The decision to pay a wage, or a bonus, is voluntary. Given that these bankers are creating sufficient value through their work to extract these wages/bonuses why shouldn’t they get their wage/bonus. They are generating sufficient “wealth” through their activities – or else they would i) get undercut by other labour, ii) not get paid by clients.
Yes the organisations that got bailed out should have to pay back their bailouts. Yes, we should try to avoid the current moral hazard problem that could exist in the industry (on the basis of the bailouts mind you – which is government intervention). However, shouldn’t the solutions to these issues be focused on the actual issues – rather than arbitrarily attacking bonuses (which will simply be delayed to avoid the tax for those that can afford it).
If we think that the price paid for the financial labour service is out of whack because of some sort of direct market failure then tax it. If we are trying to work out optimal tax and we find that the supply and demand for these services is perfectly inelastic, potentially shift the tax burden. But that isn’t what the authors are doing. They are accusing bankers of being the equivalent of organised crime and then stating that we should punitively attack. I’m sorry but I find this attitude simply abhorrent.
Seriously, if you have something specifically against bankers, lets apply the logic somewhere else:
UK is going to arbitrarily tax teachers at 50% because they are not “generating real wealth” they are just “rent seeking”
After all, teachers don’t build physical things they just provide a service like the bankers. If we are going to attack bankers for there being a credit crisis, why don’t we just start taxing teachers more because we “feel like educational standards are too low”.
Update: Stumbling and mumbling also believes bank bonuses should be hammered. However, he at least paints his argument out in full and so deserves to be heard. I don’t agree, but that isn’t really the point 😉