Yesterday, Congressional Democrats got back in touch with their animal spirits. They were in highest dudgeon over the fact that AIG had fulfilled a contractual obligation to employees by giving them the bonuses allowed by law.
Since Democrats had crafted and passed this law, you can see that a visceral fear of accepting responsibility does much to revive flagging animal spirits.
But feigned outrage is often as effective as the real thing. The government is going to get its money back. And yet, as AIG CEO Edward Liddy put it: "My fear is, the damage is done.... We will get the bulk of that money back. They will return it with their resignations."
Blogger Dr. Helen Smith has dubbed this: "Going John Galt." Link to some of her posts here.
Borrowed from Ayn Rand's "Atlas Shrugged" the concept means that when taxes become confiscatory, they will become a powerful disincentive and people will choose not to work. If that is the only way they can exercise their freedom, then that is what they will do.
There are other ways to disincentivize work. This morning Caroline Baum picked up the argument in her Bloomberg column. She asks why, if bankers have been made into the designated scapegoats for the financial crisis, why would any of them want to continue working to fix the banks. Link here.
But now a new disincentive has given banking executives another reason to Go John Galt: death threats.
Yesterday, Rep. Barney Frank insisted that CEO Liddy turn over the names of the executives who had received bonuses.
Liddy responded that his company had been receiving death threats directed against these people, and that they now feared for their lives. Thus, rather than release something that could turn into a hit list, Liddy asked for assurances that the names not be published.
Barney Frank refused.
Most Congresspeople, however, do not believe that the death penalty is a fitting punishment for the newly-invented crime of receiving mandated retention bonuses. Instead, they prefer confiscatory taxes.
OK, they are saying, you can have your bonuses; we respect the rule of contract law. But, by the way, we are going to tax them at 100%, or 90%, or 70%.
Once you start down that road, why stop at this year's bonuses. Why not declare that last year's bonuses were ill-gotten gains, and thus, deserve to be taxed at 100%. Wasn't Wall Street just another Ponzi scheme?
This is not only about today's John Galts. Given the current climate of demagogic posturing and violent scapegoating, would you want your child to grow up and become a banker?