Not How Capitalism is Supposed to Work

Article: Matt Miller - We must ratchet back bankers' pay


Congress is debating how to fix the financial system. They are doing so while, indirectly, getting paid large sums of money and being threatened by the very people they would be regulating. In the meantime, millions are without jobs, and the financial system is wrecked.


Matt Miller, author of The Tyranny of Dead Ideas, explains the situation quite well in an article today entitled "We must ratchet back bankers' pay." Some conservatives on the right end of the spectrum who do not understand economics very well will say that this is "communism," or some such nonsense. Miller understands that the way things are going now cannot possibly work. He writes: "The way pay is rigged at publicly owned Wall Street firms creates incentives for casino-style gambling, because bankers reap all the upside and stick shareholders or taxpayers with the losses. When their big bets go bad, in other words, top bankers walk away rich anyway. This is not how capitalism is supposed to work."


This is an important point. It is "not how capitalism is supposed to work." Capitalism works when people win through hard work and good ideas being put into practice, and when people lose through laziness and bad ideas. Gambling away other people's money and getting rewarded for it wasn't part of the picture Adam Smith had in mind. 


We should consider the fact that "It wasn't always like this." Miller goes on to explain: "There was a time when CEOs and boards of directors operated with at least some understanding of proportion and restraint. In the book I cite George Romney (father of Mitt) as perhaps the most interesting example of this lost species. Romney voluntarily turned down $268,000 over five years, about 20 percent of his earnings, when he was CEO of American Motors. 'In 1960, for example' the New York Times noted, 'he refused a $100,000 bonus. Mr. Romney had previously told the company's board that no executive needed to make more than $225,000 (about $1.4 million in today's dollars), a spokesman for American Motors explained at the time, and the bonus would have put him above that threshold.'"


It is obvious that while George Romney was a good capitalist, he was also a man who espoused religious and/or moral values that urged him to look beyond financial reward in life. 


I have long had an interest in the Japanese Samurai tradition. When I look at their sense of honor, I find myself comparing it to the lost sense of honor in our own tradition. Recently, I read that a congressman from Louisiana, Rep. Cao, a Vietnamese-American, told a BP executive that if he'd been a Japanese Samurai, they'd have handed him a knife to commit harikiri due to the shame that he had brought upon himself. It sounds ridiculous, in one sense. But it speaks to a sense of honor, and a sense of justice, that our leaders in society seem to have lost.  When religions encourage making money at any cost, and forget to remind  us that money is not everything, then people who don't know any better begin to think that they can be comfortable Christians while being directed primarily by  greed and behaving without concern for justice, fairness, or the welfare of other people. All of the major religions teach that while money has its place, it must not be our guide in life. 


When Jesus tells the rich man that in order to reach the Kingdom of Heaven he has to give away what he owns and follow him, I suspect that he did not mean for everyone to do something that drastic. It might have been spot on for that one man in that case. But I do believe that Jesus would have pointed to George Romney's decision to recognize the need to limit one's greed and to focus on justice in society, as a step on the path to the Kingdom of Heaven.


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