Alibris Secondhand Books Standard

Sunday, September 27, 2009

a capitalist case for curbing banker pay

from Bearish News:

There are two arguments for curbing pay on Wall Street. The two sides argue bankers should not receive such huge compensation because:

  1. Socialist view: No individual should be allowed to earn such a disproportionate salary.

  2. Capitalist view: Government intervention allows banks to be so profitable, at cost to other members of society.

Bank apologists always attack the socialist (straw man) argument. Labeling something as “socialist” is a lot easier than addressing the real issues. “Fine, that’s just fine!”, they say. “But I hope you like communism, cause we’re gonna have to cap everyone’s salary – Bill Gates, A-Rod, Britney Spears, and Steve Jobs.”

Only the capitalists’ case holds water. America’s banks cannot be described as free-market enterprises by any rational person. I will outline various ways our government subsidizes bank profits, while eating their losses. I will explain why bank executives do not deserve their current level of pay, and why this view is not socialist or anti-free-market in nature, as many claim.

I can't say I fully follow the logic, but it seems to stem from the notion that banks are free to use other people's money however they see fit — without fear of repercussion. They have no disincentive to make risky gambles, since if the gamble pays off they will profit, and if the gamble doesn't pay off they will be bailed out by the FDIC. Banks are not subject to the risks associated with free-market capitalism, and therefore cannot be considered capitalist institutions. I guess.

What do you think? Is this guy on to something, or is he just blowing smoke?

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