No expense spared

The Economic Times editorializes

Obama announced on Wednesday a salary cap of $500,000 (Rs 2.4 crore) for top executives at companies that receive taxpayer-funded largesse. The move, reminiscent of controls in state-controlled planned economies, including our own pre-reform era, is an obvious attempt to address public anger before the President seeks more taxpayer money to fix the US banking system.

It follows quick on the heels of reports of generous bonuses ($4 billion) paid to Merill Lynch executives just before it was taken over by Bank of America, and of the lavish lifestyles of some of the now-disgraced investment bank honchos.

John Thain, ex-chief of Merrill Lynch, spent $35,000 on a commode and former Tyco boss Dennis Kozlowski spent $15,000 on an umbrella stand. Calling Wall Street bonuses shameful and expressing disgust at chiefs who reward themselves for failure, Obama said the curbs were aimed at “taking the air out of the golden parachute.”

Thain spent $35,000, Kozlowski spent $15,000, some one even got himself a $1,500 trash can; and Obama spent $150,000,000 on his inauguration, a third coming from his supporters. But didn’t everybody’s favorite economist say that even if you pay some one to dig a pit and fill it again, that helps the economy? Surely buying trashcans helps too. If you can pay pit-diggers, why not people like Thain?

I think people have lost all sense of perspective and have gone crazy. That’s why they can’t see the situation for what it really is – a big government engineered mess. Not all of them though. Read this comment from the BW article linked to above-

John, you make too much sense. Congress doesn’t seem to understand that “economics” comes from the word meaning “household management”. If we all ran our households like they run our country, we would have creditors threatening our lives. I can’t believe we actually run our economy based on the “wisdom” of John Maynard Keynes. He had no concept of future generations. I’ll have to research his personal life to understand how anyone thinks it is a good idea to pass that kind of debt to your children and grandchildren. These are the same liberals who are always faulting conservatives’ lack of compassion? Wake up, America, we are being robbed blind by the people we “hired”.

Vipin writes about what will happen post recession

Note that since the cause of the crisis is misallocation of resources, we would like economy wide churning. Firms must readjust production processes, some firms will have to reduce employee count, these people will then be employed elsewhere (the time lag between the two registers a high rate of unemployment), some firms will have to shut down, other firms will have to produce new products (less luxury villas, more apartments for instance), and so on. And soon enough we will be back to a rather normal state of affairs.

Not understanding this process is the root cause of many dangerous proposals floating around in the press.


In fact what we really need is more savings, and it’s a good thing that household reduce consumption and increase savings during recessions, we need more resources to restructure production.

Some other perspectives. The Austrian Economists say-

Goldman Sachs has released a report that the economy is going deeper into recession, not recovering. They have also predicted that the bank bailout will exceed $4 trillion. The Washington Post headline this morning is that the economic signs are getting worse, not better. Michigan is officially the hardest hit state by this economic downturn, but California is right behind. Cut backs are taking place everywhere from Starbucks to colleges nationwide.


As readers of this blog know, neither Steve nor I endorsed Ron Paul in his presidential bid even before the negative press concerning his newsletter came out. But I think Ron Paul has been the only political actor I have heard who understands what is going on. As he recently said, politicians and policy makers in Washington think they see a house on fire and they are providing water to put the fire out, but instead what they are doing is pouring gasoline on the fire. As I have said several times on the blog, we are turning a “crisis” into a catastrophe through the policy actions taken.

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