Of course the government could limit executive compensation, says Dean Baker -- if the government actually wanted to

Economist Dean Baker is on the warpath.

by Ken

I recognized that it was frightfully naive of me, but back in the days when we thought, or at least hoped, that the 110th Congress, with its new Democratic majorities (however slight in the Senate), would actually do something about issues that had been left to fester under the all-Republican federal government, it just didn't occur to me there was one pretty good reason why nothing was being done -- for example, in the matter of extracting the U.S. from Iraq.

No, I don't mean the fashionable official reasons:

* There's nothing Congress can do. (Oh, like hell! Congress can vote to cut off the damned money! Yes, the Bush regime would have finagled and cooked the books and just plain stolen to find the money it needed -- well, let them!)

* We just don't have the votes. Maybe in the next Congress? (Oh, phooey! Why do you people have the word "leader" in your titles if you can't for once show some leadership? Knock some heads in your caucus, and if in the end you can't bring enough people around, make sure the ones you can't get to vote with you know that their votes will be hung around their necks for all to see.)

I'm embarrassed to say that it was a moment like the sudden clearing of a solidly overcast sky when David Sirota wrote a column suggesting that the reason the Democratic leadership in Congress couldn't do anything to end the Iraq adventure was that there were segments of the leadership that didn't want to.

Oh.

I would feel more embarrassed if there were any indication that I was one of the sleepy few who didn't get it. The indications, however, are the opposite: that a lot of Americans, even fairly well-informed ones, not only didn't get it then but still don't get it.

I still think it fairly likely that House Speaker Nancy Pelosi would have liked to do something about ending the Iraq occupation, though note already that "would have liked to do something" isn't the same thing as "was determined to try to do something." I think now, though, that one reason she never had the votes -- for this or anything else at all controversial -- was that people she would have depended on to count and commandeer Democratic votes, Beltway insiders like House Majority Leader Steny Hoyer (the majority leader she hadn't wanted, remember) and House Master of the Dark Arts Rahm Emanuel, didn't want anything done.

Once you see the principle at work . . .

This is a long way around to where I wanted to get, which is another application of the same principle: the seeming inability of the federal government to do anything to rein in executive compensation as part of the bailout package. I did try to suggest the other day that perhaps it wasn't a coincidence that even the toothless provisions that had been written into the bailout legislation suddenly turned out to be in fact meaningless, because of the way the Bushbailers had insisted on writing the bill.

Today Dean Baker, co-director of the Center for Economic and Policy Research, about the highest-ranking progressive economist you'll find stalking the corridors of D.C., takes withering note of a "lengthy business section article in the Washington Post" which "noted the failure of past efforts to restrict executive compensation" and "then implied that it is inherently impossible to effectively restrict executive compensation."

Dean points out, first, that this inherent impossibility would have to be something uniquely American, because the problem just doesn't seem to come up elsewhere. ("Companies outside of the United States seem to have no difficulty attracting highly qualified executives even though their pay is generally an order of magnitude lower than in the United States.")

Then he moves in for the kill:

While it is possible that efforts to limit executive compensation failed because it is intrinsically difficult to limit executive compensation, it is also possible that these efforts failed because the politicians who designed them did not really want to crack down on executive compensation. While high CEO pay packages are very unpopular politically, top executives are important sources of campaign contributions and political support for politicians.

Therefore, it would be very reasonable for politicians to design measures that have no actual impact on executive compensation, even though this is their stated purpose. This strategy is especially attractive if the media don't point out that the measures will be ineffective, so that the public is unaware of the charade.

"This is exactly what happened with the restrictions on executive compensation that were put into the recent bank bailout bill," Dean points out, noting that some economists had in fact argued while the bill was being debated that the proposed compensation restrictions would "likely have no impact whatsoever," but that "this fact received almost no attention in the media."

And now --

If Congress actually wanted to limit executive pay, there are some simple methods to do it. For example, it could require that the pay packages for the five highest paid executives be subject to a binding vote by shareholders at regular intervals, in an election where ballots that are not returned are not counted. By changing the rules of corporate governance in a way that gives more power to shareholders, Congress can make it far more difficult for top executives to pillage the companies they work for.

In the context of the current bailouts, Congress could make demands that executives have pay parity with their foreign competitors, just as President Bush just demanded of the auto workers.

It is actually very easy to find effective ways to limit executive compensation. The problem is simply one of political will. The Post is badly misleading its readers with this article that implies otherwise.

AND SPEAKING OF THE WASHINGTON POST'S AGENDA --

Dean is also pretty hot today about an unsigned front-page piece (purporting to survey the economics of the bailout effort), which contains "the strong assertion":

"The boldness of the economic rescue is already straining the government's finances."

The only explanation he can think of is the title of his post: "Washington Post Does Full Merger of News and Editorial Section."

The piece never presents any evidence for the claim that the government's finances are being strained. Economists would usually look for high interest rates on government bonds as evidence for such strain, the argument being that excessive borrowing is causing lenders to view the U.S. government as a questionable credit risk.

In fact, the evidence here suggests the opposite. The short-term rates on Treasury debt are near zero. The 10-year Treasury rate is just over 2.0 percent, the lowest in more than fifty years. So, there is no obvious real world support for the Post's claim.

Of course the Post has editorialized against deficits for decades and its ed board has been on a near religious crusade to cut Social Security, so it would not be surprising to see them oppose a large stimulus package no matter how urgent the economic need. It is however somewhat surprising to see them editorializing on the front page in this way.

#