Why Taxpayers Want Revenge for Bailouts
Human Desire to Punish Wrongdoers Outweighs Potential Costs
The pundits who argue that the rational thing for the American public to do is simply move on and forget about the bonuses paid to employees of A.I.G. Insurance, Merrill Lynch, and other companies, are reckoning without a powerful human instinct: the desire to punish shirkers and free riders who take the rewards while other people do the work.
Laboratory Experiments Demonstrate the Urge to Punish Shirkers
While it may very well be true that focusing on punishing the wrongdoers distracts the public from some very urgent economic problems, and may even damage the health of the people who feel enraged, as The New York Times recently suggested, dozens of laboratory experiments have shown that people will go out of their way to punish those who take advantage of the system to get more than their fair share.
People are actually willing to give up their own rewards to take unearned rewards away from free riders. Behavioral economists call this tendency “altruistic punishment.”
Altruistic Punishment is Essential for Human Cooperation
Unlike any other species, humans can cooperate with large groups of other people who aren’t genetically related to them. Humans will even cooperate with strangers they will never meet again.
The advantages of non-kin cooperation for the human race have been enormous, allowing humans to create large enterprises that benefit everyone, from national governments to subway systems to the financial markets themselves.
Behavioral economists believe that the impulse to punish free riders is an important built-in protection that helps keep social cooperation from breaking down. The threat of punishment pushes potential shirkers to behave in a way that benefits the group.
Where punishment doesn’t follow bad behavior, the cooperative system tends to break down. That brings us back to A.I.G. bonuses.
Is Punishment for A.I.G. Bonuses Part of a Fair System?
If the findings of behavioral economics hold, the widespread rage against people at A.I.G. and other companies who were rewarded for their part in destroying the financial system is not irrational. Some kind of retribution is essential to keep the cooperative system afloat. But how much revenge is enough?
The death threats that have poured into the A.I.G. offices are a worrisome sign. But taxing the bonuses received by A.I.G. executives may be an appropriate thing to do, even if it ends up costing the taxpayers more than they recover.
The busloads of protesters touring the neighborhoods of executives who received bonuses are exerting themselves on everyone’s behalf. The weapon they wield is one of society’s strongest: the power of public disapproval.
Taxpayer Rage Over Bonuses is Rational
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