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The Unemployed Banker Fallacy

One of the things you hear in response to complaints that the bonus tax would arbitrarily punish a lot of people in the financial services industry and could create manpower problems is something like: "Do bankers really have much leverage now? Aren't there tens of thousands of unemployed bankers and finance types out there? If they want to leave, best of luck to them..."

This seems pretty far off the mark to me. The problem is that it assumes all "bankers" are basically interchangeable, whereas in reality banks and other financial institutions employ a pretty wide variety of people with a pretty wide variety of skills, some of those skills in abundance at the moment and some of them still pretty scarce. Worse, it's probably safe to assume that the people whose skills are in abundance were generally the first to be let go, meaning that the people with rarer skill sets are overrepresented among the ranks of the employed.

So if, as the House did yesterday, you go and impose a penalty that equally affects peple with high-in-demand skills and low-in-demand skills, it's very likely that the former will get offers from institutions unaffected by the legislation--U.S. banks not accepting bailout money, foreign banks, etc. In fact, there are reports that this is already happening. It's presumably one reason Orin Kramer, a prominent hedge fund manager and Obama supporter (and occasional Stash collaborator) told the Times yesterday that: "If this stands, you will destroy the value of institutions where the government is an owner."

Don't get me wrong. I'm sure there are thousands of people at bailed-out financial institutions who don't deserve their compensation by any reasonable standard. The point is that it's just not wise to for Congress to rectify this with something as crude as a 90 percent tax on bonuses for everyone whose family income exceeds $250,000 a year.

--Noam Scheiber