The Real Scandal

Math Quiz: If AIG spent $160 million on bonuses to the engineers of the economic crisis, out of the $30 billion bailout it received most recently from the American taxpayer, what proportion of this bailout payment did not go to bonuses?

Answer: 99.5%

In other words, AIG is as pure as Ivory soap.  The bonuses are smaller than small change.

What is shocking about the bailouts begun by President Bush and continuing under President Obama is how huge they are.  It is impossible to imagine the numbers involved except when they are set against one another.  The reason for this, of course, is that we live in a country that uses mind-boggling masses of resources to produce mind-boggling masses of output.

The economic crisis is showing us that the policy battles of most years are concerned with nickles and dimes.  Earmarks worth $8 billion – pennies.  The cost of healthcare for children – nickels.  The Social Security shortfall after 2041 – dimes.  The really big money in the economy is as hard to grasp as the distance to the nearest star.  We need to think not in miles but in light years of spending.

In this context, where our daily experience is as relevant as the experience of mice to the battles of dinosaurs, one number that merits special attention is the estimate by Emmanuel Saez and Thomas Piketty of the distribution of new income generated between 2002 and 2006.  Saez and Piketty show that almost three quarters of the additional income (73%) went to the top one percent of households.  That is, families making more than $376,000 in 2006 enjoyed three out of every four dollars in raises during the growth of 2002-2006.  During the Clinton boom years (1993-2000), the top one percent enjoyed nearly half (45%) of the total increase in income.

The outrage over the AIG bonuses cannot rationally be based on the waste of public dollars.  Believe it or not, $160 million is like a fleck of dandruff on the head of the economy.  What does make sense, though, is that ordinary people, who have been struggling for years to keep up their consumption, explode in anger as those who became fatter and fatter over the period of make-believe prosperity, try to salt away one last wad of loot before they are forced to live in our world of scarcity.

The American economic system has failed, not only in the last year but over the last several decades, to produce rewards in line with contributions to society.  Current bonuses are the final straw on a heap accumulated by the very rich for themselves and their friends.   The issue is not the numbers, it is the incredible sense of entitlement of the undeserving rich.