The AIG bonuses have marked a turn, for the worse — not economically but socially, or morally. The disgrace of the bonus-giving itself has been dwarfed by the populist reaction against them.
Matthew Yglesias has pointed to some of the best bits from around the web — especially via this post quoting Brad DeLong on compensation reform (also see James Surowiecki), and this post about the need for perspective, pointing to Noam Scheiber and Ezra Klein, urging that the relatively small amount of money involved is distracting from more important questions. On this point (and this point alone), Yglesias agrees with his nemesis, Charles Krauthammer (via Wells):
That’s $165 million in bonus money handed out to AIG debt manipulators who may be the only ones who know how to defuse the bomb they themselves built. Now, in the scheme of things, $165 million is a rounding error. It amounts to less than 1/18,500 of the $3.1 trillion federal budget. It’s less than one-tenth of 1 percent of the bailout money given to AIG alone. If Bill Gates were to pay these AIG bonuses every year for the next 100 years, he’d still be left with more than half his personal fortune.
There’s a revenge-mindset going around, building momentum. It isn’t helpful. James Suroweicki nailed it:
It may be true, as Andrew Ross Sorkin has argued, that not paying the bonuses would actually end up hurting taxpayers, either because we’d be setting a precedent that contracts can be easily broken or because we need to keep the A.I.G. employees in-house lest they start trading against the company. (I don’t buy either argument, but I can see the logic behind them.) But I think it’s pretty clear that even if the “this will hurt you more than me” argument were true, it would not prevent people from wanting to get the bonuses back. Myriad experiments in behavioral economics have found that people are willing to pay to punish members of a group whom they believe to be shirkers or free-riders. In other words, people are willing to make themselves worse off (they have to pay their own money) in order to insure that others don’t get undeserved rewards. Economists call this “altruistic punishment” (because the punishers are putting the interests of the group ahead of their own interest), and argue that it played an important role in fostering cooperation. So even if people believed that getting the A.I.G. bonuses back would be a net loss for the economy, chances are they’d still want to do it.
The crisis that was once out of control economically is starting to get out of control socially, morally, emotionally. People thinking, saying, and writing some intemperate things. On the left you have people like Matt Taibbi writing in Rolling Stone that “the global economic crisis isn’t about money — it’s about power” — using incendiary rhetoric, accusing the “psychopaths on Wall Street” of a deliberate “coup d’état.”
My first response is remind myself that Taibbi’s piece isn’t about money either — nor journalism for that matter. It’s about power as well. Or to be more precise (and less sophomoric), it’s about self-assertion. ”Power” is a simplistic, outmoded interpretation (belonging back in the 19th century; we have better metaphors now). Here’s a more up-to-date insight, care of Arnold Kling:
Michael Strong suggests that altruists may be particularly inclined to punish alleged free riders. But it could be that you signal altruism by showing an inclination to punish. You don’t necessarily have to be an altruist if you want to take away AIG bonuses. You could be very selfish, but coming out against AIG bonuses is a cheap way to signal your altruism.
People away from Wall Street and Washington are feeling helpless, abused, violated even. AIG bonuses aren’t an isolated case — this is just yet another episode in this epic drama — nor is vengefulness the only harmful emotion being agitated.
The whole emotional atmosphere of our society seems to be turning a little more toxic every day. Learned helplessness is accumulating. Every supposed answer or initiative that doesn’t produce observable results is like a whisper in the public’s ear saying “things are getting out of control no matter what we do.” The more people hear that whisper, the more we believe it.
So people are turning to more extreme ideological positions — like libertarian-conservatives talking about “going Galt” (see Will Wilkinson’s critical remarks).
These reactions, like the belief that “Wall Street should be punished,” may actually make the situation worse (both at large and in one’s own day-to-day life); but as we’re human, these reactions are hard to resist.
Again, it comes down to the intrinsic need for self-assertion. We need to feel like we’re in control — in control of whatever is within our physical, financial, and intellectual reach (in varying degrees, depending on one’s personality). If we can’t be in control of good investments, at least we can be in control of bad ideas…
We need more thinking and action that engages our “animal spirits,” as Robert Shiller argues, and produces observable results; encourages learned optimism; enables managed, generative self-assertion and reinforces a positive rebuilding cycle — not just rebuilding our economy, but for rebuilding our wisdom and confidence as well — and not just optimism that things will be better, but the responsibility that comes with knowing the future is what we make it.
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informative, thoughtful piece.
In your analysis on the AIG bonus problem you focus on the social aspect of the public wanting vengeance and a feeling that they can regain control of Wall Street. You also mention the fact that the bonus money is a negligible part of the total granted to the company.
I don’t think that the fact the it is relatively a small portion of the total is very relevant here. The problem seems to me to be more the disproportion between the money a few (apparently incompetent) executives are making with comparison to the average worker. Personally I put these bonuses in the same category as the incredibly high retributions star basketball and baseball players are getting. But at least these stars are playing well and we can all see it, which is not the case for the executives of those big companies that apparently are at least partially responsible for the meltdown in the first place.
Maybe vengeance is a factor, but can it be really discarded as primal instinctual reaction when we see on the one hand the disproportion between their earnings and ours and their apparent incompetence on the other?
Remember Marie Antoinette saying about the people: “If they have no bread, let them eat cake”?
When you consider Nortel’s decision to give a bonus to a certain number of executives (I forgot exactly how many) when their laid off workers have not been paid yet, you have a feeling they are saying “if they have no bread, let them starve”.
Personally I don’t think it’s so much a question of trying to regain control as just trying to even the odds for all of us.
EclectEcon: Thanks for the positive words.
Francois: Like your comments about China you seem to be going where I want to go with a future post… (I think that’s awesome — thanks!) That’s a good point that, big or small, those bonuses point to deeper and broader problems.
The case I’ve been making in all of my posts on the economic crisis is that there are underlying cultural practices and assumptions that need to change. I’ve got a lot of problems with this society’s attitudes about wealth and it has been disconcerting to see it spread around the globe. The disparities are both socially divisive and economically unsustainable — a big step backwards.
But my worry about public outrage is that it isn’t very conducive to practical, rational articulation of possible solutions. If we’re going to claim moral high ground we should at least demonstrate we deserve it instead of degenerating to the same “primal” level.
Suggesting that the public has some kind of “right” to be outraged is, to me, equivalent to saying executives, traders, and athletes have a “right” to grab as much as they can (i.e. they could argue winner-take-all competition — “survival of the fittest” — is ok because it’s a “primal instinct”… and some of them do argue that: pseudo-Darwinism helped destroy Enron).
To paraphrase Chris Rock, I understand — but there’s no way I’ll condone or enable it.
I also agree that primal reaction is not necessarily always good and that a philosopher, or at least someone who claims to be rational, should shy away from violent and immediate reactions.
In fact this is the age old problem of whether social change can be achieved with or without violence. Marx for instance believed that social change can only be achieved with force since those who have power are not going to relinquish it without a fight.
I’ve been thinking about this also for a while and I must agree that while I certainly do not advocate or support social disruption, it seems difficult to imagine that those who already have the money and the power are going to willingly hand them over to others.
At the very least, I think that it is also extremely difficult for those suffering the most to rationalize the situation. When you’re hungry and cannot feed your children, clear thinking becomes problematic.
I will be curious and anxious to read what you will propose as alternatives…
You make a very good point Francois, about people who suffer the most are in terrible positions to think clearly — philosophy is definitely a kind of luxury. I’m going to think about it a lot more…
As for my proposed alternatives… they’re complex. Essentially I think we need to get away from the industrial, machine metaphors of both Marxism and institutional capitalism (or rather, we will get away from those metaphors — it’s more a matter of how smoothly/disastrously).
To do that I think we need better metaphors for psychology and philosophy… I’m working on it.
I think the best solution in more practical terms is to make organizations better from the inside-out. Plenty of good, smart people work in big companies. We’ll get better at managing (see my post on Cisco) and bringing out the best in people, rather than the worst.
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