The following commentary is from the April issue of the Forbes Growth Investor.
The United States was once a bastion of capitalism, but a comment I sometimes hear from recent immigrants is very telling. They ask,“Why are some Americans trying to turn this country toward socialism?”
The government now owns large stakes in major U.S. corporations. It created a task force to make strategic decisions for the automobile industry. It fired the CEO of General Motors. After pouring billions of dollars into that company, it finally admits that bankruptcy might be an option. A capitalistic economy would have recognized this long ago. With Americans buying only nine million cars per year, the industry has too much capacity. The least efficient companies and plants must be shut down. While I hate to see anyone lose their job, I have to wonder if it wouldn’t have been cheaper to pay laid off GM autoworkers to retool their skills for a new job than to keep pouring money into a failing business.
Then there is the uproar over the AIG bonuses. Excessive executive compensation has been a point of contention for years—and rightly so. As I mention in my book, Even Buffett Isn't Perfect, in the 1970s the typical CEO made about 25 times what the average worker at his company made. By 2000 this multiple reached almost 400. My long held personal opinion is that anyone who makes more money than I do is grossly overpaid. Yet, if you have noticed, I haven’t quit my job. That should tell you that I must be at least somewhat satisfied with what I’m making.
It is not surprising that the average Joe gets all worked up when he hears about multimillion dollar bonuses in the executive suite. No doubt he works hard too, but no one has ever offered to pay him anything close to that kind of money. So the outrage over the AIG bonuses is perfectly understandable. The real shame, however, is the behavior exhibited by some of our politicians. After forcing out the former CEO, the government asked Ed Liddy to come out of retirement to save the company. He did not seek the job. The government even passed legislation authorizing the payment of those controversial bonuses. Then when elected officials realized their constituents were upset, they gave Liddy a public tongue lashing. The man who is getting paid just $1 per year to do the government’s bidding sat there and looked contrite with hardly a word of objection. He should have pulled a Johnny Paycheck. He should have stood up and said, "Take this job and shove it! I ain’t workin’ here no more."
Of course, if taxpayers had not bailed out AIG, the company would no longer exist and bonuses would not have been paid. However, the government chose to bail it out, and as one AIG employee who recently published his letter of resignation in the New York Times pointed out, employees were promised on several occasions that they would receive the bonuses if they stayed. Some gave up opportunities elsewhere because of those promises. Now with a gun pointed at their head, they are "voluntarily" returning the bonuses. With a multitrillion dollar budget deficit and trillions more in debt, taxpayers can at least take solace in the fact that politicians did everything possible to get back those bonuses.
