"Too Big to Take a Pay Cut"

Dean Baker says "Tyler Cowen Is on the Money":

Where Politics Don’t Belong, by Tyler Cowen, Commentary, NY Times: For years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating.

Well before the financial crisis erupted, policy makers treated homeowners as a protected political class and gave mortgage-backed securities privileged regulatory treatment. Furthermore, they allowed and encouraged high leverage and the expectation of bailouts for creditors... Without these mistakes, the economy would not have been so invested in leverage and ... the financial crisis would have been much milder.

But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in sectors like health care. ... President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege. We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion. ...

We should stop using political favors as a means of managing an economic sector. Unfortunately, though, recent experience with health care reform shows we are moving in the opposite direction...

One disturbing portent came over the summer when it was reported that the Obama administration had promised deals to doctors and to pharmaceutical companies under the condition that they publicly support health care reform. That’s another example of creating favored beneficiaries through politics. ...

Even worse, these political deals threaten open discourse. The dealmaking may be inhibiting some people in health care from speaking out in opposition to the administration’s proposals. ... The banking sector has been facing similar constraints; if bankers criticize the Treasury or the Fed, they ... could get a bad deal when the next bailout comes. When major economic sectors can be influenced in this way, are we really very far from the nightmare depicted by Ayn Rand in “Atlas Shrugged”?

So if we’re looking for a major lesson from our banking mess, it is undoubtedly this: We have made a grave mistake in politicizing the economy so deeply, and should back away now. ...

In short, we should return both the financial and medical sectors and, indeed, our entire economy to greater market discipline. We should move away from the general attitude of “too big to take a pay cut,” especially when the taxpayer is on the hook for the bill. If such changes sound daunting, it is a sign of how deep we have dug ourselves in. ...