The Importance of Differing Aptitudes:

by Brien Jackson

Examining his emotional response to the AIG bonus issue, Ezra writes:

That we even need a new raft of compensation regulations strains the boundaries of credulity. It makes you question the values of your countrymen. They were the principle beneficiaries of a decade-long bubble that they inflated. These Ivy League bundles of privilege were given every possible advantage and then took yet more than that. They took the advantages of high school seniors applying to college this year or entering the workforce next year. They took the advantages of seniors who had saved for retirement and parents who had invested to build their own business. And now they’re refusing to help defuse the bomb at the center of our economy unless we pay them retention bonuses. Worse, they’re threatening to flee the scene of the crime and make money off the carnage. That, it’s been argued, is why we need to keep paying meeting their demands: Because we need them working for us rather than against us. It’s chutzpah as the Yiddish define it: A child who kills his parents and then begs for lenience because he’s a pitiable orphan. It’s shameful.

There’s nothing I disagree with in that, and I imagine there’s not much of a difference in the way Ezra and I feel about the matter. In short, the bonuses are outrageous, should never have happened, should now be recouped as fully as possible, and are proof positive that the titans of the financial industry simply don’t live in this world. That said, it’s also not really a reason to crater the whole thing and, by extension, the “real economy” either.

But aside from that, I’m not sure it’s mere chutzpah in this respect, so much as the sentiment that we need these same people to fix things for us now is just inaccurate. Yglesias has been on this point for a week or so; the skill set and moral code that brought these people to where they were/are is decidedly not the skill set and moral code you need to get these institutions, and this economy, out of their present code. Having an executive class that wakes up wondering how they can make the most money possible every day might have its advantages in normal economic times (especially if you have a more sensible compensation regime that ties executive compensation more closely to the long term health of their firms), but these are not normal times, to say the least, and now “how can I make the most money” becomes “how can I pocket the most taxpayer money possible.” And beyond the moral bankruptcy of that attitude, I’m not really sure how it could dig the financial system out of a broad solvency crisis that can’t really be fixed with accounting gimmicks and cost deferring. Instead, it seems to me you really do have to wipe the current management groups out in favor of less ambitious, competent technocrats who are going to wake up everyday wondering how they can shore up both their firm and the larger economy, and be happy to take a limited, albeit well above average, salary to do so.