A Progressive Mr. Smith Goes to Washington

On Monday, The New York Times published “A New Way to Rein In Fat Cats,” an op-ed advocating an action so obviously foolish with such frivolous arguments that it is extraordinary that the paper of record thought it fit to print. Sadly, it may well be a harbinger of the direction of progressivism today.

In “Fat Cats,” Douglas Smith argues that the President should issue an executive order governing the ratio of compensation paid to the highest-paid executive relative to the lowest-paid employee in companies that contract with the federal government. According to Mr. Smith’s calculations, the ratio should not exceed the ratio of the President’s salary to the annual income of an employee earning the minimum wage.

Smith’s comparison of the President’s salary to those of highly paid executives is simply fatuous. Any President can enjoy an enormous income stream for years after holding the highest office of the land by virtue of having held that office. Look at Bill Clinton.  Moreover, the President’s current annual salary – $400,000 – does not count perquisites of the office, such as residence in the White House and the use of Air Force One. These benefits dwarf those of any company’s chief executive. Most importantly, the President enjoys enormous non-monetary benefits that are not available in other jobs—the chance to move the nation toward one’s political ideals for human welfare and earn a place in American history, to name just a few. Certainly I would be delighted to be President for a twentieth of the salary currently paid, and I am sure that is true of thousands, if not hundreds of thousands of other people.

His leading argument for his proposal is that “it is our money after all.” Dollars paid to federal contractors are surely taxpayer dollars, but to maximize their value there is no reason to award government contracts on the basis of salary structure rather than the price and quality of the goods and services to be provided. Employees’ salaries are set in a market, and companies that pay their employees too much will tend to lose out to companies that pay their employees what they are worth.

It is true that if some complying companies decrease their top executive salaries rather than increase the salaries of their least paid workers, the government may reap some short term financial advantages from the order.  But even under these hypothetical circumstances the government’s monopsony power will reduce efficiency in the long term. It will distort the price system that encourages people to go to jobs with the highest value to the economy .

Finally, it is troubling that Smith would have the President act by executive fiat. Thirty years ago, a closely divided circuit court upheld the President’s authority to use the Federal Procurement Act to force companies with federal contracts to comply with “voluntary” wage and price guidelines. Smith’s proposed order, however, expresses an animus toward the well paid and attempts to enforce a vision of equality on America. It has nothing to do with getting value for money.

The New York Times’ decision to publish this oped is another indication that the Progressivism of today is now obsessed with equality, not only at the expense of liberty and efficiency but also at the expense of the deliberative political process. President Obama’s order requiring federal contractors to pay a higher minimum wage is a pale shadow of Mr. Smith’s proposal, but it too is an end run around the legislative process at the expense of the economy and liberty.