New York Times columnist Paul Krugman criticizes President Obama for defending bankers against having their pay singled out. The president had said, "Why is it that we're going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?" Writes Mr. Krugman:
That's an astonishing remark — and not just because the National Football League does, in fact, have pay caps. Tech firms don't crash the whole world's operating system when they go bankrupt; quarterbacks who make too many risky passes don't have to be rescued with hundred-billion-dollar bailouts. Banking is a special case — and the president is surely smart enough to know that.
President Obama has the better side of this argument, in my opinion. The NFL is probably getting rid of its salary cap, which in any event applies to entire teams rather than individual players. The teams have also figured out how to game the cap by using signing bonuses. And while the bankruptcy of a technical firm might not create systemic risk in the same way that a big bank going under might, if everyone's Microsoft Windows or Outlook or Google account broke down at once, it sure would create havoc in the global economy. Anyway, if banking is as crucial as Mr. Krugman suggests, wouldn't we want to allow the banks to devise compensation packages that will attract the best and the brightest, rather than letting the government design the compensation packages? In any case, both Mr. Obama and Mr. Krugman support increasing income taxes on the highest earners, which is another way to get at the compensation issue without singling out bankers for special treatment.