Thorndike: The Historical Link Between Bailouts and Pay Caps

Joseph J. Thorndike has published Too Much: The Historical Link Between Bailouts and Pay Caps on the Tax History Project website:

Complaints about outsized executive pay have prompted Congress to include compensation limits in the recently passed Wall Stree bailout measure. Are the limits a good idea? Maybe. Will it work? If history is any guide, probably not. In dollar terms, executive compensation is trivial. Even the huge paychecks common on Wall Street shrink to insignificance when compared to the size of the proposed bailout (or the liabilities of financial firms now in peril). To be sure, some compensation schemes reward short-term profit at the expense of long-term prudence. But the most salient arguments for executive pay caps -- at least in the political arena -- are moral, not practical.