Bad Air

You’re mad. I know it because that’s all I hear or read about in the news. They say that every time a person hears "AIG" and "bonuses" used together he or she gets so angry they could spit. It turns out that the politicians on Capitol Hill are mad too. They make comments such as the executives should either "resign or go commit suicide" (Sen. Charles Grassley later said that he really didn’t mean they should kill themselves). The problem with all of this outrage is that it redirects us from the real source of the problem much in the same way that a magician redirects our eyes as he does his magic trick.

My readers over the years know that I often use analogies in my postings. A while ago I wrote about the attempt to control malaria during the construction of the Panama Canal. ("Draining the Swamp" 10/14/2007) This horrible disease can also serve as an analogy for AIG and the "retention bonuses."

According to Wikipedia malaria gets its name from Medieval Italian mala aria, which means "bad air." At one time malaria was thought to be caused by miasma, or "pollution", which was defined as a poisonous vapor of particles consisting of decomposed matter. It was thought that one could identify this miasma by the presences of foul odors. Of course the real cause of malaria is not some particulate cloud but is actually a virus carried by the mosquitoes that flourish in unclean conditions and that live in stagnate water and swamps.

Limiting ourselves to being angry about the bonuses is like limiting ourselves to bad odors while being blind to the underlying cause of disease. We can scream in anger, jump up and down, and tax the bonuses but it won’t get to the source of the problem because it isn’t the greed of just a few executives. The source is an economic system based on capital.

As an example of historical irony the answer can be found in the works of Adam Smith, who most consider to be the father of capitalism. Of corporations ("joint stock companies") in his classic An Inquiry into the Nature And Causes of the Wealth of Nations he wrote, "The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company."

Smith showed us years ago that it was inevitable that the executives of corporations should develop this culture of greed because it goes to heart of capitalism. Centering on the bonuses and not removing the source, capital and the investor-owned firms, is like spraying perfume to try to prevent malaria. It might smell nice but it ignores the source.