Oh Greg!

On Tuesday, one of my personal guides through the financial crisis demonstrated that otherwise smart people can sometimes totally not get it. Concerning the AIG bonus flap, Professor Mankiw wrote in Trivial Pursuit:

The AIG bonuses now being debated in Congress and everywhere else represent about .001 percent of annual GDP. Regardless of how outraged you are about the AIG bonuses, it is probably not an optimal allocation of resources for our elected leaders to spend large amounts of time and energy on the topic.

Conventional wisdom says that our populist rage is unleashed on this particular topic because, unlike many topics in the financial crisis, we understand it. People understand companies going insolvent, getting bailed out, then paying $400,000 bonuses to a chosen few. And they don't like it, regardless of the fact that the bonus fund is .001 percent of GDP.

Mankiw would have done better to have stuck to prior criticisms of recovery legislation, which focus on the inefficiencies and mistakes that are inevitably made when so much money is spent so quickly.

As it turns out, Mankiw's lack of faith in the wisdom of congress (evidenced by the last paragraph of his post) was supported by today's House vote to tax the AIG bonuses at 90 percent. Newsweek's Howard Fineman pointed out on Olberman that such a law is unconstitutional because it is both retroactive and targets a specific group (Article I, Section 9. No bill of attainder or ex post facto Law shall be passed.)