by Admit One

by Admit One

The executive compensation debate is beyond tiresome and beyond stupid.  It’s not hard to rein in executive compensation, all you have to do is decide what the maximum pay you want someone to be able to receive is and tax most of the rest of it away.  The simplest thing is to just count all income equally, tax it all at the same rate, don’t allow deductions beyond a certain level (50K or so) and tax all income above, say 1 million at 90%, 95% for all income above 5 million.  Don’t allow too much income deferral and there you go. Slap on some "in kind" rules for corporations (yes, if your corporation pays for your car, that’s salary) and while there will always be loopholes, you’ll still rein in the worst excesses.

Yes, this will effect a few other people, such as sports celebrities.  Oh well.  Yes, the Chamber of Commerce, reliable right wing hacks that they are, will scream about how the best people need ridiculous salaries, but if the "best people" are the folks who brought us this economic disaster maybe what we need is for companies to be run by second raters who don’t see their job as looting the place to the ground in order to earn the highest bonuses.

And that’s the bottom line.  As long as executives know that in 5 years they can make so much money they’ll never need to work again, they won’t take care to make sure that their business is long-term viable.  Rule #1 of designing incentive systems isn’t "more money equals better performance" it’s "match incentives to the behaviour you want."  If you want an economy that doesn’t have bubbles, don’t pay people for creating bubbles, pay them for long term steady growth, paying high salaries and creating new jobs.

The best, simplest thing Obama could do to make the economy work for everyone is make sure that the executive class doesn’t have incentives to create bubbles and does need to keep their jobs for life, just like ordinary people.  Once they do, they’ll suddenly be much less likely to say "hey, this is really really risky, but who cares, I’ll be rich and the government will pick up the tab".

The economy that worked best for ordinary people in America was the 50′s and 60′s economy, when marginal tax rates on the rich were the highest.  That wasn’t coincidence, and a belief in doing what works and in pragmatism would mean looking at was has worked in the past and doing it.