James Forsyth

How to deal with the shameless bosses who are pocketing their rewards for failure

How to deal with the shameless bosses who are pocketing their rewards for failure
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The argument raging in America over the AIG bonuses is basically the same as the one in Britain over Fred Goodwin’s pension. Those responsible for dragging their companies down and forcing the taxpayer to bail them out are receiving huge sums of money. To add insult to injury, the government could—and should—have done something to stop it.

There are two schools of thought on where we go from here. One is that these case are a distraction from bigger, more important issues. The other holds that if public support is to be maintained for the unpalatable steps that are necessary to restore the economy to health, then the wrongdoers must be punished. In the case of AIG, Greg Mankiw of Harvard and James Surowiecki of the New Yorker put these respective cases best.

Mankiw:   "The AIG bonuses now being debated in Congress and everywhere else represent about .001 percent of annual GDP. If a typical Congressman spent that fraction of a 2000 hour work year on the topic, it would consume only about 1 minute of his or her time.

Yes, I know, that calculation is silly in many ways, but here is my point: Regardless of how outraged you are about the AIG bonuses, it is probably not an optimal allocation of resources for our elected leaders to spend large amounts of time and energy on the topic. The economy has bigger problems right now, and it would be better to focus attention on those."

Surowiecki: “when it comes to the AIG bonuses, the costs of clawing them back are trivial at best, while the public satisfaction at, for once, seeing what feels like justice being done will be great. Getting all worked up about this money may not, strictly speaking, be rational, but I think that paradoxically, if some of this money is clawed back, it'll increase the chances that we'll be able to keep dealing with the ongoing crisis in a rational way in the future.”

The problem with Goodwin and the AIG executives is that they are shameless, public criticism isn’t going to persuade them to give up their pension or bonus. But I do think it is important that everything within the law is done to gain satisfaction for the taxpayer. If there are no legal options then there are other measures that can be taken to express society’s disapproval. In Goodwin’s case, he should certainly be stripped of his knighthood. Considering that he received it for services to banking, it would hardly be unreasonable to do so.  

Written byJames Forsyth

James Forsyth is Political Editor of the Spectator. He is also a columnist in The Sun.

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