Can the government really spend our money better than us?

We have been talking a lot lately about whether the government can spend our money better than we can. I don't know whether that is true or not, but they do spend our money differently than we would ever spend it. http://online.wsj.com/article/SB123707854113331281.html

The article that i have linked in this post explains how the government is giving our money to AIG. They will in turn be giving 165 million dollars in bonuses to executives in the company who have obviously done an outstanding job. Tell me that this is how we would spend our money. I would quote the article in saying that the use of our money in this way is "distasteful and difficult." We deserve to have our taxes go towards fixing the problem and not towards rewarding failure.


Victoria said...

I think spending money in bonuses to executives are not really good way to spend money in recession. I think bonuses should give to worker when the company has profit.

Caleb said...

I agree, I think as a first rule to any bail out money a companies CEO, CFO, and other top teir VP's should be required to step down for their failure. Either the company as a whole can fail or they can. I think if this was the option given, not nearly as much money as has been requested by companies would be asked for. I also think that the board of directors and stock holders of other struggling companies that really needed the money would be voting out their companies leaders really fast. To give anyone a bonus in a company that has to be bailed out is ridiculous

anthony said...

I agree with Caleb on that, we need to hold people accountable. It's a horrible situation going on, if we let the companies fail, the economy could continue spiraling to Great Depression levels. If we bail them out, we're rewarding stupid behavior that is going to make this same situation likely to happen again. What a conundrum!

Dr. Tufte said...

-1 on Caleb for a spelling error.

With all due respect, this issue is nonsense.

1) AIG has contracts, explicit and implicit, that have to be honored whether or not they got government money.
2) No one in the government was smart enough to spot this problem at the time when it could have been changed. No one would have objected if they held up the bailout to get people to back out of these contracts. But, they didn't.

The bottom line is that the government f***ed this one up, and they're now using public opinion to cover their a**es. We ought to be ashamed of ourselves for buying into this.

Dr. Tufte said...

I've put this non-economic point in a separate comment.

Most of us were taught as children that it is inappropriate to ask or discuss what other people are paid.

Why does our society throw this rule out when it comes to AIG?

We could make a lot of excuses:

1) We'd do this to anyone in this situation. This is not correct: even secretaries get big bonuses at places like AIG, but no one complains about them.

2) We do this because it is a bonus and not salary. This is not correct either, because it suggests that if AIG changed the words we wouldn't be upset. This is important because AIG doesn't actually call them bonuses - the legacy media chose that word. I think you know why.

3) We do this because they got government money. This can't be correct because we don't treat farmers this way, and they often get more, straight from the government, and often to do less work (unlike the AIG people who now have to report to both their bosses and the government).

4) We do this because they screwed up and they deserve our anger. This can't be correct because most people don't understand what AIG did, and professionals have yet to figure out if they did it badly.

If you've gotten this far, you're probably ready for my answer: when people feel free to make this sort of criticism without a reasonable basis, they're just prejudiced. I think the people who received these "bonuses" are having their civil rights violated.

Dr. Tufte said...

Now, I'm going to quote an op-ed piece by David Harsanyi from the Denver Post entitled "There Are Fates Worse than Bonuses" that covers a bunch of issues (some of which I missed). All emphasis was added by me.

Here's an idea: If you stop nationalizing banks, there will be no need to engage in phony-baloney indignation over bonus payments anymore.


These same senators who voted to nationalize banks with nary a pre-condition are also, apparently, stupendously talented actors. After all, most of these senators voted for a bill that contained a provision that specifically protected bonuses that were agreed upon before Feb 11. in the bank bailout legislation.

How is it that all those who cast votes on this provision — because, we imagine, no trustworthy lawmaker would vote for legislation they hadn't vigorously examined — are now threatening a "special" tax to snag AIG bonuses? Not only is it dishonest, it also means they, in a breathtaking abuse of power, believe using punitive taxation to appropriate someone's salary is a legitimate function of government.


President Barack Obama, meanwhile, has asked Treasury Secretary Timothy Geithner "to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole," claiming it was all about "fundamental values."

You know what's a super useful value? A guarantee that contracts entered into by individuals or parties are respected. Or is the state ready to throw that fundamental value out and bend to the will of the angry mob?


AIG has been dreadfully run, obviously, or it wouldn't be a welfare queen today. No one will pity it.

Yet, making an assumption that every AIG bonus-earner is by default a numbskull, a bad actor or undeserving, is also wrongheaded. Don't we want AIG to succeed and get off the government dole? What sort of employee would work for an entity that doesn't honor its contractual obligations? How many valuable employees will walk away from such a company?


I get the anger. It's real. It's deserved. The public pressure on AIG is wholly understandable. And with the kind of bailout and stimulus money we're throwing around you can bet this won't be last time you're upset.

Being upset is one thing. Permitting government to tear up legal contracts or tax away someone's entire income, though they haven't broken any law, are precedents we will, in the end, regret.

Alexander said...

With regard to what Dr. Tufte mentioned about honoring contracts, isn't that the whole point of the "bonuses" that are being paid out? I would think the point of the bailout money would be to even up your balance sheet and one thing that would be on there is employee earnings, which as we discussed in class on Friday, is a very small part of the bailout money that AIG received.

Calvin said...

It would obviously be a point well taken to say that the government didn't make the right choice to begin with. The ironic thing is who everyone complains about what has happened already and is unchangeable, instead of focusing on what can be done to do better in the future. Obviously people have to be payed so it is no surprise that the money went to employees who were promised that kind of money. The fact is that they did there job and it is not going to be in anyone's contract that if things go wrong they don't get paid. They still need to be payed. Not everyone in AIG is responsible for needed a bail out. I agree people should be punished but just those who deserve it. They get paid, and then fired

Luke said...

I do not understand why people keep calling this money that the government is spending “our money.” It’s not like they are taking money out of our savings accounts and spending the money. We live in a country where the law of the land, the constitution, tells us that we have to pay taxes. It will be taken out and will always be taken out. So when is it ever “our money”? I know people keep thinking that the government could cut checks to Americans to help the economy instead of spending it in places that they see fit, but still if it doesn’t reach our hands it is not our money.