Phony outrage from politicians is one way to prolong a problem and make solving it far more expensive. The latest self-serving nonsense from power obsessed politicians (who spend $30 million in campaign funds to get a $200,000 job) is that AIG’s bonuses are a horrible surprise. The Politico points out that the assertion is not quite true:

AIG disclosed its retention-bonus program more than a year ago, including bonuses directed to those handling the exotic derivatives…The bonuses were essentially a nonissue when AIG got its initial bailout money, almost $150 billion under President Bush in the two months surrounding the presidential election. Joe Biden, then the vice presidential nominee, came out strongly against the bailout. Obama did not.

Timothy Geithner, then at the New York branch of the Federal Reserve, was a huge proponent and architect of the AIG bailout. So if Obama had strong private opposition to the idea it did not affect his pick for the person who would oversee all bailouts. The bonuses were again a nonissue when Obama himself increased the bailout to $173 billion last month.

We don’t care about AIG too much one way or the other. But there is a deep and destructive hypocrisy or sleight of hand at work in these effigy-burnings by politicians.

The intellectual error is that a “bailout” represents government spending. In accounting terms, the “bailouts” should not be counted as government spending at all — they are investments that will presumably be redeemed or paid back in coming years when financial firms get back on their feet. The proper judgement of whether an investment is sound is if increases the value of the enterprise; it has nothing whatsoever to do with how much the company pays for computers, light bulbs or salaries. The relevant test for “bailouts” is whether they get the system working again as it should; this seems to be priority one for nobody (save maybe Ben Bernanke).

However, there is a destructive logic to the incorrect and cynical conflating of investment and spending. For starters it incites envy, a powerful political tool. In addition, it makes the outrageous spending plans of the administration look less egregious by the straw man comparison to “bailout” spending. That is clever politically, but a tragedy for the country.

The really grotesque element in this is that it is relatively easy to fix the financial system, and it largely can be done in a few months or so. Instead, the administration spends its time dithering and stoking unproductive outrage rather than solving the problem. That is a sad triumph of ideology over pragmatism.

This entry was posted on Wednesday, March 18th, 2009 at 7:26 am and is filed under business, Democrats, General, Left of Left. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.