Social Contract Under Strain


We’ve been in the midst of the reporting on the AIG bonus story and related high-octane blow-ups over compensation and the behavior of key players in the finance sector. And we’ve seen a non-trivial number of complaints that we’re sensationalizing this or that story or engaging in ‘cheap’ populism. Beside the reporting innards of the story, though, what interests me about this meta-story is the way it shows the implicit social contract under deep strain and some people operating totally outside of it without realizing it at all.

In ordinary times, most people seem more or less content with people in finance making vast sums of money. But when the companies that provide these salaries come to the government with hat in hand or when they’re credibly charged (in the loose, not the legal sense) with creating vast harm to the whole economy, the whole calculus changes. And fast. In fact, there was a poll yesterday that showed, not surprisingly, that people overwhelmingly oppose regulation of executive pay levels for independent companies but overwhelming support it for those companies that take federal aid.

On the one hand, I can understand the argument of Jake DeSantis, the AIG executive who says he agreed to stay and work for a year in exchange for a big bonus, was repeatedly assured he’d get it, and then was muscled into giving it up after a big popular outcry. ‘A deal’s a deal’ is always a strong argument.

On the other hand, when the public is funding the project, you’re just inherently out on a limb when you say: “Okay, I put in my year of work. Where’s my $1.5 million?”

When the companies have come to the taxpayer hat in hand, begging for money, at that point you’re into the average citizen’s moral space, in which it becomes her or his business whether you really deserve that much money — something that people just don’t think is their business as long as you’re talking about private corporations making or not making money in whatever way they’re able.

For what it’s worth, that’s the way I think too. As much as I think some exec paychecks are obscene and point to real imbalances in our economy, I’m really leery of limits on pay levels in private companies. To the extent that executives are paid too much, it seems like a broader issue of poor corporate governance, since shareholders shouldn’t be willing to pay executives obscenely more than they’re worth. But that’s sort of the point: shareholders, in practice, exert little real control over this sort of thing. (And I suspect, though I don’t know enough about this stuff to know, that that’s the case because in the post-1980 stock market, investors are much less concerned about the functioning of the companies — in a direct sense — than their ability to drive stock valuations.) But, yeah, when a company would be out of business without taxpayer help? Then we’re in your business. Do you really need $15 million as opposed to $2? Is your mortgage that high? Do you have that many kids in school.

I’ll leave to the side for a moment whether restrictions on pay at one taxpayer backed company will just leave it ripe for the plucking by other companies still operating without federal aid. And this is one reason why I think we might be better off with some sort of rapid restructuring that more quickly got these institutions cleaned up and reprivatized as quickly as possible. Because the whole situation gets awfully messy really fast, which is why it’s vastly better to keep these two spheres separate.

But I’d just like to conclude by saying that as much as we rightly look dimly on cheap populist outrage, we show no higher level of moral or intellectual sophistication by reflexively treating all public anger as undirected, contentless, stirred up agitation by unnamed dopes who haven’t taken the time to understand the complexities. There are real and wholly legitimate — just not always openly articulated — social bargains that explain why it is that the overwhelming number of people are content with the fact that some people make $45,000 a year and other people make $45,000,000 a year. It’s not just a given. And when parts of that bargain get upset, things can change very fast.


Josh Marshall is editor and publisher of