Some of Greg Mankiw's readers have an apt explanation for all the attention on the AIG bonuses:
This second reader also offers a good observation about how our leaders prioritize their efforts:
The phenomenon you describe in this post was identified by Norman Augustine in his book ("Augustine's Laws") as "inversion": the tendency for managers to spend disproportionate amounts of time and energy on the inconsequential. He attributed this behavior to the (in)ability of most managers to comprehend the larger issues. As an example, he described a board meeting in which it was proposed to spend several millions to build a large power plant (this was back in the 1960s), a proposal quickly and uncontroversially approved. The same group then spent a much longer time, with much more vigorous debate, on the proposed expenditure of a fraction of this sum on an ancillary building to house a maintenance facility. Augustine surmised this was because (1) no one had the slightest clue as to how much a power plant should cost, but (2) everyone had an idea of how much a tool shed should cost.
(A third reader claims the correct citation is Parkinson's Law of Triviality.)
Update: The Nation's Chris Hayes comes at the idea from a similar perspective:
There's something vaguely redolent of the earmark foolishness in the dramatic expressions of anger from elected officials--what might be called the Law of Small Numbers. When it comes to money, trillions of dollars is a statistic, but $165 million is an outrage.