Not Just a Gladiator Fight
The notion that Wall Street requires its current incentive structure to function is at best overly fearful and at worst entirely self-serving. It represents the narrow application, albeit common, of economic reasoning.
People don't need these incentives to do good work. Men and women risk their lives every day for purposes that inspire them to do so, and not only in the military, but also in police and firefighting forces in communities across our land. Moreover, people throughout America work hard for wages far below what has inflated to become the norm on Wall Street out of a sense of professional integrity and dedication to producing value and supporting their families.
I believe an abundance of talented people would step up to the plate, working at non-extravagant levels of compensation, in the financial sector, if we call the bluff of those who would claim that "the financial and corporate sector requires these incentives to work."
Reportedly, the Obama administration blocked provisions in the stimulus package that would have limited compensation to Wall Street executives working for companies receiving federal dollars. If so, it reflects running scared. The current public outcry seems now to have emboldened the president to come out strong and call Wall Street's bluff. I think that's the right thing to do. We need to run the experiment of calling the bluff of those who have become normalized to working within a rarified community of like-minded people accustomed to inflated levels of compensation.
We should treat Congress's efforts as an experiment to discover the truth about the incentives required to make Wall Street work, and work in a trustworthy fashion. If we find that the old logic was accurate, and Wall Street must keep some of its old ways, then so be it. But let's find out.
The real danger here is that the AIG bonus fiasco will serve as a lightening rod, grounding out the outrage of the public with narrowly partial solutions. The president needs to keep various publics in the long-term game of changing habits of saving, consumption, and investment. AIG is just one small player. It's not just Wall Street or corporate America that will need to change behavior. Every American is part of the current economic problem, as well as part of the environmental, educational, and healthcare problems, and no solution for building a more trustworthy financial sector will diminish the work each of us has to do in changing the way we save, consume, and invest.
Obama's leadership must keep each relevant public working its own part of the problem and solution throughout the land, rather than let most American publics sit back and watch the gladiator fight between Washington and Wall Street.
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