Salary Caps and the Financial Sector
“It seemed inconceivable that bankers would, just a few months later, be going right back to the practices that brought the world’s financial system to the edge of collapse.”
- Paul Krugman
I think I speak for most Americans when I say I have a visceral distaste for the government dictating salaries. Come on; some faceless bureaucrat in Washington deciding how much money I make? It takes the “free” out of “free enterprise” system. This country has thrived on a dream—perhaps it is just that—but even if it’s a myth—it is in our fiber as a nation: anyone can rise from a new and nearly penniless immigrant to a millionaire, heck even a billionaire. So regulating salaries for me takes a big leap of faith and a gulp.
But we need to do something about the financial sector. That sector is different. Indeed, it is profoundly different after Main Street stepped up to mortgage its future (and that of its children and children’s children) to bail it out just a year ago. And the thanks Main Street gets is a new round of skyrocketing bonuses earned on pure speculation.
I have written about my extreme concern that Wall Street is returning to standard practice circa 2007. If my voice is insufficient, Monday’s New York Times features the opinion of an economist who has been by-and-large dead-on about every aspect of the crisis we find ourselves in. Yes, Nobel Laureate Paul Krugman.
Mr. Krugman does not have a blog dedicated to protecting Main Street. However, his recent article should make evident the urgency of regulating bonuses paid to the financial sector. At the risk of sounding like a broken—and apocalyptic—record, the current crisis will not be the last of its kind if it does not lead to reform.
This is why it is of crucial importance to heed Mr. Krugman. While the political clout of the financial industry and its gaggle of lobbyists are surely powerful, they must be challenged. The simple fact is that Main Street needs—and moreover, deserves—the assurance that executive pay is fair. At any political cost.
Rewards must be tied to long-term value and growth in the economy—not simply the successful invention and guileless trading of financial instruments. Those efforts merely increase turbulence and risk—something those of us struggling to pay our mortgages, fund college for our kids and have a little extra to put away for retirement hardly need.
I second Mr. Krugman’s demand for regulation of this industry. Anything else would be a severe injustice to Main Street.
Let’s just hope a few more people with greater influence than me are on board.
Assisted by David Martin (North Carolina 2010) and Jessica Begen (Georgetown 2010).
