Politicians like to be popular.
By that standard, Barack Obama's decision to put a $500,000 cap on salaries for top executives at companies that depend on government support is a great idea. But from almost any other perspective, the new U.S. president is courting disaster.
True, a philosopher-king in charge of executive compensation might establish a similar limit. Management theorists used to say the big boss should be paid about 20 times the salary of an average worker. That would suggest a cap of around $700,000 in the United States.
In the real world, though, this sort of constraint is likely to make bad companies worse. A few public-spirited executives might relish the chance to run troubled enterprises for much less pay than they could garner from overseeing more successful ones. But amid an unprecedented financial crisis, the government cannot really afford to be stingy.
Although a pay cap may be counterproductive, there's also little to be gained from defending multi-million-dollar pay packages in the current anti-business environment. A better idea is to implore Obama to use the support he wins for one simplistic idea to combat a worse one - protectionism.
Among U.S. voters, "Cut the idiots' pay" is right up there with "Buy American" T-shirt wisdom. Patriotic shopping has superficial appeal. But if the world's biggest economy blocks too many imports, the chance of a global trade war will rise greatly. That could turn the current recession into a real depression.
Obama has been flirting with protectionist ideas since early in his presidential campaign. Now would be an excellent time for him to cast them aside in favor of a clear commitment to free and balanced trade.
Balance means a steady reduction of the big U.S. trade deficit. That would lead to more jobs for Americans - without alienating the rest of the world. Such a thoughtful approach might be unpopular now at home, but would gain favor overseas. A simultaneous effort to squeeze executive pay and protect free trade might allow Obama to stay popular and do the right thing. No politician can ask for more. -
Author : Edward Hadas
SOURCE : Breaking News.Com