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.

 

John O. McGinnis

John O. McGinnis is the George C. Dix Professor in Constitutional Law at Northwestern University. His recent book, Accelerating Democracy was published by Princeton University Press in 2012. McGinnis is also the co-author with Mike Rappaport of Originalism and the Good Constitution published by Harvard University Press in 2013 . He is a graduate of Harvard College, Balliol College, Oxford, and Harvard Law School. He has published in leading law reviews, including the Harvard, Chicago, and Stanford Law Reviews and the Yale Law Journal, and in journals of opinion, including National Affairs and National Review.

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Comments

  1. R Richard Schweitzer says

    Surprising that it has not been pointed out that the Smith “logic” could be made more effective be an executive order decreeing that the scale of wages should be based upon proportionate (as set by the order) percentages of the highest executive compensation.

    That would solve the “minimum” wage issues for the contractors, and provide an enormous stimulus to a reduction in federal out-sourcing with a resultant era of “growth’ (in government).

  2. libertarian jerry says

    This kind of comment is amazing in the fact that the average Federal Government employee makes about 40% more than the average private sector employee doing the exact same level of work. The smart way to “save the taxpayers money” would be to reduce the average Federal employee’s compensation,including fringe benefits and retirement scales,to the level of the average private sector employee. I wonder if we will see anything like this happening soon?

  3. gabe says

    So we have given up on the market, then? and are prepared to let the Monarch issue “divine edicts” determining who shall receive what?
    How precious!!
    Say what one will about government outsourcing, I would venture to say that it is still cheaper and more efficient than “in-house” government shenanigans as evidenced by the recent disclosures of the “CIA secret agent” working for the EPA and the fraud in military recruiting activity.

    If one wants to reduce government costs, why not eliminate several worthless departments and programs, many of which are holdovers from the New Deal era (heck, there are even some that go back to Wilson’s day).

    • says

      “So we have given up on the market, then? and are prepared to let the Monarch issue “divine edicts” determining who shall receive what?
      How precious!”
      You’ve nailed the the continuing problem, Gabe.
      Thanks, respectfully, John

  4. Kevin R. Hardwick says

    The general argument of this essay strikes me as both correct and sensible. But that said, there is at least on erroneous statement here by McGinnis that is as risible as the argument by Douglas Smith that McGinnis quite rightly criticizes.

    McGinnis writes that when we properly calculate the total compensation of the US President, the total benefits “dwarf those of any company’s chief executive.” When we examine the compensation of corporate CEOs, the metric we normally use is called “TCC,” or “Total Cash Compensation.” And while it is the case that the average TCC for the CEO of a Fortune 500 firm is “only” around $2 million, there are several dozen firms whose CEO TCC is in excess of $25 million. While I think most of us will happily agree that free housing, Air Force one transportation, and so on add considerably to the $400,000 of actual salary paid to the US President, the value of those benefits is not on the order of $20+ million.

    All of these guys are very well paid. But it simply is not the case that the TCC for President Obama is greater than that earned by guys like Lawrence Ellison, Elon Musk, Mario Gabetti, Robert Kotick, or several dozen others. The US President is simply not the highest paid guy in our country–nor should we expect that he would be.

    • gabe says

      Kevin:

      Indeed!
      In fact, in the case of this President (such as that term may be applied here) a more appropriate wage would be closer to the minimum wage – OK, maybe the new $15 / hr wage he is proposing – I am a fair man and i figure that since every one else is advocating screwing with the market, I may as well do the same!

      take care
      gabe

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