But Now You Know

The search for truth in human action

Attacking AIG-style Bonuses Will Cause MORE Companies to Fail


Money BombRecently, I wrote an article about how Golden Parachutes are important for our economy, instead of bad.

And yet now we have people objecting to AIG fulfilling its contractual obligations to people who might otherwise have abandoned the company to collapse years ago.

This needs to be re-explained, in simpler, clearer terms:

  • If a company is struggling, it needs the best people it can get, in order to TRY to save itself.
  • If you are the best man for the job, then you don’t need to work for a struggling company. You are almost certainly going to choose a healthy, growing company where your job is secure.
  • In order to obtain your services, a struggling company must either:
    1. Offer you far more money up front, which it probably can’t afford to do, or
    2. Offer you protection against the company failing, like a bonus that you will get even if, or only if, something goes wrong despite your best efforts
  • In order for struggling companies to have a chance to survive, benefiting the entire economy and all of we who are in it, you must therefore have:
    1. The power to offer bonuses in case the company fails despite a manager’s best efforts
    2. enforcement of that bonus contract, so the potential managers trust it’ll get paid, and
    3. freedom from punishment for receiving such a bonus

The problem, here, is not AIG honoring a style of contract that is absolutely necessary for the health of our economy.

The real problem here is the same that we face whenever there is government intervention with our taxpayer money:

This form of socialism will always cause conflicts of interest, that will harm the recipient, the taxpayer, and the economy ever more, in a snowball effect.

Think of how people were trapped on welfare, from the 1970s through 1990s. 

The government bailed  out people in need, but then had to punish them if they ever made any progress in getting out of poverty, because it would be irresponsible to keep paying them the same amount of welfare, when they got even a little of their own income. 

Likewise, many state governments violate your freedom of choice  on health-related issues, on the premise that those states are paying for some people’s health care. They impose gigantic taxes on tobacco, alcohol, even convenient food, claiming that people who use them are raising government health care costs.

In all three cases, the freedom of private people is violated as a natural domino cascade starting with government taking your taxpayer money, and bailing people out with it.

Our response to this obvious conflict of interest, between bailouts and people’s free choices, should be to legislate against bailouts, not liberty.

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March 19, 2009 - Posted by | Economy, Politics, Society | , , , , , , , , ,

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