Friday, February 6, 2009

From greed to great

The law of unintended consequences has seemed to rear its fascinating head with regards to the executive pay cap President Obama recently announced. Soon after Obama announced that executive pay would be capped to $500k for companies receiving tax payer bail-out funds, we already see one firm committing to paying back their TARP infusion as soon as possible so that they would be relieved of the governmental compensation cap.

The initial analysis around Obama's decision to limit executive pay was primarily deemed to be that of smart populist politics: let the people know that accountability is the new game in town, and the corporate excesses would simply not be acceptable to the taxpayers, who not only rescued these firms, but who themselves are struggling.

Yet this turn of events makes this compensation cap strategy appear much more savvy. It now appears to be using greed the same way capitalism uses greed -- as a lever to drive behaviors toward a desired result that benefits the greater good. Most capitalists openly acknowledge that greed (the "good greed") is best channeled by free, competitive markets to create new value in the marketplace, by focusing society's energy on continually improving on the status quo. Similarly, the compensation cap plan now appears to be using the fundamental capitalistic notion of scarcity as a tool to drive "good greed" behavior: the "good greed" desire for unregulated executive compensation is driving the focus on paying back the taxpayers' bail-out.

One has to wonder if the Obama administration was actually thinking like free market capitalists when they designed this plan, and expected this desired behavior. Or did they accidentally step into this unintended consequence?

In any case, this is a great example of how government can actually create and manage programs that can help create desired results that benefit the country (did you even notice this, Republicans?). I'm sure most Americans would much rather see Goldman Sachs pay back their TARP bail-out to the taxpayers than have the government cap their executive pay. Everyone wins.

Maybe this is the kind of thing that "Generation O" progressives have been dreaming of, but have not yet clearly articulated: letting the government play in the "good greed" game along with the free market.