Big plans from presidential candidates can come with big trade-offs and unintended consequences

Elizabeth Warren thinks the American economy needs “big structural change.” She’s put forward so many policy plans that it’s now a key branding element. Her presidential campaign website even sells “Warren has a plan for that” t-shirts.

Of course, the $21 trillion American economy is a complicated machine. Even the most deeply considered plans will have trade-offs and unintended consequences. Yet politicians rarely display much humility when touting the benefits of their big ideas. Nothing but upside.

Warren particularly seems enamored by how Europe approaches issues of corporate power, governance, and executive pay. They do things differently over there. As a recent Bloomberg story explains, “European consumers and lawmakers here have long decried outsize paydays as unfair and vulgar.” In some countries, banker bonuses are capped, while entrepreneurs “must navigate onerous tax rates and restrictions that often make equity sharing and options more trouble than they’re worth.”

Before embracing such an approach, American politicians should be cautious. One result might be less inequality and a better Gini index score. But another might explain why Europe generates fewer high-impact startups than in the United States. The Bloomberg piece quotes several entrepreneurs decrying their inability to easily compensate employees at their young and growing companies with stock options. Said one executive, “I wish we had the same system as the US, but they don’t want us to get rich in Germany.” 

(Perhaps Europeans haven’t heard that left-wingers here now consider the existence of billionaires to be a policy failure.)

Compensation issues probably aren’t the only issue at play: “Even though they’re part of the European Union, member states remain a fragmented collection of markets that can’t muster the borderless scale achieved in America. Plus, there’s the widely shared belief that European business culture simply doesn’t tolerate the experimentation and inevitable failures that are par for the course in, say, Silicon Valley.” 

Still, stock options matter for what the piece terms the “flywheel” effect where founders and workers get rich, start their own firms, create a new cohort of millionaires and billionaires, and then on and on. Think of the so-called PayPal mafia. 

In Europe, however, the flywheel effect is the exception rather than the norm. It would be disastrous if it inadvertently became the exception here as well. And that’s something for all presidential candidates to consider as they come up with more and more policy plans.