James Fallows is dismayed with Peter Orzag’s career choices

Peter Orszag, until recently the director of the Office of Management and Budget under Barack Obama, to join Citibank in a senior position. Exactly how much it will pay is not clear, but informed guesses are several million dollars per year. Citibank, of course, was one of the institutions most notably dependent on federal help to survive in these past two years.

Objectively this is both damaging and shocking.
   – Damaging, in that it epitomizes and personalizes a criticism both left and right have had of the Obama Administration’s "bailout" policy: that it’s been too protective of the financial system’s high-flying leaders, and too reluctant to hold any person or institution accountable.  . .

  – Shocking, in the structural rather than personal corruption that it illustrates. . . The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution — and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it’s trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service — this says something bad about what is taken for granted in American public life.

What it says most about is public sector pay. One thing that I find disheartening about the debate over public sector pay is how much it seems to mirror the notion of a “Just Price” for public workers. Is this how we think in economics?

Or do we believe that when prices are out of whack then black markets emerge, corruption of various forms ensues and people engage in strategic behavior?

One thing the low pay of senior public officials allows for is a pump-and-jump. Even in the most noble of circumstances smart folks will notice that they can get to the front of the line pretty fast in the low competition public sector, build an impressive resume and then jump ship to the private sector to make a load of cash.

Less noble would involve actively selling the benefits of one’s position to the highest bidder. What would stop people from doing this? The fear that they would be fired and thus loose out on a lucrative salary. However, with no lucrative salary there is little incentive not to do this.

I do hope that economically oriented folks aren’t suggesting that we use moral suasion to control government corruption. People respond to incentives. If you don’t want them to sell you out then you have to pay them more.

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