The AIG Bonus Kerfuffle

I have watched the AIG bonus hoo-ha unfold the past week with a constantly changing mixture of amusement, disgust, and sadness. The amusement part is a function of watching the less than virtuoso sword-swallowing acts performed by politicos of both parties as they desperately try to come-to-grips with the public anger over the huge bonuses paid to the folks at AIG.

The disgust part is that I, too, share the public outrage over the bonuses. And my outrage was not quieted by the suggestion of AIG's CEO (who, in all fairness, is NOT responsible for AIG's condition) that we should not regard these bonus payments as a reward for past greed and incompetence; but rather as a bribe for their future cooperation in getting AIG out of the situation that they were instrumental in creating.

If I was a Republican, perhaps, a la Cheney, I would suggest that in lieu of cash we employ some enhanced interrogation methods to extract the secrets about these opaque, complicated, and obscene financial devices from these overpaid clerks and thereby eliminate the need for the bonuses. Just kidding. Dick would NEVER have authorized torture of an American CEO or any of their clerks.

The sadness part is that few politicians, pundits, or other public figures seem able or inclined to use this as a teachable moment to discuss the issue that underlies the whole sorry affair, to whit, the increasing disparity of income and wealth in these United States.

But before I get to the moral of the story - a couple of factoids. The first, from some outfit called the Century Foundation http://www.tcf.org/

CEO'S PAY AS A MULTIPLE OF THE AVERAGE WORKER'S PAY

"As the twentieth century drew to a close, CEO pay set the bar for our New Rich. Take a look at the truly startling chart above: the ratio of executive pay to the average worker’s pay has risen from 41:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when were cashing in big stock options. In 2005, it stood at 411:1. By way of comparison, the same ratio is about 25:1 in Europe."

CEO pay, of course, is but one indicator of what I (and many others) regard as the larger problem - the growing income and wealth disparity in this country. But I believe it is a telling one. Under a republican form of government is it (to use an overused phrase of the moment) sustainable - in a political sense - for disparities in income between management and labor of this magnitude to continue?

Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

The above graph paints the broader picture. Today, the distribution of income in the United States very closely resembles what existed in the 1920's. It was a great time for the plutocrats - for the majority, not so much. In 2001 (I would be surprised if the number wasn't even higher for 2008) the cohort receiving the top 1% of incomes cadged something approaching 23% of the total national income. And while I couldn't quickly find a graph...I expect that a HUGE percentage of the total income in 2001 was earned by the top .5%.

The question being: so what? Well, as alluded to previously the 'so what' is that in a republic, ultimately, the majority - will work their will. And the majority IS becoming aware that the past couple of decades of "free market" worship has not served their interests well.

The moral of this story is simple. It is time for change. It is time to once again recognize the 'free market' concept for what it is - a construct by social scientists (economists) to understand and predict human economic behavior. It is NOT an end in and of itself nor is it the 11th Commandment handed down by an omniscient and benevolent Yahweh.

Only a fool ignores the market; but only a bigger fool makes the 'free market' the Holy Grail.