Tax, Not Shame

Reed Hastings, founder and CEO of Netflix and a Democrat, had an Op-Ed in New York Times opposing Obama's plan to cap the executive pay of those managing financial institutions receiving public largesse in order to get credit moving again and prevent a decades-long slump.

Instead he proposes executives like him be taxed of half their wealth instead of a third. Fine.

In the meantime, Obama's plan seems like a good idea. Says Hastings:

Another advantage is that it would also cover the sometimes huge earnings of hedge fund managers, star athletes, stunning movie stars, venture capitalists and the chief executives of private companies. Surely there is no reason to focus only on executives at publicly traded companies.

This week, President Obama proposed imposing a $500,000 compensation cap on companies seeking a bailout. It’s a terrible idea. We all want the taxpayers' money returned, and capping compensation at bailout recipients will just make it that much harder for those boards to hire and hold on to the executives who can lead their companies to compete and thrive.

Perhaps a starting place for "tax, not shame" would be creating a top federal marginal tax rate of 50 percent on all income above $1 million per year. Some will tell you that would reduce the incentive to earn but I don’t see that as likely. Besides, half of a giant compensation package is still pretty huge, and most of our motivation is the sheer challenge of the job anyway.

As Dr. Evil would say, right...

I just don't see a tax increase as politically feasible at the moment, maybe when the economy picks up. My points to Hastings would be:

1) the boards of the companies in the financial market got us in the position we are in, so who cares if they have a tougher time hiring and holding competent executives. They can't do much worse than they've done already.

1a) star athletes, stunning movie stars, venture capitalists and the chief executives of private companies didn't get us into this mess and their industries aren't being bailed out by obscene infusions of public money. Yes hedge fund managers played a substantial role but there is already talk of regulating them.

2) executive positions at companies backed by the government - essentially saved by the government and the taxpayer - will be more desirable than at companies no one trusts. Especially if you figure in his point that executives are mostly driven by the sheer challenge of the job.

3) If he had proposed that once the economy recovers, pay caps should be removed and taxes increased, I wouldn't suspect his motives. But since he doesn't, I will never be using Netflix, not that he would care.

Lux Interior of the Cramps passed away.

What I hope Obama is most bipartisan about is maintaining and improving the good relationship Bush developed with India. The south Asian nation is fast becoming an essential democracy and important part of the global economy. What is making India nervous is the prospect of internationalizing the conflict in Kashmir, so America and our allies will need to be most delicate about that.

Floyd Norris writes that "the countries that opened the most to the international capital markets, and that sought to bring in business with relatively lax regulations, now are suffering the most. Iceland was the wonder economy of the world; now it is broke."

Kenneth S. Rogoff, the Harvard economist, noted at the International Monetary Forum in Davos, Switzerland, last week that India, which has "comparatively stringent restrictions on international capital flows," also seemed to have the most optimists and seemed to be in line for economic growth in a year when few countries are.

"Thank heavens for the strong regulatory framework we have in our financial system," he quoted one Indian corporate executive as saying.

Meanhwhile on the homefront, instead merely offshoring work to help it deal with the economic crisis, IBM is attempting to offshore workers:

Big Blue is offering its outgoing workers in the United States and Canada a chance to take an IBM job in India, Nigeria, Russia or other countries.

Through a program dubbed Project Match, IBM will help interested workers whose jobs are on the chopping block to "identify potential opportunities in growth markets and facilitate consideration by hiring managers in those markets," according to an internal company document obtained by CNN.

The company also will help with moving costs and provide visa assistance, it says.

What companies like IBM are finding is that they like the low labor costs, but don't like the lower quality labor or work they are getting in return.

In related news, A.Q. Khan was set free. Say what you want about Musharaff - and I think it was good he was pushed off the stage, relatively peacefully - at least he kept that guy under house arrest. Holbrooke has his work cut out for him and we here at Negative Outlook? wish him the best.

What Say You? (@ the centrists in Congress)









A reliably brilliant piece on the economic mess by Doug Henwood titled "Gloomy, w/ a 15% chance of depression". He always includes great photos of the major personalities involved.

LBO has often described the U.S. economy by invoking the old Timex watch slogan from the 1950s, "Takes a licking and keeps on ticking." Crash follows upon panic follows upon bust, and yet the thing keeps getting up again to binge some more. These remarkable feats of renewal, though, have always come with big help from the U.S. government, either multibillion dollar bailouts or long rounds of indulgent monetary policy from the Federal Reserve. But revive it always has, despite the forecasts from the hard left and the hard right that this time it was different and the medicine just won't work.

Will it work again? Will the megadoses of stimulus do the trick? Or is the jig up? Will what’s widely touted as the greatest financial crisis since the 1930s be a prelude to Great Depression II?

As this is written, the punters on the Intrade betting site - who have an uncanny history in predicting elections - are giving depression a 15% probability. That seems about right. [Note added for web: the value of the web contract soared in the weeks after these words were written. As this note is added, the contract is at 53. That seems too high, but you never know, do you?]

Also, an interview with Henwood by Steve Perry.

Henwood has a new blog where he writes in typical literary fashion:

The IMF, which was off the scene for many years, is, like a vampire salivating at sunset, returning to action. It's already developed a program for Iceland, which is being put through the austerity wringer; apparently being white and Nordic doesn’t earn you an exemption. It's likely to lend some money to some countries that it deems virtuous on easy terms - among them Brazil but not Argentina. More on all this in the coming weeks.

I agree with Martin Wolf of the Financial Times that IMF reform is needed in the medium to long term.

Paul Krugman notes that Obama has ratched up his rhetoric:

Now, in the past few days I've heard criticisms of this plan that echo the very same failed theories that helped lead us into this crisis - the notion that tax cuts alone will solve all our problems; that we can ignore fundamental challenges like energy independence and the high cost of health care and still expect our economy and our country to thrive.

I reject that theory, and so did the American people when they went to the polls in November and voted resoundingly for change. So I urge members of Congress to act without delay. No plan is perfect, and we should work to make it stronger. But let’s not make the perfect the enemy of the essential. Let’s show people all over our country who are looking for leadership in this difficult time that we are equal to the task.

Larry Summers warns "deflation is a real risk for the economy."(again, noted by Krugman).Despite all of this I am much more Pollyannaish than Henwood or Wolf or Krugman. Maybe it's a generational thing, although I wasn't much surprised by the crisis after years of neoliberal-Republican misrule, unlike say Bush or McCain or Phil Gramm were.

Brian Beutler writes:

If you’re of the opinion that the events of the past several days are parts of a shrewd political gambit that will ultimately result in the best stimulus package we ever could’ve hoped for, this post isn’t for you. If you’re not, here’s how a motley assortment of folks think the effort can be salvaged.
...
What say you?

I say nay! Obama admitted making mistakes over the nominees, it's not a big deal. If you get tons more of those, then it's death by attrition of course.

Obama has repeatedly publicly said that the American people did not like how the Bush TARP plan was enacted. So they're fighting that and may have to give a little more than they would have liked. (In classic Republican fashion the Republicans have sort of sabotaged the cause, but it's "salvagable." At least Bush passed something which probably gave the economy some breathing space, and I seem to remember at the time certain liberals not wanting to pass anything and to put it off. Some of us have a memory.)

This isn't do or die time for Obama. It's do or die time for centrist Republicans and Blue Dog Democrats.

It's Obama who's inquiring of them: What say you? WHAT SAY YOU?

If they fail the test, they'll suffer the consequences.