Tuesday, March 17, 2009

Populism - blecchh

How ugly populism is has been on display of late on the topic of the AIG bonuses. The bonus problem is a product of the open-ended nature of the AIG bailout and is entirely the fault of the Treasury. As pointed out by many bloggers, it is unlikely that a reasonably managed bankruptcy proceeding would have left this sort of thing so open. My personal opinion is that a forced recall of the bonuses would be extremely undesirable, though some degree of moral suasion from the government (going on as we speak in a rather strident and infantile form), or perhaps action from the AIG shareholders against the Board, might be useful.
But reversal of the bonuses has major negative implications, well described in this article, which incidentally also suggests direct moral suasion applied to the execs getting the bonuses, with the goal that they might voluntarily turn them down.
As the author points out, it is a little scary hearing the President babble about "fundamental values", with a pretty strong suggestion, and not his first with his recent policies, that abrogation of contracts at the government's whim is a positive value.
I wonder how much effort I'd want to put in on my job if I thought that somewhere down the road Obama would decide my pay should be reduced retroactively (that is what pulling a bonus is effectively), or say that my stock options should be withdrawn. If he wants a REAL Depression, he should keep this up.

1 Comments:

At 12:47 PM, Blogger EclectEcon said...

Your last paragraph is exactly right. The long-term incentive effects of all this gubmnt intervention will surely be to reduce the amount of productive economic activity in the US and make everyone, including the poor, worse off in the future than they would otherwise have been.

 

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