Looks like there’s a bit of a disagreement among the financial writers at the Times. Yesterday Andrew Sorkin told us that we desperately need the folks who created this mess to get us out of it, so we should swallow hard and let them have their bonuses.
But David Leonhardt is having none of it. He puts Sorkin’s arguments in the mouths of others, and shoots them down tidily.
But I come not to dump on Sorkin (again). I come to praise Leonhardt, primarily because he agrees with me on the surefire way to stop executive compensation abuse:
It’s entirely understandable, then, that the Obama administration, the Federal Reserve and Congress are looking for creative, legal ways to claw back some of the bonuses. That bonus money is really taxpayer money: absent a bailout, no A.I.G. would exist to pay bonuses.
The larger question is how to change the rules on corporate pay to reduce the odds of future crises. Throughout this crisis, policy makers, starting with President George Bush and Ben Bernanke and now including President Obama, have been a bit too deferential to Wall Street. That deference has fed populist anger, which threatens the political viability of the necessary continuing bailout of the credit markets.
The bonus scandal offers Mr. Obama and Mr. Bernanke a chance to get ahead of the curve — so long as they come up with changes that extend well beyond A.I.G.
…
Today’s tax code makes no distinction between income above $373,000 and income above, say, $5 million. Both are taxed at 35 percent.
That is a legacy of the tax changes of the early 1990s, when far less of the nation’s income went to millionaires. Today, you can make a good argument for a new, higher tax bracket on the very largest incomes.
In the past, the economist Thomas Piketty says, higher marginal tax rates tended to hold down salaries and bonuses, because executives had less incentive to angle for multimillion-dollar pay.
Do these ideas stem in part from anger and bitterness? Of course they do. How can you not be a little angry and bitter about the role that huge, unjustified pay played in causing the worst recession in a generation?
In fact, that’s sort of the point. Given the damage that’s been caused by our decidedly unmeritocratic system of paying executives, the most irrational course of all would be the status quo.
Nothing that these people do is worth the money they are stealing being paid. In fact, most of what they do is totally unproductive, as Obama said today, they produce paper wealth for themselves, but no real wealth for anyone. They can cause a lot of harm to the average person, but don’t ever seem capable of producing much that’s useful for anyone but themselves.
Let’s go back to the 50s. A 90% marginal rate on these guys makes sense to me. If we do it to all of them there will be no constitutional problem, so long as Justice Roberts keeps his lawless hands off of the legislation. Sure we take some worthy rich folks down, but this is a question of the greatest good for the greatest number.
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