Free Markets

I haven't heard many people tell this to me directly, but I do know some people that believe a free market is the best system there is.  Best in that it will find the optimal way of doing things by providing the best service for the best price.  It also occurred to me that this whole AIG bonus whoo-haw is an example of the free market isn't always the answer.

Listening to the current CEO of AIG, we discover that he doesn't feel he can break the contracts that allow people to get bonuses even though the company did so poorly it nearly ended civilization as we know it.  Well, the fiscal part of civilization anyway.  These people had contracts that would reward them huge sums if the company did well - which it did for many years.  Those same contracts also paid out smaller sums if the company did not do so well, a sort of floor function that guaranteed a minimum return.  Applying free market principals to this situation, these bonuses should be mind-boggling if the company does well, but when the company does poorly... well I had people suggest to me today that they should pay the company.  That does sound very free-market.  But that isn't what happened.

The problem was in that the market and financial traders and so forth are not really free markets.  There are rules and protections - necessary things to keep us greedy buggers from screwing everyone else over.  But this situation shows the lack of accountability that permeates work culture.  My dad would say that the American "system" would hire people and pay them large sums of money if they did their job.  If not, they could be let go at the drop of a hat.  There are some companies that behave like that - reward productive employees and trim the others - but I don't think that's typical anymore.  I think that employees expect good compensation when things are going "well", but also guarantees when things don't go well.  Hence the idiotic concept of a "bonus"  that is delivered every year.  That's where these AIG people are.  That's what the GM CAW members gave up - a yearly bonus.  It doesn't even fit with the idea of a bonus if you get it every year - it's simply a chunk of money that's given at a particular time all at once so you get taxed at several tax brackets above your average one.

Let's see if we can change things.  Start slow - give out a bonus if the company does well.  The better the company does, the bigger the bonus.  If company misses targets or whatever, no bonus.  Then we can move on to bigger things, like how to lend money and get back the result plus interest...