Limiting bonuses is not the same as higher tax rates

Reader comment on: Krugman Versus Obama

Submitted by Ben (United States), Sep 21, 2009 21:10

The problem that Krugman writes about is the skewed incentive structures of bankers. Because they make more money when they make riskier short term bets, they have an incentive to make poor decisions for the greater well being of the country. Taxing the upper income earners at a higher rate does nothing to change the incentives. A banker will still wish to earn as much as possible in the short term, even if more of this is taken by the government. By revising pay schemes to reward good long term thinking, a bankers incentives change from being one of short term (and often illusory) gain, to long term growth. Why haven't the banks made such a switch? It seems their own self adulation that they need to attract the "best and the brightest" blinds banks to what is best for their shareholders. The arrangement is eerily similar to the corruption among many boards of directors, where the CEO appoints his buddies to the board, who then reward him with lavish pay packages no matter the performance of the company.

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