Q. How do you simultaneously achieve all of the following?
1. Encourage excessive risk-taking in the financial sector when sobriety is desired;
2. Drive the best and brightest employees from firms under de facto government control, thus ensuring that taxpayer dollars are entrusted to less-qualified handlers;
3. Set a (possibly unconstitutional) precedent of retroactive punitive tax policy that effectively nullifies previously-made legal contracts.
A. Do what the House of Representatives just did.
I'm less sanguine about this than Conor Clarke, because I think that his mild cynicism/optimism mix is the absolute best-case scenario; The worst-case scenario has some major financial institution refusing necessary government assistance so as not to subject their past and future income to 90% tax rates, which causes that company to collapse, which triggers another Lehman-like counterparty panic, the government is forced to buy up the shards of the company, all the best employees flee like rats off a sinking ship, and the taxpayer is on the hook for even more than we would otherwise be.
Incentives do still matter. Srsly.
And the silence from the progressive economists in the blogosphere (read: Krugman, DeLong, Thoma) has been deafening.
Frankly, if public shame is in order, wouldn't've been better for the country to let them keep their bonuses and instead make them eat some grubs on Fear Factor as punishment? Or get yelled at by Simon Cowell? Or get out-smarted by a 5th-grader? Or be forced to appear on a sitcom with Charlie Sheen?