Thursday, October 29, 2009

eXXXecutive pay

There's an old logical fallacy. It lives in a grubby tin hut in the middle of an Alabama swamp, tends bar on weekends, draws disability insurance, and chews homegrown tobacco. The name of this bucktoothed error in reasoning is Slippery Slope. Slippery Slope finished a year and a half of vocational school before retiring to the middle of the Alabama swamp to herd alligators and brew potent corn moonshine. Slippery Slope, bumpkin though he may be, nevertheless makes frequent stops all o'er this great wide world of ours, his shoeless, unwashed shanks parading through the halls of parliament as often as he is splashed across the opinion page of your local paper.

Slippery Slope tells us about giving an inch, then watching as they take a mile. Slippery Slope warns of razor-edge equilibria. He tells us that if we allow homosexuals to marry, the next thing you know, crazed citizens will be flocking to the courthouse, demanding nuptuals with barbecues, sheep, and vinyl hoop skirts (perhaps all three, and at once). Slippery Slope wants us to think that there is a think red line dividing Civilization from Chaos. You know what's funny? Sometimes, even though he's often dead wrong, Slippery Slope is, and this is just once in a while here folks, 100% correct.

Other times he's just a little right. I tend to think he's a little right in the case of offering authority figures additional authority. When it is in the power of people to usurp more power, we've often seen over the course of history that they do just that.

So it is to the dismay of at least a few economists and both big and little-L libertarians that Government has elected themselves the authority to cap pay. Yes, it's only for seven companies (for now), and only for firms that have accepted relief money, and one might even make an argument that it could pass a Constitutionality test (and with this SCOTUS, they might be right). Still, the clear fact remains that this farce (and it is a farce, as it's a hell of a lot like calling the fire brigade after the embers have cooled) could very easily spread.

I won't belabor the good observations already made, or even the predictions cast by those far smarter than me (see Alex Tabarrok's posts on I'll just mention that in the event that executive compensation limitations do spread, as well they might (I'll give it a 2% chance), you can probably expect Wall Street to pull up stakes and move to the Grand Caymans. If automobile manufacturing can move Detroit to Seoul, you can be sure that investment banking can move Manhattan to George Town.

And then what? Barriers to foreign investment? Could be. Another 2% chance. The US could be a banana republic in the twinkling of an eye.

Boy, I sure hope ol' Slippery Slope is talking out his butt again, all drunk on his corn moonshine. The possibilities are terrifying if he isn't.

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