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Friday, March 20, 2009

AIG-Bonuses

The House has passed a bill taxing the bonuses AIG gave out after it had passed into the government's hands 90% (NY Times). This kind of retroactive action seems problematic to me (apart from the fact that it is nothing but populist policy and additionally unimportant in the big scheme of things (Drezner) from a credibility point of view. The Economist criticizes it from a political point of view, IPE at UNC for more economical reasons (it were to encourage excessive risk-taking; drive the best and brightest employees from firms under government control and set a [dangerous?] precedent of retroactive punitive tax policy).

While I agree with the assessment that this macroeconomically irrelevant, I believe that symbolic politics matter and I also have a hard time believing in the danger of driving the best and the brightest away, if only because it reminds of Kennedy's administration which delivered so far less than it had promised it's not even funny anymore. On a more general level I simply don't believe there is a big difference in quality at the top of any game or profession. You might have a few dominating people (Jordan, King James), but the difference between some random power forward playing in Spain and the guy on the bench behind David Lee is just not that big I believe. If you apply this to the business world, it follows that the guys driven away from AIG (or any other government owned/funded financial company) will only marginally (if at all) be better than those taking over. This especially considering that the best and the brightest, did not really produce.

To make a final and larger point, I believe that this whole discussion points out an apparently system-inherent problematic of the capitalist system as it exists in the United States. Abstracting from the macroeconomic irrelevance of this issue and the potentially negative impact of this retroactive decision, I think it is obvious that the AIG-employees did not deserve these bonuses, after all their company failed and had to be bailed out by the government. How is it possible that they receive bonuses for their work if they fail at it? Do go back to an illustrative example, does a construction worker receive a bonus after the building he worked on crumbles? Does the UNC team of last year receive an extra car per player from some booster because they lost against Kansas? This evidently is a problematic situation and this is the case, because there is no sufficient oversight in these financial (and other business) institutions. Evidently, if I determine my own salary and that of my colleagues and friends I will pay myself more than I am worth, after all that is a normal human reflex. I am not familiar enough with the administrative construction of these companies to suggest anything here or even to criticize them in a more precise manner, but it seems obvious that something is afoul (and not just morally) in a systematic manner if something like these bonuses are given out. Especially, because this is not the first time something like this takes place.

1 comment:

William said...

While I am unsure as to whether there really is a big difference in quality at the top level, I think you make one error in assuming that all people at the top are of the same quality. By saying that the "best and the brightest" all failed is saying that everyone in the company who is at the top level has failed. Is it not possible for someone to do their job incredibly well, be completely deserving of a bonus, then get fucked out of it because a bunch others were jacking around on the job?

ignoring that the wording got weakened to make it even more populist (only those making over 250,000 before the bonuses got hte bonus taxed), the outrage in general has probably been a bit too broad for what we can back up. To say that no employees at AIG did their job well is a very strong statement. What if joe mailroom clerk got the mail to the people who needed it in half the time that the other mailroom clerks did. does he not deserve some sort of bonus?

I dunno, a simple thought that I keep having about all of it that bothers me... on the bright side, we have march madness to distract us all.