A lot of what I have to say in the following post echoes Paul Krugman’s column today.
There has been a chorus of tut-tutting in the punditocracy about the furor over the AIG bonuses, with many Very Serious People saying that we just have to get over it, that the bonuses are unimportant in the general scheme of things, that we have more serious issues to worry about.
A lot of this finger-wagging reminds me of the last group of Very Serious People who insisted that anyone who was against invading Iraq was a wild-eyed leftist dinosaur, that accepting the need for the invasion was a precondition of being a Very Serious Adult.
The scolds are even doing some of the same kind of willful misrepresentation and misconstrual of the arguments they’re dismissing.
Yes, I agree that there are grandstanders going after the AIG bonuses in nakedly and crudely political terms, who have no other point in mind. (Charles Rangel, for example.) But a lot of the concern about the bonuses is just using them to illustrate some larger concerns about the entirety of federal economic policy from the late Bush Administration to the early Obama administration. It’s not wrong to worry about a drop in the bucket when the bucket is under a roof with a ton of leaks in it.
Talking about the bonuses is a way to raise much deeper questions which virtually no one in Washington (or any of the Very Serious tut-tutters) seems prepared to discuss.
1) The management of AIG, investment firms, banks, and most of the financial sector got themselves into the mess they’re in, and thus the mess we’re in, by making consistently bad decisions guided consistently short-term sensibilities. They operated by thinking first, last and foremost about their own immediate gains. They’re in the mess that they’re in because they had no hesitation to rip off society at large in order to cover their own bad risks, because they did everything they could up to the limit of grey-area legality to cover their own asses at everyone else’s expense.
This is not because they’re uniquely evil human beings. It’s because that’s the omega state of financial capitalism at the moment, the way the entire institutional apparatus is structured. Most of these managers were doing what made sense in their businesses, their professional world. They were trained to do it, rewarded for it.
So where are the details about how those managers are changing the way they think and act? Where’s the guarantees that a more prudent, long-term manner of calculation has been established? What safeguards are being put into place to govern how they spend the funds they’re receiving? How is the structure of the business that nearly wrecked the global economy being changed by the people in those businesses?
When people complain about the AIG bonuses, this is largely what they’re asking: how do we know that these huge sums will be spent responsibly, given the evidence that the people who are doing the spending have been among the least responsible institutional actors in the entirety of our economic and social world over the last decade? There are no real assurances, no details, no safeguards coming from Geithner’s office, any more than there were from Paulson’s. There doesn’t even to be a political recognition of the need for such assurances: Geithner, like many of the Very Serious People, seems to feel that we need to let him get about his business, because there’s a world to save and only the people who really know the details can be given access to the plan.
Tell me why the people who made so many terrible mistakes, operating from so many flawed premises, with so short-sighted a view of the consequences, are now the people who can be trusted to correctly use the enormous resources flowing through their institutions.
2) President Obama concedes that part of the problem is a “culture of greed”. So, ok, it’s the culture, stupid. How do you change culture, how do you shift norms, how do you change everyday practices? Generally, by persuasion, by rhetoric, by modelling of norms, by shunning and mockery, by ritualizations of new habits. Only secondarily at best do you change culture by setting new rules or establishing new laws.
So when people rise to complain about the “culture of greed”, this is precisely what they’re up to: they’re trying to make it difficult to carry on with business as usual. They’re saying, “If you want to be CEO of one of these businesses, you’ll need to be mindful about the business first, the society second, and your own grabby need to have a six-bathroom mansion third.” This is how we collectively enforce an idea of public rectitude, of responsibility to society: by complaint, by popular anger, by using words to tar and feather the scoundrels. Does that kind of anger sometimes sop over onto targets who don’t deserve it? Yes. Does it sometimes involve profound ignorance about how things actually work in the institutions being targeted? Yes. Is it ripe for demagogic misuse? Sure. But despite those risks, the best way to really shift a pattern of normative behavior is through public attention to bad behavior, through hitting the reset button around what is considered moral, proper practice.
3) The anger at the AIG bonuses is being stoked by the lack of any ideas at all about the long-term reform of the financial sector, or the economy in general. This is Krugman’s point today: where’s the vision thing? Obama and Geithner have had virtually nothing to say about the medium-term future of any of the institutions that they’re trying to save. In Krugman’s view, that’s because they think those institutions are basically sound, and just need a bit of temporary propping up to be ok. Like Krugman, I think that’s completely wrong.
Tell us where we’re going in the longer run. Shareholder capitalism has become an utter joke at this point: tell me how we reform it so that when you buy shares of a company, you’re invested in that company and its long-term prospects, not just pushing all your chips in on red and watching the roulette wheel spin. Tell me how we get boards that represent those kinds of shareholders, and have fiduciary responsibilities to those long-term owners that are legally and morally binding, who are the skeptics who challenge CEOs and management, not collude with them. Tell me how we safeguard the aspects of this economy where the risks that businesses take are risks that we are all exposed to, so that those risks aren’t being taken without our willing consent. Tell me how we make sure that the biggest gamblers lose only their own chips, so they go home broke while the rest of us sleep secure at night when we don’t choose to gamble along with them.
Give us all a comprehensive blueprint for how you reform the whole damn thing and stop worrying about the delicate sensibilities of the people who robbed the system blind in the first place. If they want to hold the Dow Jones hostage, double-dare them to go ahead and shoot their hostage. 400 points up, 400 points down, it’s not what matters.
And if what Obama needs to do in order to get to that kind of reform is to get rid of Geithner or his economic team, fine. One of the other things that a lot of Obama voters expect from the President is that he won’t stick by his staff past the point at which they’ve made errors of judgment or action that are too grave to ignore. That’s the cronyism and naked political calculation of the last eight years (arguably, of much longer). “Change” means jettisoning that kind of calculation as well. Either Geithner will rise to the occasion and help craft a vision of reform that concedes that much of the system as it stands is broken, or the President will need a different advisor with different capabilities.