Ron Paul
2007 Ron Paul Chapter 43

Ron Paul

18 April 2007

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18 April 2007 I yield 5 minutes to the gentleman from Texas (Mr. PAUL). (Mr. PAUL asked and was given permission to revise and extend his remarks.)

2007 Ron Paul 43:1
Mr. PAUL. Mr. Chairman, I thank the gentleman for yielding me this time.

2007 Ron Paul 43:2
Mr. Chairman, I rise in opposition to this bill. I happen to agree with all of the concerns expressed by those sponsoring the bill due to the inequities in the amount of money that some of the CEOs are getting. But I am also convinced that this particular piece of legislation won’t do very much to help, and I am convinced that unless we deal some day with our monetary system and understand better how it participates in these inequities, we will never get a solution for this because the monetary system does play a role in this.

2007 Ron Paul 43:3
I am as outraged as anybody about a company that can hand out $16 billion in bonuses. But where my disagreement is, is that it is not as a result of free market capitalism; that it is the result of an economic system that we have today which is called economic interventionism, and it leads to these inequities.

2007 Ron Paul 43:4
Mr. Chairman, H.R. 1257 gives the Securities and Exchange Commission the power to force publicly traded corporations to consider shareholders’ votes on nonbinding resolutions concerning the compensation packages of CEOs. Giving the SEC the power to require shareholder votes on any aspect of corporate governance, even on something as seemingly inconsequential as a nonbinding resolution, illegitimately expands Federal authority into questions of private governance.

2007 Ron Paul 43:5
In a free market, shareholders who are concerned about CEO compensation are free to refuse to invest in corporations that do not provide sufficient information regarding how CEO salaries are set or do not allow shareholders to have a say in setting compensation packages.

2007 Ron Paul 43:6
Since shareholders are a corporation’s owner, the CEO and the board of directors have a great incentive to respond to shareholders’ demands. In fact, several corporations have recently moved to amend the ways they determine executive compensation in order to provide increased transparency and accountability to shareholders.

2007 Ron Paul 43:7
Some shareholders may not care about CEO compensation packages. Instead, they may want to devote time at shareholder meetings to reviewing corporate environmental policies and ensuring the corporation has family- friendly workforce policies. If H.R. 1257 becomes law, the concerns of those shareholders will take a back seat to corporations attempting to meet the demands of Congress.

2007 Ron Paul 43:8
It is ironic to me that Congress would concern itself with high salaries in the private sector when, according to data collected by the CATO Institute, Federal employees on average make twice as much as their private sector counterparts. One of the examples of excessive compensation cited by the supporters of the bill is the multi-million dollar package paid to the former CEO of Freddie Mac. As a government- sponsored enterprise that, along with its counterpart Fannie Mae, received almost $20 billion worth of indirect Federal subsidies in fiscal year 2004 alone, Freddie Mac is hardly a poster child for the free market.

2007 Ron Paul 43:9
For the most part, all economic interventions fail and end up creating new problems that we are forced to deal with. This legislation, although well-motivated in an effort to deal with a very real problem, is unnecessary and should be rejected.

2007 Ron Paul 43:10
Past government actions have made it more difficult for shareholders to hold CEOs and boards of directors accountable for disregarding shareholder interests by, among other things, wasting corporate resources on compensation packages and golden parachutes unrelated to performance. During the 1980s, so-called corporate raiders helped keep corporate management accountable to shareholders through devices such as “junk” bonds that made corporate takeovers easier.

2007 Ron Paul 43:11
The backlash against corporate raiders included the enactment of laws that made it more difficult to launch hostile takeovers. Bruce Bartlett, writing in the Washington Times in 2001, commented on the effects of these laws, “Without the threat of a takeover, managers have been able to go back to ignoring shareholders, treating them like a nuisance, and giving themselves bloated salaries and perks, with little oversight from corporate boards. Now insulated from shareholders once again, managers could engage in unsound practices with little fear of punishment for failure.” The Federal “crackdown” on corporate raiders, combined with provisions in Sarbanes- Oxley disqualifying the people who are the most capable of serving as shareholder watchdogs from serving on corporate boards, contributed to the disconnect between CEO salaries and creation of shareholder value that is being used to justify another expansion of the regulatory state.

2007 Ron Paul 43:12
In addition to repealing laws that prevent shareholders from exercising control over corporations, Congress should also examine United States monetary policy’s effects on income inequality. When the Federal Reserve Board injects credit into the economy, the result is at least a temporary rise in incomes. However, those incomes do not rise equally. People who first receive the new credit — who in most instances are those already at the top of the economic pyramid — receive the most benefit from the Fed’s inflationist polices. By the time those at the lower end of the income scale experience a nominal rise in incomes, they must also contend with price inflation that has eroded their standard of living. Except for the lucky few who take advantage of the new credit first, the negative effects of inflation likely more than outweigh any temporary gains in nominal income from the Federal Reserve’s expansionist polices.

2007 Ron Paul 43:13
For evidence of who really benefits from a system of fiat money and inflation, consider that in 1971, before President Nixon severed the last link of the American currency to gold, the typical CEO’s salary was 30 times higher than the average wage of the typical employee; today it is 500 times higher.

2007 Ron Paul 43:14
Explosions in CEO salaries can be a sign of a Federal credit bubble, which occurs when Federal Reserve Board-created credit flows into certain sectors such as the stock market or the housing market. Far from being a sign of the health of capitalism, excessive CEO salaries in these areas often signal that a bubble is about to burst. When a bubble bursts, people at the bottom of the economic ladder bear the brunt of the bust.

2007 Ron Paul 43:15
Instead of imposing new laws on private companies, Congress should repeal the laws that have weakened the ability of shareholders to discipline CEOs and boards of directors that do not run corporations according to the shareholders’ wishes. Congress should also examine how fiat money contributes to income inequality. I therefore request that my colleagues join me in opposing H.R. 1257 and instead embrace a pro-freedom, pro-shareholder, and pro-worker agenda of free markets and sound money.

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