Capital Markets

Corporate Workfare

Wall Street's bailout money comes with strings attached.

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"What gets people upset, and rightfully so," President Barack Obama declared last week, "is executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers." Pounding his fist, he announced that the flood of federal money into corporate hands would cease, effective immediately.

Ha! No, of course he didn't say that. He announced that henceforth, when taxpayers subsidize a failing Wall Street firm, the company will have to cap the boss's pay at $500,000 a year.

It was merely the latest effort to expand the bailouts into a behavior modification program. When Democrats proposed a subsidy package for Detroit last year, for example, the plan included another set of limits on executive pay. Not to be outdone, the Republicans countered with a requirement that union workers agree to wage cuts. But for the most part, the idea of using the taxpayers' money as a Trojan horse for new controls has been a Democratic enthusiasm, not a Republican one.

Or at least that's how it's been during this crisis. In the early and mid-1990s, it was Republicans who called for social engineering via the public purse, and it was Democrats who served as inconsistent opponents. That time, the money wasn't destined for banks and auto giants. It was earmarked for poor people, and the instructions attached to the money involved working, going to school, or taking birth control. The most extreme proposal, endorsed by James Q. Wilson, Myron Magnet, and other neoconservative social critics, would have required many welfare mothers to live in group shelters. Magnet was willing to achieve this through directly coercive means. (In his 1993 book The Dream and the Nightmare, he proposed that "if mothers refuse to enter the group homes and fail to support the children, then the state will intervene to take the children away.") But Wilson framed the proposal the same way Obama framed his Wall Street plan. Interviewed by Reason magazine in 1995, he said his system "would be voluntary in the sense that, if you want public support, that's the way you get it. You don't have to go there. But you won't get any money and you won't get any housing units."

That suggestion never became law, but a host of milder "workfare" and "learnfare" proposals were enacted on the state level. And in 1996, of course, Bill Clinton signed the federal welfare reform bill, which established new work requirements for people on the dole and strengthened social workers' surveillance of their lives. That system has been in place for nearly 13 years now, though Washington may soon roll it partway back: Even as Obama brought corporate workfare to Wall Street, congressional Democrats were inserting a measure into the "stimulus" bill removing some of the work requirements for jobless Americans seeking food stamps.

Are there differences between old-fashioned workfare and corporate workfare? Sure. At least some of the original workfare plans were devised to make the dole less attractive, for example, whereas Washington seems intent on bailing out even those banks who claim they don't want the money. But the most important difference is simply one of scale. Put together, food stamps, Supplemental Security Income, and Aid to Families with Dependent Children rarely rose above 4 percent of the federal budget. If only that were true of the Troubled Assets Relief Program. Say what you will about AFDC, but there never was a risk that it would saddle the Treasury with enormous, unpayable debts. That put a different spin on the old workfare debates: Whatever trade-offs you made between extravagance and intrusiveness, the larger social impact would be limited.

That isn't true of the bailouts, and that leaves policy makers in a double bind. It is absurd to give out trillions of dollars without demanding some sort of behavior in return. And when we're directly subsidizing CEOs' lifestyles, every misspent penny is going to spark a new wave of resentment. When the chiefs of the Big 3 came to Washington in private jets, they might as well have pulled up in welfare cadillacs.

But a corporate workfare plan won't stem that resentment. Not even if it gets the feds involved in business decisions as petty as how to transport officers across the country, a level of supervision so intrusive that you might as well get it over with and nationalize the industry. If you think companies forced to lower their executives' pay won't find other ways to compensate them, from luxury travel to free financial services, then I have a pile of Chrysler bonds I'd like to sell you. Obama's plan doesn't even limit companies' ability to give their officers stock, though he did add restrictions on when the stock can be cashed in.

More importantly, he didn't simply stop giving them public money, which is the actual source of public resentment and the only way out of the double bind.

There's a reasonable case to be made that CEO pay is often inflated, a result of the sort of self-dealing that's possible when the people who control the company are not fully answerable to the people who own it. The least sensible way to address this is by moving decision-making power even further from shareholders and into the arms of the government. You might as well try to teach a mother personal responsibility by institutionalizing her in a group home.

Jesse Walker is managing editor of Reason magazine.

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  1. The other issue not mentioned is that billions would be sent to states like CA that have greatly mismanaged things, in part due to their support for illegal activity. But, since that illegal activity and the massive subsidies associated with it make money for a certain relatively small group of people, don’t expect Reason to discuss that.

    Also, I want to congratulate Reason on their latest video, the one where someone asked BHO fans questions.

    Sure, it was beyond low-hanging-fruit, it was more like having fruit that had falled off the tree handed to them. But, at least they didn’t have to confront people who had any power.

    While Reason is posting worthless articles like this, apparently a compromise has just been reached. It’s probably still possible to stop it, and here’s how to stop it.

    If you don’t want to see the U.S. get looted out of trillions of dollars, send that plan to major bloggers and urge them to push it, and spread it to forums and through email.

  2. “”if mothers refuse… …fail to support the children, then the state will intervene to take the children away.”)”

    I heard a report that is happening in Michegan. Children are being seized by the state, the parents only crime is financial, and the chidren are being placed in foster care, where, of course, the foster parents are subsidized.

  3. I don’t understand why this CEO pay thing. Why do these people still have f***ing jobs? I wouldn’t let that guy from Chrysler/Home Depot run my kids lemonade stand.

  4. I might let him swing a brush for my painting company for $8/hour.

  5. Shut the fuck up, LoneWacko. Talk about the pot referring to the kettle as ‘low-hanging fruit.’

  6. There’s a reasonable case to be made that CEO pay is often inflated, a result of the sort of self-dealing that’s possible when the people who control the company are not fully answerable to the people who own it.

    Is Jesse implying there’s something that can and should be done to make CEO’s more answerable to shareholders?

    I believe I’ve heard the argument that since corporations are government inventions, government should get to tinker with how their setup (not that Jesse’s implying that argument, but maybe). But then I also figure that investors reasonably know what they’re getting into and if greater answerability of corporate officers was what they wanted, I assume it could always be offered.

    Oh, and good show yesterday, Jesse, what I heard of it anyway after tuning in late. And then I admit I turned it off when the Beethoven came on….

  7. It might be helpful for the lurkers to review what Reason has done to block these schemes.

    The U.S. is being looted to the tune of trillions of dollars, and all Reason has done is printed maybe a few dozen blog posts generally opposing the scheme, together with making a couple worthless videos, with one of those just being about BHO fans and not the stim scheme.

    What they haven’t done is, say, compiled an extensive, detailed list of problems with the scheme.

    And, even more importantly, what they haven’t done is sought to hold any politician accountable for their actions by asking them questions on video.

    Reason either doesn’t care that much, or they have no clue about how to have an impact.

  8. The government depends on brute force. Whatever method they employ it is a variation of brute force. Freedom and choice is not to be tolerated.

    The Maximum Leader will tell you how to live and you will like it.

    Every country gets the government it deserves. And are we going to get it good.
    I look forward to the fate of the Gen Xers and Baby Boomers when they are aged. Hope they like cat food.

  9. Courts–especially in Delaware–tend to side with management over the shareholders when the two battle. That makes less than no sense, though I suppose the justification is that the trade-off in control is why shareholders get the liability shield. Yes, but what does that have to do with things like selecting and paying management? Boards of directors are often worse than useless, too.

  10. Shut the fuck up, Lonewacko.

    On a more positive note, I’m pleased to see that my preferred response to him is gaining popularity. Can I get primary author credit?

  11. I like how you point out the social engineering dreams of both parties. The much vaunted Republican opposition to statism falls apart when they get a chance to subsidize a union crushing.

  12. Reason either doesn’t care that much, or they have no clue about how to have an impact.

    I think I’ve misjudged Lonewacko. He’s the most brilliant performance artist I’ve ever seen.

  13. Of course, if they were really interested in doing something useful, they could have funded this promising fusion power project.

    Instead we get massive earmarks for the politically connected. Sigh.

  14. Shut the fuck up LoneWacko

    Hahaha – meh
    It’s not as much fun as I thought it would be.

  15. It’s not fun, but it’s mildly satisfying. Shut the fuck up, Warren.

  16. What did I say?

  17. Why the fuck are you still talking?

  18. Actually, I’ve got an honest question for Lonewacko/OLS/24ahead/Chris Kelly/ad infinitum. As long as he’s hijacked a thread that was supposed to be about my article.

    For years you’ve been promoting this banal if unobjectionable idea of asking people questions and posting the results on YouTube. You have treated it as a magic bullet capable of working unimaginable wonders. At times you seem to believe that you dreamed up the idea yourself. You have supplied sample questions, which tend to be meandering, paranoid, and stupid.

    What you have never done, as far as I’m aware, is gone to a public event and asked such a question yourself. If I’m right, this is odd, especially since you are fond of accusing Reason (falsely, of course) of never asking powerful people tough questions. In your recent post on the subject — yes, I actually clicked through on your latest self-link — you even offer to “help you edit your questions for maximum impact” (ha!) … but actually ask someone something yourself? Apparently not.

    No, you don’t live in Washington. But you’ve been touting this plan for years, including the entire previous presidential campaign. Surely at some point during that time a prominent politician, or even just your local representative, was in your vicinity.

    So: Have you ever put Plan Lonewacko into action yourself? If not, why not?

  19. I believe I’ve heard the argument that since corporations are government inventions, government should get to tinker with how their setup (not that Jesse’s implying that argument, but maybe).

    I’m not implying it!

    That said, the government does interfere in the marketplace in a number of ways that exacerbate the principal agent problem. Anything that shields companies from the impact of bad decisions makes it less likely that shareholders will be roused to pay attention to what their employees are doing.

    If a company’s owners aren’t sufficiently attentive to what executives are getting, that’s a symptom of a larger problem within the enterprise. If the government steps in to dictate a new price, it might or might not (probably not) be closer to what a well-informed observer would say the exec is worth; but by muddying the lines of control even further, the regulators are only making the underlying problem worse.

  20. WASHINGTON + WALL STREET = LYING SCUMBAG CROOKS

    FUCK THEM ALL TO HELL

  21. Jesse, I know you guys are pretty tolerant here, but just how many threads does Lonewacko need to ruin before he gets banned?

  22. “but just how many threads does Lonewacko need to ruin before he gets banned?”

    Sorry but you sound like a Salon reader. Everytime someone who isn’t a communist posts a few times, people want them banned. I don’t know that they ever do it, but you should hear how upset the commenters get when faced with a differing opinion. Not all of them, but quite a few.

  23. It’s one thing to offer a different opinion ( someone like Joe– no one believes he should be banned), but it is another thing to troll.

    Lonewacko more often than not trolls for his website.

  24. If you see a fisherman using feces for bait, you don’t throw him out of the river – you get your buddies together and throw worms at him. I like seeing LoneWacko around here.

  25. Jesse Walker inquires: What you have never done, as far as I’m aware, is gone to a public event and asked such a question yourself. If I’m right, this is odd, especially since you are fond of accusing Reason (falsely, of course) of never asking powerful people tough questions.

    1. Unlike Reason, I’m not a funded magazine with a readership in the hundreds. To take a more extreme example, no one expects an average citizen to do reporting, but they do expect it from the NYT.

    2. Even if I’d never asked anyone anything, that has no bearing on what other people should do. Thinking otherwise is a LogicalFallacy.

    3. I’m going to repurpose an older comment left right here on this site:

    I know what you’re getting at! And, of course, it’s a LogicalFallacy in and of itself, but it’s also ironic considering this, this, this, and all these. Why, back in the day, Reason’s own editor even highlighted one of my pics from the last on his website. That made me so very proud, but not so much as the time that Sully – yes, Sully – did the same.

  26. Oops: I forgot another one. On Feb. 20, 2007 I went to a BHO appearance with the intention of asking him a question. He didn’t have a Q&A session and he was thronged after the event so I wasn’t able to ask him anything.

    However, in that post I started urging others to ask him real questions. We know how well that worked out.

  27. Of course shareholder activism is pretty hard for the small guy. Your average Joe has most/all of his money invested in mutual funds (through his company) that are run by people who are buddy buddy, with the other corporations. People stuck in these plans have very few choices on where to stick their money. And even if they did have choices, they probably wouldn’t have the skills or time to make good decisions.

    Thus the power is left up to large/insitutional investors.

  28. Unlike Reason, I’m not a funded magazine with a readership in the hundreds. To take a more extreme example, no one expects an average citizen to do reporting, but they do expect it from the NYT.

    Well, you expect average people to do reporting. That’s the whole point of “your” idea, isn’t it?

    Even if I’d never asked anyone anything, that has no bearing on what other people should do. Thinking otherwise is a LogicalFallacy.

    I never said it did. Thinking otherwise is a ReadingComprehensionError.

    I know what you’re getting at! And, of course, it’s a LogicalFallacy in and of itself, but it’s also ironic considering this, this, this, and all these.

    I have no idea what alleged logical fallacy (or “LogicalFallacy”) you’re referring to. But I can’t help but notice that none of your links lead to YouTube.

    Against my better judgement, I clicked through one of them anyway. I found a self-serving account of what allegedly transpired when you asked someone a question at a public event. I did not find an objective video record of the exchange posted on YouTube for all the world to see.

    So please give a straight answer to the question I posed. It should include a “yes” or a “no”; and if it includes a “no,” it should also include an explanation. Thanks!

  29. That was a very interesting read, thanks for taking the time to post it.

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