Executive Pay: Can government solve the problem?

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here are as many critics as supporters of the Obama administration’s plan to place severe limits on executive pay.

Op-Ed columnist David Brooks is one of the critics. The administration’s plan, he says, is built on a “fatal conceit”—the hubris that government officials are smart enough to regulate pay in a way that solves problems and doesn’t cause any.

Or smart enough to run car companies. Or smart enough to reform healthcare. Or smart enough to do anything. (OK, I added that last sentence, but Brooks’ critique was about that severe.) (Read Brooks’ opinion here at the NYTimes site.)

Many, along with Brooks, predict a brain drain. There’s at least a bit of evidence in support of this prediction. According to media accounts, Maurice Greenberg, who built the original AIG empire (and left the firm a few years ago) has founded a new insurance company—and he’s hiring people away from his old company. He’ll probably lure business away, too.

AIG was on the brink of collapse in 2008, saved only by huge infusions of bail-out funds. Today, AIG is effectively a nationalized company.

The government may suffer from “strong thumbs, no fingers” as Charles Lindblom once wrote. That is, blunt force, not finesse.

Even so, do we really have a choice?

The lack of regulation permitted the Crash of 2008 to occur. As we talked about then, every crash was preceded by a spate of de-regulation. Now, we are in the phase of re-regulation. There isn’t another way to correct, however imperfectly, the imperfections of the market.

What do you think?
    Is the Obama administration suffering from overconfidence and hubris?
    Or, just dealing with the cards it was dealt?

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