Anger at AIG bonuses misplaced?

Hans A. von Spakovsky, in his article Misplaced Anger on AIG at National Review Online, argues that it is not only pointless to confiscate the controversial AIG bonuses, but it is counterproductive. His essay is directed at visitors to NRO, specifically conservatives who want to learn about the A.I.G. controversy. Von Spakovsky has some credibility on the matter. He is a former commissioner on the Federal Election Commission, and for a time was the in-house counsel for an insurance company that went through major financial difficulties.

Von Spakovsky claims that lawmakers do not understand people's careers or how the economy works. He describes his experience at the insurance company he worked for and what happened when it ran into trouble. He states that in a struggling company, employees will find jobs at other companies for fear that theirs will fail and they will be unemployed. He says that in such situations, bonuses are necessary to keep the employees that are needed to run a business. Von Spakovsky uses this point to argue that a 90% tax on bonuses at companies such as A.I.G. will "drive out" the "top talent" and important employees that should be working to make the business profitable. If it fails to be profitable, taxpayers will "never recover their $150 billion investment" in A.I.G. He fails to mention, however, that A.I.G. bonuses were paid to employees in A.I.G.’s financial products unit, which is the part of the company that got them into trouble in the first place. It doesn't make much sense to be trying to retain the people at least partially responsible for the current problems.

Von Spakovsky at first would seem to be making a good point, and it is true that the amount of money paid in bonuses is a small fraction of the bailout money given to A.I.G. His argument that the bonuses are necessary, however, is ultimately not very convincing. For example, there is no suggestion that his own company actually benefited materially by retaining him and his coworkers with financial incentives.