No winners in the Wall Street vs. Main Street fight

By Amy Allen

When allowed to do so, firms and individuals will act in their own interest. Companies award executives the big stock options and salaries because they feel this compensation is necessary in order to retain their top “talent.”

The salary cap imposed by Congress is a price control on executive labor, if hopping on a private jet to go to Washington to lobby for a bailout – which seems to be the most visible activity of CEOs these days – can be called labor.

When the price of any good is limited, the quantity and quality of its availability go down.

Not only will a salary cap make it harder for companies to attract and retain executives, but also reduction in salary and bonuses will diminish the incentives for executives to try to turn their failing companies around.

Instead of shaming CEOs for their excesses, the salary cap may only reduce the chances that floundering companies have of recovering and make them more dependent on further government aid.

The salary cap is clearly a misguided plan from a business perspective. The government shouldn’t be in the position of making decisions for companies on how to compensate their executives in the first place.

With government interventions come government regulations, which is why if someone from Washington calls offering you a bailout, use what you learned in DARE and – just say no. As horribly awry as free markets can go, government interventions usually make the situation worse.

The fact that companies should be allowed to compensate their executives lavishly if they so choose does not mean that taxpayers are obligated to bankroll them.

The truly populist response to the financial problems would be to not have bailed the companies out in the first place.

The salary cap is a largely symbolic gesture that, due to many exceptions in the companies and individuals it applies to, will probably have little effect.

However, it represents another example of how once a government intervention occurs, the opportunities for further damage and meddling are limitless.

Trust me, you’d be the same way if you had hundreds of billions of dollars to give to people desperate to hold on to their golf outings and stock options.

But the conflict between Wall Street and Main Street will not be resolved by pumping more money into failing companies with caveats on how they spend it.

The financial crisis is destined to bring pain and misery to all segments of society, but our recovery will be faster and stronger if we allow markets to work freely and business cycles to take their course.

Amy is a freshman in math and her best friends are Rod Blagjevich and a tomato.