Thursday, October 09, 2008

Something a Little Different About the Bailout

Even the title is different: The Rationality of Spite: Why the Bailouts Do, And Should, Make People Angry

If one accepts the idea that bailouts will help the economy in this way, then isn't it irrational to oppose them? That is, can't we say of bailout opponents who cite the unfairness of "socialism for billionaires" that they may be cutting off their noses to spite their faces?

This column will explore the role of "spite" or - more charitably - opposition to unfairness (even at great personal cost) in people's behavior. It will conclude that those who oppose the bailouts because of "spite" are not necessarily behaving irrationally, if we consider analogous choices in our legal-constitutional framework.

***

One could say that unlike discriminators and criminals, the federal government - in the case of the bailouts - was not "on notice" under the law that there would be a strong negative public reaction to perceived unfairness, even if the government bailouts made good wealth-maximizing sense. But this statement about notice assumes that we need a law to tell us what is and is not fair. The reality is that one might reasonably view the federal government's "free market" approach to poverty, health crises, and foreclosures as fundamentally inconsistent with bailouts of Wall Street - as a lopsided allocation by champions of the wealthy to their wealthy friends that, to some minds, mirrors the already-skewed distribution of wealth in the U.S.

For people who take this view, the fact that they personally might have suffered marginally more if there were no bailouts than they otherwise would does not - and maybe appropriately does not - make them favor the bailouts. Their sense that Wall Street must pay for its mistakes - even if this costs the rest of us too - may be powerful and rational, at least as rational as the human desire for retribution and equality embodied in our criminal justice system and anti-discrimination law.

There is a lot here. And I am probably too tired to go into in detail but in mind is this: how much more do I want to pay for the satisfaction of seeing an investment banker squirm?

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