Thomas Sowell on Penny-Wise Politics

The conservative economist writes: "Congress is never more ridiculous than when it tries to look like it is serious. In the midst of a major national financial crisis, what was one of the first things Congress zeroed in on? The pay of Chief Executive Officers of financial institutions. If all those CEOs agreed to work for nothing, that would not be enough to lower the bailout money by one percent. Anyone who was really serious would start with the 99 percent and let the one percent come later, if at all. But however insignificant the pay of CEOs is economically, it is big stuff politically. Whatever the shortcomings of the Democrats, they are consistent in their message, and class envy is a great part of that message."

He adds: "Politically imposed limits on the pay of CEOs is one of the most penny-wise and pound-foolish things that can be done. The difference between a top-notch CEO and a second-rate CEO can be billions of dollars on the bottom line. That is what drives up the pay of CEOs. If you want someone who will be top-notch in running organizations as huge and complex as Fannie Mae or Freddie Mac, there is no point offering $5 million a year if similar enterprises elsewhere are paying $20 million for people with the kind of ability required. Who is going to take a $15 million pay cut to go run these enterprises, in addition to having to put up with politicians? The money that can be saved by limiting CEO pay is chump change compared to the money that can be lost because you cannot attract top-notch talent. Congress itself is a classic example of what can happen when penny-wise policies restrict the caliber of people who can be attracted. No top-level doctor, lawyer, economist, engineer or CEO can become a member of Congress without taking a big pay cut, perhaps costing that person's family millions of dollars over a lifetime. On the other hand, if you paid every member of Congress a million dollars a year, it would cost less than the cost of even a small government boondoggle, much less a whole agency. It is not that the turkeys in Congress today deserve a raise. They don't even deserve their current pay. But that is the very reason for attracting different people. Cheap politicians are actually very expensive and the same principle applies to CEOs."

My response: I'm with Mr. Sowell...so long as CEOs do well. However, I don't believe that CEOs who mismanage their companies should get millions in severance pay, while the taxpayer foots the bill of their mistakes. I ain't with Mr. Sowell on that one.