From most people, I would dismiss this as mere anti-capitalist rhetoric.
From Nassim Nicholas Taleb, it's an idea we ought to consider carefully. He understands the banking and finance systems quite well, and especially he understands what their limits are.
3 comments:
You know, if the given is that we will bail them out, then he is correct- there should be no bonuses. Or we shouldn't bail them out- there should be the option.
The way I'd like to see all controversies over compensation stated is this: "I contend that those of us who are putting our own money at risk would be well advised not to invest it in organizations that have the following compensation schemes, because they tend to lead to the following perverse incentives (but feel free to waste your own money if you disagree). . . ." This works for bonuses, deferred compensation plans, stock options, "excessive" ratios between CEOs and mailroom clerks, etc.
When the people whose money is at risk are taxpayers, it works as a public policy argument, often an argument that the taxpayers ought to stay out of commercial business.
The way I'd like to see all controversies over compensation stated is this....
That would be very good if private persons or entities made the statements. Any proper long-term solution, though, has government sitting down, shutting up and butting out of the market place altogether, beyond helping to enforce contracts that businesses and individuals freely enter into among themselves.
Adam Smith recognized long ago the power of individual greed (self interest) to improve the well-being of everyone. But that outcome demands that everyone's self-interest be free to operate and to be balanced by everyone else's. Any government intervention, however well intentioned, necessarily channels that self-interest and so prevents its balancing.
Men, being men, will act under those government strictures still in their own self interest. That leads, in the end, to banks making bad investments in poorly constructed debt derivatives. Bailouts simply reinforce the existing distortions to that balancing, exacerbating the imbalance.
Absent government interference, the market is a chaotic place, with tipping points that lead to vast growth and to sharp recessions and Panics. The growth makes us all better off, and the recessions and Panics, through their creative destruction, lead to further opportunities for vast growth, however uncomfortable they are to live through.
Eric Hines
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