There’s nothing like economic success to encourage us to turn a blind eye to questionable business practices, and nothing like a recession to reveal just how greedy and naive we were. Well into a long-term economic downturn, we still see holdouts of the bubble economy where unsustainable salaries and bonuses are distributed without regard to profitability. It is infuriating to see someone readily accept a bonus after his company loses huge sums of other people’s money, effectively bankrupting many individuals and businesses. How can he justify receiving compensation, particularly that supported by taxpayers who are most likely making less than one percent of his income? Apparently such an ethical question didn’t bother many of the Wall Street recipients, who quietly accepted the mountains cash just weeks after their leaders crawled to Washington begging for handouts to keep their businesses afloat. One would think that if they really had their businesses’ interests at heart, they would have put the money to work doing something business related like retaining valuable employees, upgrading factories for greater efficiencies, or buying back extremely devalued stock. Instead, the money now sits in personal accounts awaiting use on such things as new sports cars, expensive jewelry…or possibly long vacations outside of the United States, away from prying eyes. Einstein’s observation that “no problem can be solved from the same level of consciousness that created it ” seems very applicable here…the financial institutions haven’t changed form or leadership and appear incapable of deviating from the status quo without governmental prodding. But government must be very careful not to create “knee-jerk” legislation, piling hastily-conceived laws on top of existing ones and increasing the complexity and confusion of an already overwhelming system. More complexity increases the probability of errors being made in missing unethical behavior (Type II error) and also in penalizing innocent behavior (Type I error). The myriad of loopholes allowing skyrocketing executive remuneration is probably just one of many symptoms of an overly-complex system. The solution is to start from scratch and make policy so simple to understand that even a junior-high student can get it (if nothing else, they’ll do better on civic’s exams…). Here are three simple rules our government and corporate elite would be wise to consider in their efforts to solve the current global economic meltdown:
#1: If it works, and is efficient, don’t fix it. Otherwise, go to #2.
#2: If it doesn’t work and/or isn’t efficient, but we really need it, fix it and try #1 again. Otherwise, go to #3.
#3: If we don’t really need it, then get rid of it. Problem solved….
Now, let’s apply these rules to the financial sector. Are the financial institutions working effectively and efficiently? Obviously not. Do we need them and, if so, how do we fix them? All are not necessary for recovery, thus we must find a way to distinguish between viable, essential entities and the “dead weight.” If our underlying objective for economic recovery is for institutions to continue extending credit to businesses and individuals, then we can assume those that hoard cash or, even worse, use taxpayer money to buy up competitors and to pay astronomical bonuses are NOT helping the situation. Such entities, without long-term recovery plans, are just prolonging their inevitable demise and should be filed in the “dead weight” box. The guiding principle for governmental assistance should be simple and clear: If you want assistance with taxpayer money, you’d better use it to help the American people; otherwise, we’re taking it back and providing it to institutions that are in touch with reality and are willing to “do what’s right.” In this severe economic environment, unethical behavior, waste and foot-dragging only get one ostracized and extinct.
Tags: economic solution, economic stimulus, government bailout, U.S. economy, wall street bonus
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