Saturday, January 16, 2010

One Cheer for the Bank Tax Proposal

Politics is a messy thing. In this country, it’s the art of getting stupid people to support good ideas, and that almost always involves lying to them in some sense. I oppose the bank tax because I believe it is an ex post facto bill of attainder – an unconstitutional twofer. Here are two responses to that argument:

1. Robert Gibbs, White House Press Secretary:

If you want to be on the side of big banks, then you're certainly — this is a great country — you're free to do so.

2. Lawrence Summers, White House economic advisor:

It's surprising to me to see institutions who have benefited so substantially at a time when there is so much economic distress among others in the country to be complaining about the justice of what has happened to them from their executive suites.

Neither response is a rebuttal. Neither says “No, it is constitutional.” Both say “Any stick is good enough to beat a dog.” This is how things are done in our democracy. Politicians defend their bad actions by attacking someone, by implying that anger is argument, which, since they know better, is lying.

But, as I said, given the limited intellectual resources of the electorate, one must lie to get them lined up on the right side, so it is hardly surprising or necessarily wrong for our politicians lie to us. How else could they govern?

I believe the bank tax proposal is a lie, too, like the unconstitutional proposal to tax the AIG retention payments retroactively. No one believed that that tax would pass, but everyone wanted to be seen as “for” it. In other words, the only way our politicians can “prove” that they hate bankers as much as we all should is to appear to throw a tantrum and propose that they be fed to the lions. Eventually, other politicians, who can then be painted as bank-loving jerks, will stop them, or an “out-of-touch” Supreme Court will throw the law out. There is thus very little down side to proposing a bad law that violates our principles to attack bad people.

The bank tax strikes me as special because it stokes anti-Semitism. So I do not approve even of the proposal. But for the sake of philosophizing, let’s take the parallel to Nuremburg off the table. Let’s suppose no one identified Wall Street with any particular demographic other than greedy bastards. The tax would still be unconstitutional, and I would still oppose it, but I’m not sure that I would think any less of the politicians who proposed it. That’s because there will be an anti-banker residue from the process that I believe is salutary, or would be if so many bankers weren’t Jewish.

Warren Buffett said this in an interview with the BBC:

If 50 of us were on a ship and there was a shipwreck, we all swam to an island, we knew we'd never be rescued - and fortunately it was a fertile island so we could all plant rice and grow enough to take care of ourselves. We would not take the five smartest people out of the 50 and tell them "why don't you start trading rice futures and speculate among yourselves", and by the way we think that's so valuable we're going to give you the most money and probably a favorable tax rate on top of it. Hell no, we'd get everybody producing rice.

We have too many of our best minds trading rice futures, and we are diverting too much of our GNP to compensating them for doing it. In a free society, we cannot and should not single out an occupation for a legal restriction on income. The power to impose such a limit is corrupting, and the temptation to engineer society by doing so would be overwhelming. It would be a bad idea.

But there is no reason that the people cannot hold their vultures in low esteem. We can certainly feel free to shame the rice traders when there is no rice being produced, in part because the human capital essential to its production – those best brains working on financial engineering – are misallocated. It’s no accident that Buffett, who describes himself as “allocating capital” for a living, would have strong views on the allocation of human capital as well as money capital.

Nor is it wrong for the President to use the bully pulpit to foment some of that low opinion. But it’s a tricky business. It will be messy, there will be excesses. There are always excesses. Still, as I wrote earlier, there is too much money to be made on Wall Street doing too little to enable the growing of rice. And the bankers have behaved badly, as might be expected when there is so much money to be made.

On the other hand, we do need bankers. And then there’s that Jewish thing. Ain’t nothin’ easy.

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