I watched the Super Bowl Sunday evening with two of my best and most conservative friends. Four-plus years ago, I would have agreed with 90 percent or more of what they said. Now, our consensus-ratio is closer to 50 percent, although Sunday night, that 50 percent became 51 percent as we voiced our collective outrage at Wall Street’s use of taxpayer bailout funds to pay its executives $18.4 billion in bonuses.
I doubt anyone in the room except me voted for Democratic Sen. Claire McCaskill in November 2006, but we unanimously agreed with her immoderate four-word summation Friday (amplifed today by the WaPo’s Eugene Robinson) regarding the Wall Street fat cats: “These people are idiots.”
What’s behind this Kumbaya moment between conservatives and progressives and independents regarding $18.4 billion in bonuses?
In his ode to groupthink, James Surowiecki offers one answer — recounting the story of Richard Grasso, the former chief of the New York Stock Exchange, who (in Surowiecki’s words) “became the first CEO in American history to get fired for making too much money.”
Surowiecki asks:
“Why was the public so outraged? After all, they did not have to foot the bill for Grasso’s millions. The NYSE was spending its own money. And complaining about Grasso’s windfall didn’t make anyone else any better off. He had already been paid, and the NYSE wasn’t going to take the money it promised him and give it to charity or invest it more wisely.”
The author goes on to point out how “deeply irrational” the public reaction to Grasso’s $140 million windfall seemed when it was viewed through the lens of economists who believe people generally act in their own self-interest — i.e., if there’s nothing in it for them, people don’t care. But they did care about the largesse the NYSE handed Grasso. Surowiecki suggests the answer might lie in a behavioral economics experiment called the “ultimatum game.”
The rules of the game are simple. The experimenter pairs two people. (They can communicate with each other, but otherwise they’re anonymous to each other.) They’re given $10 to divide between them, according to this rule: One person (the proposer) decides, on his own, what the split should be (fifty-fifty, seventy-thirty, or whatever). He then makes a take-it-or-leave-it offer to the other person (the responder). The responder can either accept the offer, in which case both players pocket their respective shares of the cash, or reject it, in which case both players walk away empty-handed.
If both players are rational, the proposer will keep $9 for himself and offer the responder $1, and the responder will take it. After all, whatever the offer, the responder should accept it, since if he accepts he gets some money and if he rejects, he gets none. A rational proposer will realize this and therefore make a lowball offer.
In practice, though, this rarely happens. Instead, lowball offers — anything below $2 — are routinely rejected. Think for a moment about what this means. People would rather have nothing than let their “partners” walk away with too much of the loot. They will give up free money to punish what they perceive as greedy or selfish behavior. And the interesting thing is that the proposers anticipate this — presumably because they know they would act the same way if they were in the responder’s shoes. As a result, the proposers don’t make many low offers in the first place. The most common offer in the ultimatum game, in fact, is $5.
… Obviously, if the proposer were given the chance to divide $1 million, the responder wouldn’t turn down $100,000 just to prove a point. But the game has been played in countries, like Indonesia, where the possible playoff was equal to three days’ work, and responders still rejected lowball offers.”
Surowiecki’s conclusion: Rational or not, in our own self interest or not, we do “seem to care whether rewards are, in some sense, ‘fair,'” adding:
“Does this mean people think that, in an ideal world, everyone would have the same amount of money? No. It means people think that, in an ideal world, everyone would end up with the amount of money they deserved.”
And there’s the crux of the current matter. What bailed-out Wall Street execs “deserve” is the junction where fairness becomes a bipartisan impulse. Progressives might argue that Wall Street execs never deserve large payouts. Conservatives might counter that these execs deserve large payouts when their firms perform exceedingly well. However, individuals on both ends of the political spectrum — and every point in between — can agree that these execs do not deserve large payouts when their firms flirt with failure and avoid it only by going on the taxpayers’ dole.
My final thought on this subject could be a by-product of naivete, but I’ll expresss it anyway: Members of Congress should seize this moment, this shared sense of fairness, and use it as a bridge to other potential points of agreement, while they continue to wrangle over the stimulus bill.
(To be clear, I’m not suggesting the stimulus bill is a wonderful piece of legislation. In fact, I’m in the Gallup Poll camp of those who think the bill should pass but with major changes, siding with the skepticism and debate encouraged by both Megan McArdle and Andrew Sullivan. And no, I don’t think Joe the Plumber will help us get there.)