So one mantra that keeps being repeated during this financial crisis is that executives in the financial industry shouldn’t be rewarded, e.g., with golden parachutes, for their bad judgment. Now obviously the government should insure these executives don’t come out of this any better than they would if the government didn’t intervene. For instance if an executive would have received a much smaller pay out if the company went into bancruptcy and the government steps in to prevent this the executive shouldn’t profit from the government’s action. However, far from being a matter of commonsense fairness forcing these executives to give up the contractually required and legally guaranteed compensation they are do is the height of unfair government seizure to satisfy rabid populist motives.

Don’t get me wrong. I’m not claiming that executives aren’t paid too much¹ and I certainly believe that the way executive pay is set ought to be reformed, probably via government regulation. However, the fact that executives pay is too high doesn’t justify taking it away after the fact. There are a ton of people who are overpaid relative to what their job performance is worth. Maybe it’s postal workers, or perhaps skycaps, certain real estate agents or maybe the clerk at the local video store² who spends his day watching movies. But regardless of which wage earners you think have overpaid jobs would you think it was fair for the government to step in and confiscate their pension after the fact because ‘they didn’t deserve it for the work they did?’ Of course not. Just like overpaid wage earners these financial executives had other jobs they could have taken but they choose the jobs they did partially because of the compensation the contracts and the law guaranteed them even if things turned out poorly. The legislature may want to change the laws to prohibit these kinds of contracts in the future but those executives who choose to work in the financial sector based on the legal framework at the time shouldn’t be blackmailed out of the compensation due them so the legislature can cover it’s ass for not having these laws already on the books.

I’m also skeptical that these executives truly demonstrated bad judgment. Certainly they demonstrated poor judgment as far as preserving the long term worth of the companies they ran. However, even the best of us, whatever our intentions, are influenced by human level incentives. Even if we deny executives golden parachutes when their corporations fail we can’t take back the high salaries paid out during the upside of the bubble. Moreover, there isn’t much we can do to change this. People, even executives, want to know their compensation is in their hands not wait on it for many years as we would have to do to eliminate the incentives to participate in the upside of a bubble. But even more important than the economic incentives are the social incentives.

We are wired to want to be on top of the heap and executives are no different. Making record profits gets you on the cover of Fortune, the admiration of colleagues and all the other benefits of being the man of the hour. Playing it safe and conservatively managing your company brings only the questionable pleasure of schadenfreude when the bubble finally bursts. Worse, a system of (purportedly) merit promotion virtually guarantees corporate executives are unduly risk prone. By rewarding those who seem to have made the best deciscions in the past we are effectively selecting for those individuals who took risks and got lucky[^lotto]. If you reward the people who made the most money last year your virtually certain to get someone who bought a whole lot of lotto tickets.

The upshot of all of this is that old money may not be such a bad thing. If you are the CEO because the corporation has been in the family for generations your at least not selected for being a gambler. Additionally your incentives are much better aligned with the long term interests of the corporation (and the economy at large). As a Ford, Dow or what not the lure of immediate fame is reduced while the social pressure not to squander your family wealth is increased. I’m not sure if this has any real world significance but it’s something interesting to think about.

Like everyone else I’ve been following the crisis on wall street and the proposed government bailout. Just like the rest of the American populace (excepting a few experts) I lack the ability to really evaluate the need for or the sufficiency of the proposed bailout and I worry about jumping to give a broad grant of authority to a few members of the executive branch in the midst of a panic. However, just because a proposal has risks doesn’t mean it isn’t the best option. During times of war the executive branch, and military generals in particular, are given the awesome power to choose who lives and who dies but despite the risks and temptations this creates we don’t believe a congressional committee ought to second guess those choices. True, this is not a war but the same observation applies: just because concentrated power poses risks doesn’t mean it’s not the best overall bet.

I would like to believe in this case oversight by some board of experts, e.g., the federal reserve board, would be possible and beneficial but this might not be practical. However, the idea floating around that congress should provide direct oversight scares me. Obviously, congress should follow the actions taken during the bailout and intervene legislatively if it discovers any abuses but, even if constitutional¹, giving a congressional committee the power to review bailout decisions would be a bad idea. Not only do the congressmen involved lack the expertise to make truly informed decisions but they’ve already demonstrated their willingness to put the rhetoric of getting even above the interests of the country. Senator McCain has even done this in the name of putting America First, though Obama and the democrats in the senate aren’t any better.

Rather than focusing on fixing the financial meltdown from the news I’ve seen congressmen are getting caught up in making sure that CEOs are denied their golden parachutes or demanding that we bail out homeowners as well as the ‘fat cats’ on wall street. Now one might think this rescue package is unjustified or unnecessary but the only reason to pursue the bailout is to prevent the economic instability from spreading to the larger economy. The worry is that without government intervention confidence in financial instruments will collapse thus denying individuals and businesses the credit they need to drive the economy. If you don’t think the problems in the financial sector threaten the general economy then you shouldn’t supporting any bailout at all. Unlike the collapse of the financial sector there is no reason I’ve heard to believe that not bailing out homeowners would cause a general economic collapse. Maybe as a matter of policy the government ought to be helping these troubled homeowners more but that’s a different issue and should be carefully considered not allowed to interfere with an emergency bailout.

The obsession with golden parachutes is even worse. One can argue all day about whether it is just for CEOs to receive gigantic compensation packages but the truth is that the cost of CEO compensation at financial institutions is a minuscule percentage of the 700 billion dollars proposed bailout. Rather than focusing on this insignificant cost our representatives could be doing more to save us money by focusing on the details of the actual bailout. Moreover, I worry that some kind of golden parachute poison pill in this bailout would create an incentive for CEOs to avoid taking part even if it is in their companies best interest. Besides, I don’t see why the fact that these CEOs miscalculated means they shouldn’t be compensated at the rate they negotiated. We don’t think basketball players who don’t perform as well as expected or get injured making a stupid play ought to return the money from their contracts why is it any different for CEOs? This isn’t to say there aren’t general reforms that should be taken about CEO pay in general, e.g., giving stockholders greater control over it, but it is to say that congress should be more concerned with saving the US economy rather than making sure everyone suffers.

Sigh, once again the political world seems to be in one of those situations again where we are supposed to pretend something isn’t true because we would rather it weren’t. Previously, we were supposed to pretend (despite Ferraro’s express statement to the contrary) that Geraldine Ferraro’s gender wasn’t a substantial causal factor in her getting the VP nod nor was Barack’s race a cause of his political success¹. Similarly when it comes to gender we are supposed to ignore certain observations when they are inconvenient. Ironically this applies even to ‘inequities’ in child rearing which are considered important to trumpet in other situations with the ‘right’ consequences.

Specficially what I’m talking about is the hubub caused by some criticism of Sarah Palin suggesting that as a mother to 5 (one of whom has special needs and another is pregnant) she might find it difficult to manage the responsibilities of the president’s office if it came to that. Many people have shot back that this is unfair since no one is asking Obama about how much time his family will occupy. Maybe it is unfair maybe it isn’t. I don’t find fairness a very useful (or meaningful) concept in situations like this. However, absent further evidence it is a worry that is more reasonable to have about Palin than about Obama.

For starters Palin has a larger family with younger children and most importantly has a special needs child (downs syndrome). Right away this makes comparisons to Obama invalid. Still, one might point out that even if Obama was in this position the same questions wouldn’t be asked of him because he is a man. That’s completely correct. However, this isn’t some groundless double standard. As many feminists have been complaining about for years it really is still true that women do more of the child rearing than men. It really doesn’t matter whether you think that is the result of a chauvinistic society, an intrinsically greater maternal instinct or space rays affecting our brains. Given that women are much more likely to be the ones on call for their offspring’s minor emergencies and problems it’s a valid question to ask whether such an eventful family life will interfere with Palin’s ability to function as president if McCain passes away (if she can govern Alaska she can handle being VP). Like it or not our culture (either innately or historically) is one in which women tend to put a greater priority on childcare relative to their work than do men. Given all the social pressure evaluating women based on their maternal success rather than their professional success it would be quite surprising if this wasn’t the case even disregarding the impact of breast feeding, giving birth and the evolutionary psychology reasons to expect this outcome.

Of course Palin’s husband might be the primary caregiver for their children (many men are) and Palin might neglect her family for the sake of her career to the same extent the average male VP candidate does. In fact I am quite confident that Palin’s family wouldn’t substantially interfere with her being president. Which is really too bad because given what i know about her views I’d be much more comfortable taking my chance on whatever adviser might run things in her place. Partially my convinction stems from the fact that I’m not convinced that the long nights and extra hours pay off that well for a president but more so from the fact that Palin has managed to make it to this point with her family. However, none of this changes the fact that it perfectly reasonable to believe that a woman with a large family with special needs would be more likely to have difficulty giving the crazy dedication to the job than a man in a similar circumstance. I don’t believe this is enough of a difference to justify trumping policy/judgment considerations with this relatively minor worry but this whole `experience’ debate is no less trivial.

In short I find it annoying when people go to great trouble to assert something (women work harder than men because they must do more childcare when they get home) and then turn around and try and deny the obvious consequences when they support (even if weakly) a conclusion they dislike². Ultimately what puzzles me about this whole thing is why people feel inclined to go down this path at all. If people would just say a more understandable version of something like this I would be happy, “Yes, women might be slightly more likely to invest time at home but anyone at this level must have heroic dedication to their work and any minor difference in probabilities is outweighed by the potential for overestimation of this effect due to reliance on stereotypes .”

Another debate swirling around Palin is the acceptability of pulling her teenage daughter’s out of wedlock pregnancy into the campaign. Before I say anything more about this point I want to express how sorry I feel for her daughter. It’s bad enough that she isn’t going to get an abortion³ and worse that she is going to be pressed into marriage at 18 but she has to deal with normal teenage embarrassment plus the shame of being knocked up all on national TV. However, no matter how emotionally salient this particular girl’s suffering may be to us she is just one person while the choice of our next president will dictate policies affecting teen pregnancies in the thousands at the very least not to mention deciding matters of life and death for millions and setting the fates of nations. Thus my conclusion is that if this girl’s plight can bring home the consequences of abstinence only education and abortion restrictions enough to really affect policy then we would be remiss to let hundreds or thousands of other girls end up in much worse positions just to shield this one girl from the spotlight. That having been said we should minimize the intrusion that the political campaign has into this girl’s life, e.g., the policy of avoiding her first name seems appropriate, and avoid anything but the most indirect of references lest one trigger a backlash.