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George W. and Keynes: Together at Last

by David Doorey October 16, 2008
written by David Doorey October 16, 2008

               Go to fullsize image                        Go to fullsize image
                     Keynes                                       Bush
Quick, what do these two gentlemen have in common?  They both believe that governments must intervene aggressively to ensure that the ‘free market’ does not self-destruct under the weight of greed and socially and economically destructive self-interest.  That’s right.  In case you somehow missed it, George W. and American Congress have announced that the free market needs strong government intervention to survive.  So the government is buying huge stakes in American banks and attaching regulatory conditions to the buyout that I find pretty telling.  As a British Telegram columnist announced cynically in a recent editorial, “We’re All Socialists Now”.
One of central conditions for providing the huge payments to the bank bosses is that the banks must stop giving “golden parachutes”–large payments to executives who leave the banks–and must claw back executive pay.  Why?  Because the government believes that many executives are ‘overpaid’.  Huh?  Neo-classical economists argue that the state should not regulate wage levels, because doing so will lead to market distortions that ultimately are harmful.   If the ‘market’ says an executive is worth trillions of dollars, and a factory worker worth $3 per hour, then that’s what those people should be paid.   Isn’t that what conservative, neo-classical economics is supposed to teach us?
Even the godfather of market-based law and economists conceded that many so-called policy experts have become too invested in the ideology of free markets governing themselves.  Richard Posner wrote recently:

Why were the warnings (of the impending market crash) ignored rather than investigated? First, preconceptions played a role. Many economists and political leaders are heavily invested in a free market ideology which teaches that markets are robust and self-regulating.

But if neo-conservatives are prepared to accept that sometimes, ‘free’ labour markets produce wages that are ‘too high’, and that this justifies government intervention, does this mean they’d now accept that wages that are ‘too low’ should justify government intervention too?   If free markets produce ‘inappropriately high’ wages, can they not also produce ‘inappropriately low wages’?  Most neo-conservatives argue against mininum wage laws, but have not traditionally expressed much concern about the huge salaries of executives.   They argue that a raise in minimum wage from $6 to $7 per hour will cause huge job losses, such as in this piece by The Fraser Institute.  Yet an increase in the pay of an executive from $1 million to $3 million per year is considered fine, if that is what the ‘market’ for executives dictates.
But this concession by George W. that states need to regulate compensation seems to throw into question the free market ideology in which both he and our own Stephen Harper place so much faith.  Do you think that Canadian governents should regulate executive compensation levels?  If so, how?
One proposal often bantered about is capping executive pay by a ratio between the executive pay and the pay of the lowest earning employee in the corporation.  This story reports that on average, executives are making about 350 times more than the lowerst paid workers!   Do you like this idea?

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David Doorey

Professor Doorey is an Associate Professor of Work Law and Industrial Relations at York University. He is Academic Director of Osgoode Hall Law School’s executive LLM Program in Labour and Employment Law and a Senior Research Associate at Harvard Law School’s Labor and Worklife Program. Professor Doorey is a graduate of Osgoode Hall Law School (LL.B., Ph.D), London School of Economics (LLM Labour Law), and the University of Toronto (B.A., M.I.R.).

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Not seen comparable stats for Canada.There are terminations, but also better laws in most Canadian jurisdictions, including

- remedial certification
- interim reinstatement
- card-check/quick votes

“1 in 5 workers in US is fired for organizing a union” https://onlabor.org/labor-law-reform-is-needed-for-unions-to-succeed/

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