Humans are overconfident creatures. Ninety-four percent of college professors believe they are above average teachers, and 90 percent of drivers believe they are above average behind the wheel.
Fortunately, for those who study the human comedy, the epicenter of overconfidence moves from year to year. Up until recently, people in the financial world bathed in the warm glow of self-approval. Hubris in that world always takes the same form: The geniuses there come to believe that they have mastered risk.
Over the past year, the bonfire of overconfidence has shifted to Washington. Since the masters of finance have been exposed as idiots, the masters of government have concluded (somewhat illogically) that they must be really smart.
Overconfidence in government also has a characteristic form: That of highly rational Olympians who attempt to stand above problems and solve them in a finely tuned and impartial manner. In moments of government overconfidence, officials come to see society not as a dynamic and complex organism, but as a machine, which can be rebuilt.
Examples of this overconfidence abound. But let us pick just one: the effort to cap financial compensation.
Back in the days of Wall Street overconfidence, the financial titans believed that they deserved to give each other GDP-level pay packages, even though there is no evidence that such packages improve performance. Now in disgrace, Wall Street firms are rewriting their rules, but the Obama administration has decided it should take control of compensation reform. Nobody seriously believes high pay caused the financial meltdown, but cutting executive pay just polls so well.
Every great action can be done in a spirit of humility or in a spirit of overconfidence. Regulating pay in a spirit of humility would mean rebalancing the power between shareholders and executives, without getting government involved in individual pay decisions.
But this is not a moment of humility. The best and the brightest in government are now rewriting existing pay contracts and determining that certain firms will be compelled to pay much less than their competitors. They're not leveling the playing field, as a humble government would do. They're making it less level in complicated ways.
Reality, of course, has a way of upending finely crafted plans.
The effort to cap golden parachutes in 1989 perversely caused companies to increase their golden parachute packages right up to the legal limit. A 1993 law to cap CEO pay led to greater use of stock options and encouraged riskier behavior.
In advance of the current new pay restrictions, 12 out of the 25 highest-paid executives have already left AIG, and 11 out of 25 have left Bank of America. We'll never know how much future talent was dissuaded from working at these ailing firms.
Citigroup used to have a really high-performing energy unit. But under the new salary regime, the bank wasn't permitted to pay the chief of that unit what he thought he was worth. Citigroup was forced to sell that profitable unit at bargain-basement prices to Occidental Petroleum.
These rules probably will just drive compensation into back channels and risk-taking into unseen parts of the market.
Again, the issue is not whether government acts, but whether it acts with an awareness of the limits of its knowledge. Sometimes we seem to have a government with no sense of those limits.
Furthermore, when extending federal authority, the Obama folks never seem to ask how Republicans will use this power when they regain the White House. The Democrats trust themselves to set private-sector salaries and use extralegal means to go after malefactors, but would they trust a future Dick Cheney?
I hope they know what they're doing. Because when a future Cheney comes into office, I'm pretty sure he'll be coming after columnists' salaries first.
THE NEW YORK TIMES