Obama wants to set $500,000 as the top pay for banking executives whose firms accept government bailout money. Why 500K? Was it an arbitrary amount? Is it the magic number? Does it just sound good? And the most important question; is it enough? One must remember that the values of things are different depending on where you are. Some things to consider about a banker living in New York City: Mortgage 96,000 a year, Co-op Maintenance fee 96,000 a year, school tuition 32,000 a year per student, and the list goes on and on. To a lot of people $500,000 is a lot, and don’t get me wrong, I think it is too. But when things are laid out and broken down, maybe it’s not as much as we initially thought.
But there’s a detail I’ve skipped over, many would argue, a very important detail indeed. The limit is for the banking executives whose firms accepted government bailout money. Why should a select number of people get to take our money and then pay themselves with it? That’s not fair. Well, that’s the way it works sometimes. Remember all the controversy when CEOs of the auto industry flew on their private jets to D.C. to ask for money? Who do they think they are? Let’s be honest, if you had a private jet you wouldn’t be so eager to trade it in for a coach seat either. American society is driven by self-interest; to take that away would alter who we are as a society.
Let’s think big…if we start setting limits on a couple banking executives’ salaries today, when are we going to set limits on the people in the next tier down? Or what’s the next industry to have salary caps? Please someone tell me so I know not to get a degree in an industry where my salary is already predetermined. We live in the United States; the idea of the American Dream motivates the citizens. To take away the idea that the sky is the limit is wrong.
The economy is bad, that’s no secret, but this is not the answer. So what do we do? We should focus less on the people making money and more on the ones that aren’t. Simply put, we need jobs. What if a tax incentive is given to businesses that don’t lay people off, or even better, hire a certain amount of people? Instead of limiting earning potential in America, let’s try to create it.
http://www.nytimes.com/2009/02/08/fashion/08halfmill.html?em
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I don't think setting a limit on the pay of banking executives will have as much of an impact as some might think. Sure, decreasing a person's salary will increase their income. Executives are not like most workers, however. A lot of executives are not relying solely on their salaries as a source of income. Many executives make most of their money through bonuses. A lot of the times, these bonuses are more than the executives' salaries, sometimes a great deal more. I think that if salaries are limited, there's a chance that bonuses will increase to balance out executives' pay. Therefore maybe it would be a better idea for Obama to limit the bonuses of more executives. I know that this can be more difficult to do than to limit the executives’ salaries, but it could send more of a message to the banking executives. I think that the idea of limiting the salaries of these executives could appeal to a lot of people because they think that salaries are the only way these executives make their money. Obama could therefore gain some popular support. But in reality, limiting their salaries instead of their bonuses does not accomplish enough.
You make a good point when you talk about a trickledown effect that limiting executives’ salaries may have. If other industries begin to have salaries limited, it would take away from the entrepreneurial spirit that defines America. People would see less incentive to work their way up in organizations, knowing that the effort required for such a task might not be worth the limited salary. I think that limiting bonuses, though it sounds like limiting incentives, would be better than limiting salary because the executives still be earning bonuses, they just wouldn’t be taking away so much of the companies’ money. There would still be an incentive to work hard and come up with new ideas.
While it shocks me to think that President Barack Obama can make a salary cap for top banking executives, I believe part of this action is warranted. If companies and executives need to accept bailout money, who are they to earn $500,000 a year, when people working for companies who do not accept bailout money are forced to take pay cuts, and in some circumstances, even lose their jobs. I do not think that the federal government has the power to instate salary caps on every industry and company, but I do believe that they do have the power to limit the amount of money an executive makes if a company is taking bailout money.
While I believe that the federal government has a valid reason for instating salary caps on top executives, I worry that the government will not stop after they cap top executives. In agreement with your point, who is to say that the government will not institute caps on every individual at every tier? Should individuals even how the power to choose their own jobs, or continue their education, if they know that they can only make a certain amount of money? If I was told that I would only be able to make $40,000 with no chance of a raise, I would be extremely tempted to find a different job, or even move to a different place, where I would have the freedom to increase my pay after a certain amount of time. Going to the extreme, if salaries are going to be capped for every individual, then the principles in which our country was founded on are gone, and we are no better than individuals living in slavery.
In addition, I also agree with your point regarding jobs. With the economy in shambles, we should not be worried about capping the pay of individuals, but rather creating jobs for all people. The economy is not going to get better if we only cap the pay of top executives. At this point in time, we need to worry about the unemployment problem. I believe the only way to help individuals in this time is by instating social programs and promoting job creation. While there is no immediate cure in sight for this economic problem, I can say for sure that by capping the pay of top executives is not going to fix it!
I agree with Melanie’s statement that capping executive compensation at $ 500K is a good idea and would prove to be effective in the current state of American economy. Let me throw out some numbers to show you some of the ridiculous salaries that were paid to some of the top executive at bailed out banks in 2007. Vikram Pandit, CEO of Citigroup, made $ 3.1 million last year; Kenneth D. Lewis of Bank of America, received over $ 20 million; and Rick Wagoner of General Motors made about $ 14.4 million in ONE YEAR. Cutting these salaries to $ 500K without incentives (stock options) equates to HUGE savings for a company. Maybe some of these funds can go back into the company to make it more productive. More importantly, maybe the reduction in the executive salaries can be use to halt some of the massive layoffs that the companies are partaking in. In an idealistic view, cutting the executive salaries can significantly aid in the unemployment rate by taking a portion of the salary cut and putting it towards employing more workers – which was stated by President Obama to be a vital issue to our current economy.
A cut in pay is completely appropriate because CEOs are still given incentives to improve the business through stock options that they can cash in on and other perks assuming they do well over time. In my opinion, if the CEOs do not like it then they can find a higher paying job elsewhere and frankly, good riddance.
In general, I usually disagree with government intervention in private business matters because it pushes the United States towards a more socialistic economy. But since these companies are utilizing our money and the money that belongs to all Americans, we have the right to demand to limit their payroll. This comes after the embarrassing facts of select CEOs using bailout money for lavish parties, private jets and unreasonable bonuses. Their acts have gone out of control and we need to force CEOs to start focusing on the company that they “own” and not on padding their own wallets. Greed has been a contributing factor to the current state of our economy and by limiting some of the executive compensation; maybe some of that greed will diminish. Though this is an optimistic view, in these times, isn’t optimism the one thing that can hold us all together?
The success of Capitalism in a mixed economy such as ours depends upon rationale behavior and economic incentive. The practice of rationale behavior entails that a person must act in their own best interests and must use the resources available them to achieve maximum untility or happiness. While this may seem selfish, the oldest economic saying goes as follows, "greed is good." This means that when people collectively act in their own best interests, the population, as a whole, benefits. This is classical economic thought and it is the basis of the American economy. This rationale has prevailed through both the largest depressions and economic booms this country has ever seen and it is not rendered invalid simply becasue the American economy is falling after one of the largest economic booms we have ever experienced (the Dot Com Bubble).
The incentive for this rationale behavior is the right to private ownership. This economic incentive is not simply the ability to own things, it is the principle that allows individuals to be compensated for their work and keep the fruits of their labor. Econmomic incentive drives everything. We do not live in a country of communes and we do not dedicate our earnings to the general population. I am not trying to be cruel or unfair; the unappealing truth is that we live in a country where some live lavishly and enjoy massive amounts of wealth while others starve. This may not be morally correct or ideal, but it is reality. Even those that do not enjoy wealth still strive for a better standard of living and for compensation. They still have incentive while their ultimate fate may not be promising. The fact is that incentive drives our economy and is the only reason why people drag themselves to work and work 40 to 100 hours a week.
As it relates to this cap on executive pay, it clearly contradicts President Obama's reasoning. While executives that require federal funds to stay in business should not fund their every leisure with our tax money, they should not be robbed of their incentive. This is not an argument over the actual worth of 500k; this is a argument about economic principle. The fact is that we NEED these companies to be successful. This is not pity money that we are dolling out to failing companies out of the goodness of our hearts. We are not being generous to the greedy executives. We NEED their enterprises to succeed so that our economy can grow, so that we can prosper, and so that our standards of living can rise. We NEED them to succeed so that we can succeed. If your means by which you make your living are tied in any way to our economy then you better hope that these companies will flourish. If that means that certain executives will take our taxes and pay themselves generously then so be it. Thank them for providing thousands and thousands with jobs and for paying taxes so that social programs, MediCare, and public education can exist.
We want to promote work environments that reward hard work and achievement. We do not ever, especially now, want to send the message that their is an economic limit to success. In American business the sky is the limit and if you work hard enough, you might someday get close. Incentive rewards hard work and encourages achievement. Were we to limit the amount of pay any executive can earn, it would create an environment in which one cannot dream big and aspire for unattainable wealth. With limits on top pay, work environments will lose their edge and incentive will be lost. People need motivation and if we are to limit the incentive that they have, we will never be able to right the ship. Simple Economics contradicts Obama's intentions. While his moral reasoning may be appealing as people hate the executives that spoil themselves undeservingly while others toil day in and day out, the simple and ugly truth is that we need them. While there may be a few unrighteous executives that seemingly do not deserve their pay, we cannot sacrifice economic truth to punish the seemingly unappreciative.
“Classic economic thought”
“Basis of the American economy”
“Principles of our country”
It looks like most of us agree that Obama’s plan would bring negative effects to our nation. The free market system the U.S. has in place today promotes economic growth. Under free market capitalism, people have the right to private property, the right to own a business, right to freedom of competition, and the right to freedom of choice. A benefit of these rights and freedoms in that people are willing to take more risks than they would otherwise. Our Founding Fathers understood the principle of you have to bet money to win money. The government is “betting” that our financial market will bounce back and they are investing in our future recovery.
Stephanie has a different opinion than most of and says that “greed has been a contributing factor to the current state of our economy .” However, Alex takes the opposite stance and argues that greed is good and it drives our economy. The latter statement is closer to the truth. Let’s review some of these economic principles that we all keep talking about: growth economics and Adam Smith. Just like our Founding Fathers, Smith believed that freedom was crucial for the success of our economy. He also believed that people will work hard if they have incentives. Capping salaries would be taking away incentive.
The principles of our country and economy date back to the 18th century. There have been a few periods of time where we have experienced some hardships, but considering it’s been over 200 years our track record is not that bad, in fact it is a winning one. A blip in our economy shouldn’t change principles that have been practiced since the founding of our country.
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