Vin Suprynowicz

In a free market, we’re so familiar with how prices are set — how manufacturers decide how much of a thing to make and what they can afford to pay for labor and raw materials — that we rarely even think about it.

Set salaries too high and charge too little for the product, go bankrupt. Pay too little, your unskilled workers can’t do the job.

If Coca-Cola sends out too little product, the local Pepsi bottler will quickly take advantage of the empty shelf space to fill it with Pepsi. Let either ship too much, and it just sits around getting stale — a waste of labor and raw materials. These days, feedback is so fine-tuned that a savvy distributor can tell you which neighborhoods consume more grape soda, and by how much consumption changes during each calendar month.

Yuri Maltsev, a former Soviet economic planner, reminds us the Communists had no such “consumer feedback loop.” Trying to figure out what their national production quota should be for ice cream, they simply snitched the production figures for France, then corrected for the population difference between the two nations.

But the Soviets forgot that the French had a well-developed network of freezer trucks and trains to deliver their ice cream to the four points of the compass, year-round. The Soviets did not. Come summertime, Siberia and Tajikistan got no ice cream, while the capital was left swimming in more vanilla than Muscovites could consume. Meantime, other would-be users of milk and sugar ran dry. No one had been able to recognize the tell-tale jump in milk and sugar prices that predicted an upcoming shortage, because prices weren’t ALLOWED to go up during the government-caused shortage.

Now, incredibly, the people in charge in Washington want to abandon the free-market system that made America the most efficient and prosperous nation in the world, instead allowing office-bound bureaucrats with none of their own capital at stake to decide how much things should cost (“New cars? $4,500 off!”) and how much everyone should be paid. Just like the Soviet Union.

Nearly two weeks ago “The House of Representatives, acting in a near-frenzy after the disclosure of bonuses paid to executives of AIG, passed a bill that would impose a 90 percent retroactive tax on those bonuses,” reports Byron York of the Washington Examiner.

Despite the overwhelming 328-93 vote, support for the measure began to collapse almost immediately. Within days, the Obama White House backed away, as did the Senate Democratic leadership. The bill stalled.

But now, in a little-noticed move, the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the “Pay for Performance Act of 2009,” would impose government controls on the pay of all employees — not just top executives — of companies that have received a capital investment from the government.

“It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies,” The Examiner reports.

The purpose of the legislation is to “prohibit unreasonable and excessive compensation and compensation not based on performance standards,” according to the bill’s language, among employees of companies in whom the government has a capital stake, including those that have received funds through the Troubled Assets Relief Program, or TARP, as well as Fannie Mae and Freddie Mac.

The measure is not limited just to those firms that received the largest sums of money, or to just the top 25 executives of each firm.

The bill gives Secretary Geithner the authority to decide what pay is “unreasonable” or “excessive.”

The bill passed the Financial Services Committee last week, 38 to 22, on a nearly party-line vote. (Two Republicans, Reps. Ed Royce of California and Walter Jones of North Carolina, voted “Aye.”)

Would you voluntarily work under such a scheme?

Recall that Congress claims a right to set farm prices — and to order certain farmers not to farm certain crops — under the Constitution’s provision authorizing regulation of “interstate commerce.”

The Agricultural Adjustment Act of 1938 imposed a nationwide set of quotas limiting the amount of wheat and other crops that farmers could grow. A farmer named Roscoe Filburn, operating a small farm in Montgomery County, Ohio, was told how much wheat he could grow during 1941. Mr. Filburn grew 239 bushels, which was more than his allotment. He was charged with growing too much wheat by the U.S. Department of Agriculture, under the authority of Secretary Claude Wickard.

None of the wheat was sold in interstate commerce. In fact, all the wheat was fed to Filburn’s cattle on his own property. Farmer Filburn argued that Congress was attempting to regulate merely the “consumption” of wheat — it wasn’t interstate; it wasn’t even commerce.

Despite this, the U.S. Supreme Court in its infamous case Wickard v. Filburn upheld the regulation as constitutionally authorized, reasoning that the growing of wheat, even if it was never bought or sold, nevertheless potentially could have an EFFECT upon interstate commerce, since it allowed Farmer Filburn to forego buying wheat from someone else.

So when Congressman Frank aims to control who can be paid how much in companies “that have received government funds,” what kind of restriction is that, really? Couldn’t the court — based on Wickard v, Filburn — authorize Treasury to review the “obscene and wasteful” salaries paid to firms COMPETING with General Motors or the now-government-funded banks, since that has an EFFECT on those government basket cases, forcing them to pay too much tax money “to compete”?

For that matter, couldn’t Treasury review the salaries paid to major league sports stars, arguing the anti-trust exemptions granted those leagues have the same effect as handing them “government funds”? Is it “fair” for a shortstop to be paid a thousand times more than the guy selling peanuts in the stands? How about manufacturers or oil companies that benefit from “tax loopholes,” or pharmaceutical firms who benefit from government research funds? Aren’t those things “equivalent to” a government handout?

Even if we luck out and this precedent never goes beyond the financial firms now targeted, how on earth can Barney Frank know better than the stockholders of a bank how much they need to pay for a competent staff? If these firms end up being run by discount second-stringers who drive them into the ground, does Congressman Frank think he can sell his Washington party condo and raise enough money to make the private investors whole out of his own pocket? Would he even try? Of course not.

Do Barney Frank, sitting in his office on Capitol Hill, and even Timothy Geithner, sitting across the street from the White House, have the information necessary to overrule the stockholders and boards of directors of many of the biggest private outfits in America, telling them how much each employee should be paid? Or do these goofballs more closely resemble the stern but clueless former commissars of Moscow, pretending to be able to foresee how much ice cream should be manufactured for the entire nation of Russia?

And if this bunch is as wrong as that last bunch, who is it who’s going to end up swimming in the soup?