severe unintended consequences. It ain't just the AIG execs who will suffer. No, it's also people we should all hope are rewarded for their good work, such as all the people contracted to receive retention bonuses as so many mergers, etc. are completed. And these aren't exactly cover-art robber barons and demons. They're some of the folks who ensure minor little things like deposit processing and fraud management, just to name a few, actually happen well. This Congress is without peer in it's buffoonery.

Re: They don't know what they're doing

Bret — Thu, 19 Mar 2009 13:14:18 -0000

Some lawyers should be able to get rich and/or famous from this one.

Re: They don't know what they're doing

Methinks — Thu, 19 Mar 2009 12:58:26 -0000

So just because we don't know what we are doing doesn't necessarily mean we are doing the wrong thing.

I completely agree with you, Charlie (I'll ignore your implicit assumption that all the firms forced to take TARP funds had a choice).

Next time you need surgery, come to me (or else). I don't know what I'm doing, but that won't mean that I'm doing the wrong thing.

Re: They don't know what they're doing

Crusader — Thu, 19 Mar 2009 12:58:02 -0000

Martin - one of the pillars of America is that contracts are honored. If you take that away, we are one step closer to banana-republic status. Do you really want us to be like Putin's Russia?

Re: They don't know what they're doing

ardyan — Thu, 19 Mar 2009 12:46:39 -0000

You could also post the Smith quote in response to what the pope has been saying about AIDs in Africa.

Re: They don't know what they're doing

Charlie — Thu, 19 Mar 2009 12:40:58 -0000

It's possible that this government meddling is a good thing.

1) A firm being bailed out has to accept government hassle and oversight--I remember this being an issue even as bailouts were just being considered--even if it lowers the productivity of the firm, it could have beneficial effects. A major problem with bailouts is finding a separating equilibrium rather than a pooling equilibrium, that is, we only want to bail out the right firms, we don't want to encourage firms that don't really need to be bailed out from acting like they need a bail out. Gov't meddling adds a disincentive to accepting and lobbying for a bailout.

2) It creates a disincentive to work for companies that are perceived as being "too big to fail." Thus, companies that are too big to fail will have to pay their workers more relative to other firms, which in turn lowers their competitiveness.

So just because we don't know what we are doing doesn't necessarily mean we are doing the wrong thing.

Re: They don't know what they're doing

Methinks — Thu, 19 Mar 2009 12:39:00 -0000

So, let me get this straight....

We're so outraged about variable compensation which doesn't even amount to a rounding error compared to the huge bailout that we're willing to levy a 90% tax to return the money to the Treasury?

Here's and idea. How about a 90% tax on the TARP money handed out to all and sundry to return IT to the Treasury?!

Re: They don't know what they're doing

Superheater — Thu, 19 Mar 2009 12:35:27 -0000

Professor, I hate to disagree but I think the governing class knows EXACTLY what they are doing.

Singling out a small group accomplishes several things:

1.) It deflects the (largely emotional and gullible) public from even considering the question of official corruption and/or culpability, perhaps asking why they aren't being required to retun AIG's political contributions.

If you can whip the public up to a mob frenzy of indignation against a small group of people because of a visceral and largely disordered sense of inequity , you have mortally wounded the public cohesion that keeps a small group of puppet-masters from near total control. Totalitarians and autocrats have known of the techquique of "Divide Et Impera" for millenia.

1.) It adds to the insecurity of property and therefore dimishes the the public acceptance of the concept. It used to taught in schools, before grievance politics imbued the idea of state dependence into the great mass of people.

We are about to enter the same type of mobocracy that France experienced during their Revolution, eh, citizen?

2.) It adds to the insecurity of individuals for their liberty. Your earnings and your privacy can both be appropriated not by rule of law with due process, but by the edict of single legislative committee chairman.

Congressional indignation, over a form of compensation they are largely responsible for as a result of the passage of IRC Sec 162(m) with a proposed "remedy" of a tax of 95% for a specifc group of people isn't a tax at all, it's a fine. Fines are levied for criminal violations. To impose such a fine, one needs to be guilty of a crime (unless getting Barack Obama's, Chris Dodd's or lead autocrat Barney Frank's panties in a knot is a crime) We used to understand that a finding of guilt was a judicial matter with parties bound rules of crminal procedure and findings by the legislature without a trial was prohibited as a "bill of attainder" by Article I, section 9, clause 3 of the constitution.

The Republic is in grave danger of losing the rule of law to mob rule.

Re: They don't know what they're doing

Doug — Thu, 19 Mar 2009 12:32:57 -0000

America is really good at pretending to have liberty and a free country - when in fact it is one of the most centrally planned economies in the world.

Re: They don't know what they're doing

Martin Brock — Thu, 19 Mar 2009 12:07:54 -0000

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.

Like the man who says that AIG bonuses must be paid because they're contractual, and contractualness is next to Godliness?

Re: They don't know what they're doing

T L Holaday — Thu, 19 Mar 2009 11:49:11 -0000

I wonder what the effects will be of legislating moral outrage.

Since the topic is wondering, does anyone wonder why the wondering author spurns Robin Hanson's recommendation to make a token wager as to what the effects will be?

Re: They don't know what they're doing

RickC — Thu, 19 Mar 2009 11:42:45 -0000

The Constitutional issues involved were very simple. Now we know where the folks who voted yea stand on the Constitution. Time for a recall vote.

Re: They don't know what they're doing

Ben Abbott — Thu, 19 Mar 2009 11:30:13 -0000

imo, as soon as a company accepts government hand-outs to alleviate their failure in the free-market, free market theory is out the window. They are part of the government and the government (it all its incompetence) can, and should, run the business in any way it pleases.

In the long term, we will all be better off in each of these corporations, who have eagerly scooped up financial entitlements, goes belly up. They're not in trouble because the free market was to ruthless for them. They're in trouble because of incompetence and corruption. Joining forces with the government isn't going to help alleviate either of those character flaws.