The Wall Street Journal reported yesterday: The U.S. pay czar will cut in half the average compensation for 175 employees at firms receiving large sums of government aid, with the vast majority of salaries coming in under $500,000, according to people familiar with the government’s plans.
As expected, the biggest cut will be to salaries, which will drop by 90% on average. Kenneth Feinberg, the Treasury Department’s special master for compensation, is expected to issue his determinations today.
Professor Bainbridge explains just how outrageous, unconstitutional, and violative of fundamental principles of law the Obama Administration’s business decrees are.
There really ought to be more outrage about this proposal. As a letter to the editor in today’s WSJ (Wednesday, 10/21 — the Journal does not archive Letters to the Editor, so Professor Bainbridge was remiss in failing to credit Peter Kirchman of Bay City, Michigan for this excellent contribution to the debate – DZ) aptly observed:
To those who would defend the government’s ability, justification and right to negate Ken Lewis’s contract and hijack his pay (“The Fall Guy,” Review & Outlook, Oct. 2), I offer a John Adams quote found in David McCullough’s book “John Adams.” Adams stopped at a tavern for lodging. He happened to overhear several locals discussing British actions regarding taxation. One man says to the rest, “. . . if Parliament can take away Mr. Hancock’s wharf and Mr. Row’s wharf, they can take away your barn and my house.”
Mr. Lewis might already be considered rich, as was Mr. Hancock, and the amount of severance may seem to be outrageous, but to you supporters of this confiscation I ask: If you grant the federal government’s pay czar the power to confiscate or alter the pay of 175 Americans today, whose barn or house is next?
The point is exceptionally well taken. The Obama administration has shown a shocking disregard for the rule of law when contract rights interfere with the administration’s ability to reorder the American economy as it sees fit.
As Todd Zywicki observed when Obama threw Chrysler lenders under the bus:
The rule of law, not of men — an ideal tracing back to the ancient Greeks and well-known to our Founding Fathers — is the animating principle of the American experiment. While the rest of the world in 1787 was governed by the whims of kings and dukes, the U.S. Constitution was established to circumscribe arbitrary government power. It would do so by establishing clear rules, equally applied to the powerful and the weak.
Fleecing lenders to pay off politically powerful interests, or governmental threats to reputation and business from a failure to toe a political line? We might expect this behavior from a Hugo ChÃ¡vez. But it would never happen here, right?
Until Chrysler. …
The Obama administration’s behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors — entitled to first priority payment under the “absolute priority rule” — have been browbeaten by an American president into accepting only 30 cents on the dollar of their claims. Meanwhile, the United Auto Workers union, holding junior creditor claims, will get about 50 cents on the dollar.
And then Obama bullied GM’s bondholders to the extent that even the Obamabots on the Washington Post‘s editorial board were moved to protest that “the Obama administration is coming dangerously close to engaging in financial engineering that ignores basic principles of fairness and economic realities to further political goals.