Obama Seeks to Create Jobs FDR Style: Modern Issues that Must be Addressed

 by Deb Cupples  |  Our nation's unemployment rate is 6.1%: we lost 240,000 jobs in October and 284,000 in September. (Bureau of Labor Statistics).  Because people are spending less money (due to job loss or fear of job loss), our nation's retail sales are down. 

Declining retail sales could cause even more job losses, which could cause even less spending, and so on.  We're in serious trouble.

President-elect Barack Obama is embracing an idea that other Senators have been talking about for months: government's employing people to rebuild infrastructure, build wind farms, etc. (CNN)

President Franklin Roosevelt's job programs seemed to work, but there are a couple modern issues that must be dealt with; if not, we may see yet another wasteful failure on our government's part.

First, government should minimize its reliance on private contractors to administer a job programs.  Even honest contractors that make a reasonable profit amount to middle-men.  Every dollar given to a middleman-contractor is one less dollar for actually employing out-of-work Americans.  Period.

If the government must employ contractors, then officials should carefully negotiate contracts so that any mark-ups and profits the contractors make are kept to a reasonable minimum.

Second, the federal government should consider tax incentives for private companies and  regulations for public companies that reduce executive pay.  Seriously.  And all executives.

Every dollar that goes into executives' personal pockets is one less dollar for those companies to pay ordinary workers -- who tend to be the ones that create actual wealth for the company shareholders.

Some auto-industry executives, for example, took hefty compensation even in the face of company losses and job cuts.   I suspect they've been doing that for years.

In 2007, for example, General Motors had record losses of about $38 billion.  That same year, GM's CEO Rick Wagoner got a 41% raise (to about $14 million). While the CEO (and possibly hundreds of other execs and managers) were rewarded with pay raises as GM lost billions, the company laid off a couple thousand workers.

In 2006, Ford Motor Company had record losses of more than $12 billion.  Yet, the company gave its new CEO Alan Mulally $28 million for his first four months on the job. Mulally's total 2007 compensation was about $21 million.  Four of Ford's executive vice presidents that year collectively took home about $39 million.

In short, just five Ford execs pocketed $60 million after a year of record losses (I don't know how much the hundreds of lower execs and managers pocketed).  How many essential workers or supplies could that money have paid for?

Similarly, executives at huge companies that have crumbled also took huge amounts of shareholder money -- money that could have helped shore up those companies and ultimately could have helped save jobs.

Before Bear Stearns crashed, for example, its CEO Jimmy Cayne had taken $160+ million in compensation over the years.  Before Merrill Lynch crumbled, its CEO Stanley O'Neal took about $170 million from 2003-07.  I don't know about the dozens or hundreds of lower executives at those companies.

Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while said executives drove their companies into a ditch, according to Bloomberg.
I don't know what they paid their dozens (or hundreds) of lower execs and managers.

I could go on and on with examples, but instead I'll link below to posts that contain some.

Memeorandum has commentary.

Other buck Naked Politics Posts:

* High Cost of Private Contractors

* Examples of Alleged Health Care Contractor Fraud

* Cutting Executive Pay Would Save Jobs

* Execs Made Millions While Driving Companies into Ditch

* Lehman Execs Redistribute Shareholder Wealth (to Themselves)

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Comments

[J. Lynne]

I've never understood how management could still get bonuses while the company was deteriorating. Years ago, at a previous job, when we went through layoffs and the CEO got fired for running the place into near-bankruptcy, he got a quarter million severance. When I got "involuntarily terminated", I almost didn't get unemployment benefits. If you're a big shot, if you aren't don't a good job, you shouldn't be rewarded for it. If there were real penalties, then maybe there would be less of these kinds of failures. Upper management would make more careful decisions.

I mean whatever happened to the idea that the bigger they are, the harder they fall?

[J. Lynne]

I've never understood how management could still get bonuses while the company was deteriorating. Years ago, at a previous job, when we went through layoffs and the CEO got fired for running the place into near-bankruptcy, he got a quarter million severance. When I got "involuntarily terminated", I almost didn't get unemployment benefits. If you're a big shot, if you aren't don't a good job, you shouldn't be rewarded for it. If there were real penalties, then maybe there would be less of these kinds of failures. Upper management would make more careful decisions.

I mean whatever happened to the idea that the bigger they are, the harder they fall?

[Deb Cupples (Buck Naked Politics)]

Hi J. Lynne,

How've you been?!

I agree with you. The problem is that if a company's board approves executive compensation, then the compensation packages generally are legal. The courts give Boards great freedom with respect to compensation.

It shouldn't be that way, but it is (for now, anyway).

Shareholders and taxpayers should be up in arms.