Senator Warren plans to stifle the influence of big business and various CEOs. The Senator is not a fan of Wall Street or corporations, especially large firms and their CEOs. Many people agree with her. They see several CEOs collect massive bonuses even when their decisions hurt consumers and other stakeholders. To address these issues, Senator Warren introduced bills in the Senate to establish a lawland tax in individuals, to improve responsibility of executive directorsand set the framework for dismantle big tech companies.
While the status quo is unacceptable, the Senator’s proposals do not address core issues. Therefore, if these bills pass as is, they will discourage innovation and creativity and stifle economic development.
Before discussing these proposals, let’s look at the Senator’s background. Senator Elizabeth Warren was a law professor for more than 30 years, including nearly 20 years as the Leo Gottlieb Professor of Law at Harvard Law School. She was an adviser to President Obama and one of the main architects of the Consumer Financial Protection Bureau. After the Great Recession in 2008, he chaired the congressional oversight panel of the Troubled Asset Relief Program (CANVAS). The Senator has been an outspoken critic of business and a strong advocate for consumers.
Sure, we need to protect consumers from abusive companies, but Senator Warren’s proposals won’t fix specific problems and could hinder economic growth.
Senator Warren’s Wealth Tax
Senator Warren, who does not identify as a Socialist, is proposing a two percent wealth tax for Americans with assets over $50 million, rising to three percent on assets over $1 billion.
Undoubtedly, inequality is a problem; however, we do not fix the underlying causes by taxing the rich. First, we must identify systemic problems. Specifically, we should know why there is no acceptable sustained increase in the lowest income levels. In Warren’s proposal, we reduce the income gap by taking from the rich and then redistributing the amount seized to lower rolls. How does this approach solve the endemic problem? It is not like this! Among other things, it ignores the incentives to create jobs and wealth.
Taxing wealth does not solve the problem. It is true that it will increase tax revenue; But governments will create more programs, hire more people, and get even more creative with wasteful spending. Again, Warren and her husband made $905,000 in 2018, which puts them in the top one percent of earners. Should they redistribute part of their income? Certainly not! But Senator Warren’s rhetoric might lead some people to think that she should do it because her income is huge. Warren and hers fellow Democrats knowingly or unknowingly promote identity politics, exacerbate class warfare, victimhood and entitlement.
Senator Warren and the Responsibility of CEOs
It is vital that Americans and Canadians identify the causes of income inequality and address them. But whatever solutions we develop, they must emphasize wealth creation by everyone in society, not the redistribution of wealth. Undoubtedly, redistributing wealth from above will discourage the creation of wealth and employment. The message the Senator is sending to people who aspire to be the next Bill Gates, Warren Buffet or Jeff Bezos is simple: While you may work hard to build businesses that create millions of jobs, expand the economy, and plan to give most of your wealth to charity, the government prefers to redistribute your wealth. Is this what we want to communicate to the next generation of entrepreneurs?
One of the bills introduced by Senator Warren is the Corporate Executive Responsibility Law , “which holds executives of large corporations criminally accountable when their companies commit crimes, harm large numbers of Americans through civil violations, or repeatedly violate federal law.” In addition, Senator Warren reintroduced the End the too big to jail law, a comprehensive bill to hold big bank executives accountable when the banks they run break the law. Introducing these bills, Warren said:
“Corporations don’t make decisions, people do, but for far too long, law-breaking CEOs of giant corporations have been able to walk away, while aggrieved consumers are left picking up the pieces.”…
“These two bills would force executives to run their companies responsibly, knowing that if they cheat their clients or crash the economy, they could go to jail.”
CEOs can be detrimental to their companies
I agree with Elizabeth Warren that too many CEOs cause harm to consumers and shareholders and leave their companies with significant financial benefits. We must hold criminal CEOs who break the law accountable. However, we must be careful not to punish CEOs for well-intentioned and bad corporate decisions? That is the role of the board of directors and shareholders! Still, I realize that the interconnectedness of corporate board memberships will allow some CEOs with poor performance records to survive.
Paul Carroll and Chunka Mui in his book Billion Dollar Lessons said:
“We define failure as canceling large investments, closing unprofitable lines of business, or declaring bankruptcy… The scope of the failures was staggering. [over 25 years]… From 1981 (through 2006), 423 US companies with assets of more than $500 million filed for bankruptcy. Their combined assets at the time of filing for bankruptcy were $1.5 trillion; yes, that’s a trillion with a “t”… During those 25 years, 258 publicly traded American companies combined for $280 billion in write-offs.”
Carroll, Paul, and Chunka Mui, Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years, Penguin, 2010, pp. 279-291
Carroll and Mui found that the problem was not negligence or poor execution. It was a bad strategy. Should a CEO go to jail for bad strategy? For incompetence? Some “negligent” acts arise from incompetence. As written, the bills will not prevent the development of poor strategy, but rather could discourage competent and well-intentioned CEOs from taking the necessary and measured risks that are essential in running businesses. Existing laws will take care of rogue CEOs and send them to jail. However, it is crucial that Democrats and Republicans find a bipartisan way to agree on a bill that addresses the fundamental problems that Warren’s bills are trying to solve.
Senator Warren wants to break up big tech companies
Once again, the Senator has misdiagnosed the problem and provided a naive and self-defeating solution. To be sure, Facebook abused people’s data, but breaking up Facebook wouldn’t fix the privacy problem, for example. A $10 billion Facebook company (Warren’s breakout threshold is $25 billion) could easily misuse personal data. Size is not the problem. We need consumer surveillance, corporate transparency, and simple, pragmatic government oversight.
I agree with the Senator when she says,
“I want a government that makes sure that everyone, including the biggest and most powerful companies in America, plays by the rules… And I want to make sure that the next generation of big American tech companies can thrive.”
The challenge is to find the right solutions, not bureaucratic, with minimal regulations. Every company must follow the rules!
conclusion
Only one CEO went to jail after the Great Recession. Should others have left because of their mismanagement and ill-advised decisions? CEOs of various companies abuse people’s private information and waste shareholder funds; this must stop! However, we deceive ourselves if we believe in the Size of the big tech companies Warren targets is the problem. In fact, because of the visibility of these big tech companies, today we are better off with them as they are than if we were to break them up into smaller companies.
Government must level the playing field, enforce sensible regulations, but not succumb to the temptations to over-regulate business. Facebook is trying to entice the government to regulate the industry, which would effectively help create a higher barrier to entry than it currently is. The regulation requested by Facebook will guarantee Facebook’s near-monopoly. Instead, the government should require Facebook and similar companies to be transparent about how they collect, use, and share private information, among other things.