compensation

I and many others have noted over the years that populists and progressives often advocate the same economic policies no matter how much they otherwise wage culture wars.  A little-noticed case in point is work underway in the Trump White House to subject the biggest defense contractors to strict limits on compensation and capital distributions.  Treasury Secretary Bessent is said to support the idea, leading Sen. Warren to suggest a “partnership.”  Might this extend from prime defense contractors to GSIBs?  It’s unlikely, but not impossible.

The rationale for the prime-contractor constraints is frustration over the decades in which these firms have consolidated and gotten ever bigger contracts yet delivered fewer and fewer armaments on time anywhere close to on budget.  There is thus a flood of stories about how many ships, planes, and super-weapons the Chinese build as U.S. capabilities grow ever older, slower, and still more expensive. Will de facto nationalization for defense contractors make the U.S. military agile again because contractors grow hungry?  I don’t know the sector well enough to even hazard an answer.

But, I do know a bit about banking.  Would similar comp constraints lead GSIBs to slim down as Secretary Bessent desires?  Maybe, but the power would shift not to smaller banks, but to the biggest nonbanks sure to lure disenchanted GSIB executives to the still-lucrative spheres of private credit and so many other bank-like activities.  I doubt Mr. Bessent wants this, but the real deciding factor over GSIB comp limits isn’t substantive; …