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The Confederate Lawyer
November 5, 2009

Pay Czar Policies Have Unintended — and Far-Reaching — Consequences
by Charles G. Mills

GLEN COVE, NY — The pay czar is going to cut the pay of the top executives at companies that took bailout money (or even those at companies on whom the government forced bailout money, much as press gangs used to force the king's Shilling on reluctant recruits for the British Army and Navy). The cuts are going to be for a maximum of 90 percent, while the mobs cry out for these executives to work for nothing as punishment for their companies’ failures.

That wage controls are ineffective, immoral, and just plain un-American has been proven far too many times for me to prove it once more. The particular proposals being put forward, however, have a peculiar absurdity that deserves comment.

Every job has its pay. Pay is higher for a bank president than for a teenager who bags groceries. It is also higher for a bank president than for a vice-president at the same bank, and higher for a president of a banking corporation operating in 50 states with representatives in Hong Kong, London, and Paris, than for a president of a bank with a dozen branches. The threatened czarist pay cuts are aimed only at the largest companies and banks and only at top management. Nobody is talking about cutting the pay of branch managers.

Wages of jobs in management are negotiated. A free market determines them. When czars thwart the invisible hand of the free economy, that hand becomes an invisible fist and starts smashing things.

In practice, this process will work like this. The highest ranking dozen executives of a big international bank will be told that the government is going to cut their pay and other benefits by 90 percent. They will immediately begin shopping around for a job in the banking industry that pays more than 10 percent of their present pay and is not subject to the czar. Some will no doubt find banks that only operate in one region of the country in need of presidents. These banks will be delighted to acquire talent far above that typical for their size. There may even be a ripple effect, sending regional bankers to state-wide banks, and state-wide bankers to community banks.

The large international banks will soon learn that they simply cannot get the kind of talent they would in a free economy because nobody of that caliber wants to operate in a climate of fear that the czar will cut the negotiated salary down to 10 percent of the agreed amount.

The next phase of the iron fist’s revenge will be that the quality of management of the regional banks will be better than that of the international ones. The regional banks will grow and become competitors of the big ones, while the big ones will make mistakes because they cannot get the talented management.

Eventually, we will wind up with a banking system in which the power of the czar will extend only to the banks that were big during the first decade of the 21st century, not to the ones that grew more recently.

If you think that common sense will prevail and the banks the czar has ruined will be set free, just ask the members of a city council whose redistricting is still subject to the approval of the Attorney General because they are in one of a handful of states with a participation rate of less than 50 percent in the 1964 election.

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The Confederate Lawyer column is copyright © 2009 by Charles G. Mills and the Fitzgerald Griffin Foundation, www.fgfBooks.com. All rights reserved.

Charles G. Mills is the Judge Advocate or general counsel for the New York State American Legion. He has forty years of experience in many trial and appellate courts and has published several articles about the law.

See his biographical sketch and additional columns here.

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