I will be hosting the George Mason Alumni Breakfast at the Federalist Society National Lawyers Convention

If any George Mason Alumni are attending the Federalist Society National Lawyers Convention, I will be hosting the Alumni Breakfast. The breakfast will be held on Saturday, November 14, 2009 at 8:00 a.m. in a room TBD at the Mayflower Hotel (near Farragut West/Orange and Farragut North/Red) n Washington, D.C.

A Mason Professor, also TBD, will give some remarks.

This is a great place to network and meet your fellow Federalists. And it’s free!

And if anyone else was not fortunate enough to go to Mason, and attended one of those other schools, like Harvard or Yale or Chicago, please stop by to say hi 🙂

To RSVP, please e-mail kelly.boss -at- gapac -dot- com

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Posner and Becker duel on Executive Compensation Wage Controls

At Becker-Posner Blog, Judge Posner and Professor Becker have an interesting exchange on  on the Obama Administration’s capping of executive pay. H/T @UChicagoLaw I have blogged about this a bit before, but have not considered it from the perspectives these two mavens approach the issue.

Judge Posner chimes in first. As you may expect Posner has a lot to say, but here are a few choice nuggets:

Limiting the compensation of a handful of employees at a handful of firms can’t have any effect except to benefit the firms’ competitors by making them more attractive places to work. The limitations are a form of scapegoating designed to appease public anger over the high incomes of financiers who precipitated an economic collapse that has caused widespread suffering, much of it to people who, unlike financiers, bumbling or inattentive government regulators, macroeconomists, members of Congress, and improvident homebuyers and home-equity borrowers, bear no share of blame for the collapse.

There is a slightly better, though still unconvincing, case for regulating (2) compensation structure, as distinct from the level of compensation, of (2) all financial institutions. Since the market for financiers is global (in part because even a very small country can become a major banking center, given the mobility of capital and of financial personnel and the absence of any need for elaborate infrastructure, physical resources, or a large domestic market), effective regulation of compensation structures would require agreement among all major and many minor nations. If that obstacle to effective regulation could be surmounted, the case for regulation would come down to the fact that front-loaded compensation of financial executives can increase macroeconomic risk.

Professor Becker replies:

I sympathize with all the people who are upset by the very large bonuses, stock options, and other compensation received by heads of some financial institutions that ran their companies into the ground through bad investments. However, I also believe it is a big mistake to have a pay czar, Kenneth Feinberg, impose sharp cuts over the salaries and other compensation of the seven financial institutions, like Citibank, that received the most government bailout money. The Fed has made matters even worse by proposing to implement pay controls over thousands of banks as part of its regular review of their performance.General controls over wages have frequently been tried in different countries. The usual motivation for wage controls is to reduce inflation by keeping labor costs, and therefore prices, from rising rapidly, although wage controls are invariably combined with general controls over prices as well. Inflationary fears were certainly behind the wage and price controls in almost all countries during World War II, and in the US under President Nixon from 1971-1973. These measures sometimes succeeded in suppressing inflation temporarily, but they also led to rationing of various consumer and producer goods because of weak incentive to produce or work when prices and wages are kept below their market values.

Companies can still compete for employees when higher pay cannot be offered as inducements by increasing fringe benefits to employees, such as longer vacations and subsidized lunches and other meals. US companies began to offer free health insurance to employees during World War II as a way to get around the wartime control over wages. The American health care system has suffered badly since then from this artificially induced connection between employment and subsidized health care.

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Tyler Cowan NYT: How an Insurance Mandate Could Leave Many Worse Off

From Todays NYT, Tyler Cowan writes a fantastic piece about how insurance mandates may make society worse off. (H/T Volokh). I echo Professor Adler, and encourage everyone to read this article in its entirety. Cowan is one of the top economists around, and he hits the nail right on the head.

Americans seem to like the idea of broadening health insurance coverage, but they may not want to be forced to buy it. With health care costs high and rising, such government mandates would make many people worse off. . . .

Defenders of a broad health insurance mandate argue that it will lower average costs in the health care market. The claim is that many of the uninsured are young, healthy or both, and that bringing them into the insurance pool might lower average premiums by spreading risk across low-cost groups. Yet Massachusetts has had a health insurance mandate for several years and this cost-saving mechanism does not appear to be kicking in.

At this point, it seems more plausible that the cost of health insurance will keep rising, just as the costs of health care services have continued to climb. The upshot is that the burdens of mandatory purchase, the subsidy costs and the associated implicit marginal tax rates will all increase, eventually to the point of unsustainability. . . .

We’re often told that America should copy the health care institutions of Western Europe. Yet we’re failing to copy the single most important lesson from those systems — namely, to put cost control first. Instead, we’re putting our foot on the gas pedal and ratcheting up the fiscal pressures on the system, in the hope that someday, somehow, it will all work out.

As it stands, we’re on the verge of enacting a policy that is due to explode, penalizing many of the very people that it was ostensibly designed to help.

And there are serious potential John Galt problems with Obamacare:

To ease the burdens of the insurance mandate, the reform proposals call for varying levels of subsidy. In some versions, such as the current Senate bill, subsidies are handed out to families with incomes as high as $88,000 a year. How long will it be before just about everyone wants further assistance, and this new form of entitlement spending spins out of control? It’s possible to lower insurance subsidies, but then the insurance mandate would impose a bigger burden on the people we are trying to help.

A subtler problem is what economists call “implicit marginal tax rates.”

The fiscal reality is that not all income groups can receive equal subsidies; as a family earns more, its subsidy would probably decrease, eventually falling to zero. But then we are taking money away from the poor as they climb into higher income categories. This is a disincentive to earn more, and the strength of the disincentive increases with our initial generosity. For many people, the health insurance aid would phase out when food stamps, housing vouchers and the earned income tax credit also end and the personal income tax kicks in.

This structure of incentives would likely discourage many parents from earning a better life for their children. Congress could tweak the subsidies so they don’t phase out so quickly, but then we’re back to very high fiscal costs and subsidies for many families in the higher income classes.

And I love the graphic the NYT inserted: