A Weird State of Mind

Matt Yglesias on why it's a good thing to drive talented/ambitious people out of banks that are now owned by taxpayers:

One concern I’ve heard voiced about sharp executive compensation limits for executives at bailed-out firms is that this may cause an exodus of their most talented employees. One common rejoinder is to observe that the firms in question don’t actually seem to know very much about hiring talented employees or running a business. But another point is that I’m not sure I see why an exodus of the most talented and ambitious business minds from these firms would be a bad thing.

If you think of a talented and ambitious businessman, after all, you have to remember that you’re talking about a guy who, unlike normal people, mainly focuses his life on earning as much money as possible. That’s a weird state of mind in many ways. But it’s a good thing there are some folks like that around, because one good way to earn a ton of money is to invent a product that lots of people find useful when sold at a profitable price. None of my best friends are talented and ambitious businesspeople, but most of my favorite stuff is made by firms managed by such people. But if you’re a talented and ambitious businessman working at a government-support zombie financial institution then you don’t earn your riches by selling products to people. Instead, per Simon Johnson here and here, you maximize income by maximizing “tunneling,” i.e. “borderline legal/illegal smuggling of value out of businesses” and finding other ways to bilk the taxpayer.

A couple things:

1.) I think that Yglesias vastly underestimates the normality of spending one's life focused on earning money. Perhaps that's not normal for Harvard Philosophy majors who go immediately into liberal blogging and their friends, but this is essentially what people in the private sector are doing. Along with the people at the very top of large corporations, you also about 30 million various businesses in the US, most of which are small businesses with owners who are (gasp) focused on making money. I'm not sure that we can classify wide swaths of the country as "weird" because their focus isn't progressive blogging.

2.) It's all well and good to call Citi, AIG, etc. "zombie banks," and they're certainly getting federal money. However, it's important to remember that many of these organizations are gigantic, and have lots of parts that are in fact making money. Citibank has its retail banking and credit card division. AIG has a successful "insuring actual physical stuff" business. There's wealth and value (I like being able to access my Citibank account, factories like being insured) created by these "zombies," not merely attempts to swipe taxpayer dollars by greedy non-philosophy majors.