On Fox New this morning, one of the hosts articulated what has become a common refrain regarding the financial crisis: criticism of the bonuses to be paid at the end of this year to bank employees. Paraphrasing Brian Kilmeade, he said, "It is crazy that Goldman Sachs and Morgan Stanley are going to pay $6 billion in bonuses at the end of this year."
If you watch the show, one gets the sense Kilmeade is a conservative, and this goes to show you that conservatives don't always (or for that matter don't often) understand free market principles.
It is very simple: if the banks pay below market compensation to its employees - many employees will leave, particularly the better ones. Yes, even in this market. If they are literally paid no bonuses, the firms would collapse. So does the departure of their best employees help these firms get out of their hole? Will this increase the chances of the government making money on its recent investments in these firms? Would you really prefer, and think we are all better off, if the people who ran these firms and filled their ranks were the employees who were attracted to below market compensation?
Of course not.
The flip side of this issue, paying above market compensation, can be seen at the auto companies - where the companies are teetering on the verge of bankruptcy in substantial part due to the above market compensation employees made in the past and today.
Market wages, like all prices, embed a great deal of information in them. Ignore them at your own peril.
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Thanks for starting the blog Adam!! There are so few places for these beliefs to be shared without worry about being attacked by 'the other side'.
ReplyDeleteOf course I agree with your assessment of the situation with the bank bonuses. All of the reports come from the same group who complain that the wealthy should give more and more of their wealth to support the rest who don't earn as much.
To the next 4 years ----