$500K Executive Salaries Redux

I blogged earlier today about the $500K salary cap. It turns out that this cap is only really applicable to firms that take future TARP funds, not those who already have. Does this make the cap more palatable? After all, the only firms that are likely to request future funding are those who are already in dire straits. I think this is the wrong way to look at the cap. The form of the cap seems to me to be hugely anticompetetive--early TARP recipients got no-strings-attached loans, whereas future TARP recipients will have huge strings attached to any funding they receive. The federal government appears to have engaged in an attempt to not only pick winners (which they are notoriously bad at), but to help out their "chosen ones" by forcing their competitors enter into a Faustian bargain should they want access to the same same government funds.

Like a Deer in Headlights

One element of the US slowdown that has been overlooked (at least I don't recall seeing it mentioned before) in the media thus far is the election--not in terms of how elected officials plan on fixing it (which is talked about), but rather, how the election itself might affect the economy. As of right now, US residents have no idea as to who will be in office in 2009, be it the neo-populist Hillary Clinton, the enigmatic John McCain, or the New Deal inspired Barack Obama. As of last night, the Iowa Electronic Markets have the Democrats trading at .513 and the Republicans at .473, pretty much a dead heat. And while Obama is currently well ahead of Clinton in terms of the Democratic nomination, it is only very recently that Hillary has fallen well behind.

The upshot of all of this is that the participants in the market are pretty much clueless as to who will win the election, and as a result, as to what direction the new leader will attempt to push the economy. Add to this the fact that the economy is one of the most salient issues in the US right now, along with the traditional "100 day honeymoon" where new presidents are pretty much given what they want in terms of policies, and you will expect to see some significant change in the American economic landscape come January-April 2009.

So maybe we should ask a different question. Is the US economy faltering? Or is it just a deer in the headlights of an 18-wheeler sized election barreling down on it, frozen due to the unpredictability the outcome? If so, we might see an economic recovery start as we get closer to the election--not because of Bush's silly stimulus package, but rather because the likelihood of each possible election outcome will become a lot more clear at that time!