Thursday, August 13, 2009

Discussing "Rule of Law" on Strategy Room

On FoxNews.com Strategy Room recently, I had the opportunity of being on again with my friend Eric Bolling, Host of the Biz Hour of the popular web based program (M-F at 3 PM EST). We dove into the subject of the arbitrary nature of government. We asked the fundamental question about whether it was appropriate for the government to change the rules on the way they do business with companies. For me, it was the more basic question of, "should the government be required to abide by the same contracts as the rest of us?"

Bolling gave the example of the "retro tax" on insurance giant AIG executives who lost approximately 95 percent of their bonuses after the bailout. At the time of the bonuses, there was no such sweeping tax on such bonuses. This was designed for no other purpose but to be vindictive on an institution that had reached a very low popularity level. Some loved it because it "felt good" to take money from those who "took money" from us taxpayers. It was, unfortunately, a slap in the face to the concept of "rule of law." One of those things that separate modern economies from the Third World.

Businesses succeed in countries where the risks are predictable. The decision to attack AIG executives in their bonuses may have felt "good," but has far reaching and negative implications. Since the government owns around 80 percent of the company, does it not make sense that we would want it to prosper? If that is a goal, wouldn't it be difficult to hire quality people if they will not be able to offer bonuses like others in the industry? Furthermore, if the government can arbitrarily change how much people are paid, people begin to wonder the reach of government, especially if it is not required to abide by contracts (like the one that allowed AIG executives to get bonuses).

For example, what if the government decided to fire the CEO of a company it was invested in? A couple of years ago this would have seemed impossible, but not any more. Simply ask Rick Wagoner, the former Chairman and CEO of General Motors. Obama's speech to the American people on why Wagoner "had to go" should have been a wake up call to everyone who wonders if it is good policy for the government to intervene in such a profound way. It makes for a more confused market place, not a more efficient one. It makes economies worse, not better.

Is this a defense for AIG executives who had their bonuses taken? Not at all, there is a side of me that is actually pleased because I hope it proves to be a cause for pause for any businesses that might pursue government solutions to problems. What I am trying to defend, however, is the idea of "rule of law" that contributes to stable and strong economies. Everyone, including government, must abide by the rules if our nation is to remain prosperous. Economic recovery itself rides on the idea that government must play by the same rules as everyone else.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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