Monday, March 16, 2009

AIG, Outrage, Corporations, Unions, and Common Sense

'Outrage over AIG bonuses' is sizzling on the Web this morning, and for good reason. The American government has given somewhere in the neighborhood of $10,000,000,000 (USD) to American International Group, AKA AIG, to help that corporation out of the mess its executives and managers made.

It looks like some of the executives got a cut of the take, to the tune of $165,000,000 (USD): much of that going to AIG execs. Not that shabby a reward, for running financial giants into the ground.

As owner and operator of a sole proprietorship in America, I've got roughly the same chance of getting a federal bailout, and pocketing around a penny on the dollar, as I do of surviving, unprotected, for an hour, inside a blast furnace.

I don't mind one bit. If I got 'help' like that, there would be so many strings attached, that I'd look like Pinocchio: pre-fairy.

America: A Nation of Law

An op-ed piece this morning opens with a pair of quotes:

" 'We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.'–Lawrence Summers, chief economic advisor[!] to President Barack Obama

" 'Perhaps you [the government] can explain to all of us why a UAW worker earning $29 an hour must give back wages and benefits to keep their company alive, while the architects of the biggest financial disaster in history get to keep their gold plated contracts.'–Peter Morici, economist, University of Maryland" (EMac's Stock Watch)

Glenn Greenwald's blog on Salon.com also discusses the AIG bailout, and the auto workers' union. Mostly AIG.

What President Obama's economic adviser said is true: America is a nation of law. I think that's true. It's also true that there's a lot of legal wrangling over exactly what the terms of a contract mean - but that's another issue.

Having laws, and being expected to follow them, is, I think, a good thing. Given the attitude I have toward a massively powerful federal government micro-managing private-sector matters, I don't mind having legal barriers between the feds and corporation execs.

UAW and AIG: Class Struggle Between Proletariat and Bourgeoisie? Reality Check, Please!

What the Maryland professor said got me curious, so I looked up American wages on the BLS website ("Wages by Area and Occupation," Bureau of Labor Statistics). I didn't find an exact match for "AW worker earning $29 an hour" - but I got a few that are close.

Turns out, as of May of 2007, this is what Americans were getting paid, on average, in these occupations:1
  • "Production Occupations" overall
    • $15.05 an hour
    • $31,310 yearly
  • "Aircraft Structure, Surfaces, Rigging, and Systems Assemblers"
    • $21.24 an hour
    • $44,180 yearly
  • "First-Line Supervisors/Managers of Production and Operating Workers"
    • $24.88 an hour
    • $51,740 a year
  • "Numerical Tool and Process Control Programmers"
    • $21.54 an hour
    • $44,800 yearly
  • "Tool and Die Makers"
    • $22.36 an hour
    • $46,520 yearly
So, why the tone of righteous indignation I thought I noticed in the Maryland professor's comparison of UAW workers and "the architects of the biggest financial disaster in history"?

AIG executives probably don't, as a rule, have to get by on the $44,800 a year that your average Numerical Tool and Process Control Programmer makes.

Neither do college professors, for that matter. Americans with "Education, Training, and Library Occupations" get an average $22.41 hourly wage. That may help explain why professors, who are to some extent involved in education, are sometimes perceived as relatively poor. Looking a little deeper into the BLS site, I found that college professors don't have "hourly wage" listed. Their employment is seasonal, you see. They use their 'time off' to study, presumably. Besides, their pay isn't calculated that way.

I did a little figuring, from ten post-secondary teaching occupations listed by the BLS. College professors get by on a paltry $75,080 a year, on average.
  • Ten listed postsecondary teaching occupations average
    • $75,080 a year
  • "Mathematical Science Teachers, Postsecondary"
    • $65,450 a year
  • "Engineering Teachers, Postsecondary"
    • $85,260
I'm not complaining about what the professors make: what they do is a specialized job, requires a fair amount of training, and is demanding. If that's the market value for their set of skills, no problem.

I think that what your typical college professor makes may affect his or her perceptions of what a 'typical' or 'reasonable' wage is. It looks like professors make half again as much a year as your run-of-the-mill Numerical Tool and Process Control Programmers. More than that, actually. Or, coming at it the other way, the N.T.P.C. Programmers only make in the neighborhood of 2/3 what a prof does.

No wonder the Maryland professor regards $29 an hour as a comparative pittance.

Having grown up within a block of a college campus, and spending decades in or near America's academia, I've heard quite a bit about the class struggle between the proletariat and bourgeoisie. A century and more ago, that was an important aspect of Western civilization's evolution.

But today, the UAW isn't struggling against plutocratic oppressors of the Victorian Age.

This isn't the 19th century anymore.

We're in the 21st century and, if anything, the UAW is now part of the entrenched system that labor unions struggled against.

Big Three Automakers, AIG, Bailouts, and Pavlov

I'm not as hard-hearted and callous as this is going to sound. Letting the Big Three automakers fail might be a good idea. Ibid for AIG and all.
The Humanity! The Humanity!
Yes, I know that if GM, Chrysler, and Ford go the way of Owens Magnetic, quite a lot of UAW workers might be out of a job. But I don't think that Americans will stop driving - and buying - cars.

As I wrote last year, "I have trouble believing, though, that nobody of the several-hundred-million people who live in this country doesn't want to open an automotive design and assembly company, and have the brains and background to do it.

"It's been a long time since a new automotive company has had a chance to get started, with three 800-pound gorillas sitting on the American car market...." (December 12, 2009)

The start-ups might not be able to provide the pay and perks that UAW members have become accustomed to, and they might have to learn new skills. Some people may find it hard to change decades-old habits. But my guess is that union workers can learn.

Besides, the UAW and others in the established order will have to change their ways anyway. The Big Three are in the mess they're in because their leadership hasn't een dealing with reality.

If the existing Big Three change, union workers will have to adjust - along with everyone else. (I'm getting to the twits at the top: be patient.)

If the existing Big Three don't change their ways, and the rest of us keep bankrolling their incompetence, taxes for a steady stream of bailouts will eventually clean out Americans who do know how to be productive. Then, after what's left of the economy can't take the strain of whatever shenanigans the feds pull to prop up the Big Three, GMC, Ford, and Chrysler will collapse.

And union workers will have to adjust. Only by then, the adjustment will be a lot harder. There won't be as many solvent businesses around to hire them: you get the idea.
Pavlov's Incredible Drooling Dog and AIG Executives
You remember Pavlov's experiment, where he learned about classical conditioning.

The parallel between Pavlov's dog and AIG executives isn't exact: the executives walk on two feet, and haven't learned to drool at the sound of a tuning fork. As far as I know.

However, they have been rewarded for behavior that isn't doing AIG any good. And, particularly since Americans are now bankrolling the American International Group debacle, the rest of us aren't exactly benefiting, either.

I have nothing against a company giving bonuses for performance. In fact, that application of behavior modification makes a great deal of sense.

If, I repeat, if bonuses are clearly and unequivocally linked to desirable behavior.

Barney Frank: "Disgusted" by AIG Bonsues

I don't agree with Barney Frank very often, but I'm also "disgusted" by the way AIG seems to be rewarding incompetent executives: with money that came (in very small part) from me.

Today's Boston Globe had a few words on the subject, including: "...Frank, a Massachusetts Democrat who is chairman of the House Financial Services Committee, suggested that if the federal government, which now owns an 80 percent stake in the company, can't rescind the bonuses, it could force some dismissals.

" 'These people may have a right to their bonuses. They don't have a right to their jobs forever,' Frank said on NBC's 'Today' show...." (Boston Globe)

There's something to be disturbed about in that Boston Globe piece. My guess is that you caught it, too.

That's right: The federal government now owns 80% of American International Group.

The state owning and controlling major businesses? We've gone through this before. It didn't end well then: I'm hoping we get out of the current mess in better shape than Russia and Germany did. 2

Related posts: News and views:
1 The numbers are BLS mean, or average, hourly wages.

You probably know this already, but:
  • Median in this context means "the value below which 50% of the cases fall"
  • Mean means "an average of n numbers computed by adding some function of the numbers and dividing by some function of n"
    (Princeton's WordNet)
2 I am not responsible for, nor do I necessarily agree with, content at the other end of links. The "Russia" and "Germany" links are to documents which discuss what I think are undesirable aspects of state capitalism in Germany and Russia. I most certainly do not think that regulation is a panacea.

'Nuf said.

2 comments:

mercy said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Joannah

http://myscones.com/

Brian, aka Nanoc, aka Norski said...

mercy,

Thanks for the nice words.

Readers,

mercy's blogs are Nasdaq finance - Equity Finance, Accounting Finance, Finance Jobs, Home Finance

myscones.com is registered through Domains by Proxy, Inc. - I've no idea who or what runs the website on the other side of that link.

("Following" list moved here, after Blogger changed formats)

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