Note – I was working on this post when I saw the news – if accurate – that Obama’s advisor on financial firm compensation Kenneth Feinberg is not going to cap pay or reveal any names.
The G20 countries are said to be coming up with agreements on limiting banker pay. All will be announced later today, but the world is rightly upset that we have allowed Wall Street (my shorthand for the banks, financial firms, insurance companies, ratings companies, etc. that greedily took the risks that led to the economic collapse) to risk the world’s economy, while continuing to reward executives with lavish, extreme compensation.
I think the compensation problem goes well beyond just these companies. We have reached a point of great concentration of wealth, and most of the income also going to an already-wealthy few. I also think there is a simple set of solutions to the problem:
First, return to pre-Reagan levels of taxation. This way after a person makes a lot of money the public begins to benefit as well. This is an incentive issue: if you don’t have the financial incentive to lie, cheat, steal, destroy solid companies and take away people’s pensions, health care and jobs, then maybe you won’t. If you start having to pay serious taxes when your income gets above a certain level then you have to start thinking about making an honest living. If it takes you a few years to build a vast fortune instead of being able to do it all with one windfall you start to think long term and work to build solid companies that make things and depend on the rest of the infrastructure being there for you. (If certain hedge fund managers are taxed at 90% they will “only” take home $100 million a year or so.)
Second, we need to start thinking about how to get back some of those ill-gotten gains. Now that a very few people control most of our resources the idea of a wealth tax should be explored. Ger the money from where the money went.
Third, we need to begin to restore one-person-one-vote democracy and get away from the current one-dollar-one-vote system. When people with great wealth are able to set the policies of the government they use that power to become people with greater wealth.