Bailouts are Bad — For Teachers as Well as Bankers

The Wall Street Journal has a front-page piece today on bonuses paid to employees at banks that had received federal bailout money:

Nine banks that received government aid money paid out bonuses of nearly $33 billion last year — including more than $1 million apiece to nearly 5,000 employees — despite huge losses that plunged the U.S. into economic turmoil…. The $32.6 billion in bonuses is one-third larger than California’s budget deficit. Six of the nine banks paid out more in bonuses than they received in profit. One in every 270 employees at the banks received more than $1 million.

Now, I’ve got nothing against banks (or any other organization) paying large bonuses to their employees — if they do it with their own damn money!  Whatever compensation and hiring system they adopt should yield improved results.  If it doesn’t, the shareholders should experience the consequence of having a foolish compensation and hiring system.  But it makes absolutely no sense to insulate shareholders from the consequences of a foolish compensation and hiring system by giving them federal funds to perpetuate their mistakes.

If this is true for banks, then it must also be true of schools.  Local school districts and states around the country have been on a teacher hiring binge over the last few decades, particularly picking up steam in the last decade.  This is a compensation and hiring scheme just like the banks have.  But instead of paying a small number of executives a huge amount of money, schools are paying a huge number of teachers a moderate amount of money. 

At some schools, as at some banks, their compensation and hiring policies have become unsustainable.  They hired more teachers than they can currently afford to pay.  Rather than making those local districts and states correct their mistakes, either by laying off teachers or raising local funds if they are truly convinced that additional teachers are educationally beneficial, we are making taxpayers nationwide enable and perpetuate those mistakes.  Similarly, providing federal money to banks enabled them to perpetuate mistakes rather than reduce compensation, lay off people, or raise additional capital from shareholders. 

We have no reason to believe that the world would have come to an end if some of those financial institutions had their shareholders wiped-out and were forced to reorganize under bankruptcy.  Similarly, we have no reason to believe that reversing some class-size reductions would have a significant negative effect on student achievement.  Class-size reductions have produced no gains in aggregate achievement and have only shown (questionable) gains in small-scale experiments where hiring additional teachers wouldn’t require hiring lower quality teachers to offset whatever benefits are derived from having fewer students per class.

If people want to be consistent, they should oppose both uses of bailout funds, for teachers as well as for bankers.

4 Responses to Bailouts are Bad — For Teachers as Well as Bankers

  1. […] In Bonuses, On Q2 Bank Earnings, It’s Still Good To Be A Banker, Bankers’ Bonuses, Bailouts are Bad, $33 Billion in Taxpayer Money Subsidized Wall Street Bonuses, and Bonuses exceeded profits at […]

  2. Ryan says:

    What I’m getting from this is that if we oppose huge, taxpayer funded bonuses for bankers, then we should probably oppose taxpayer funded bonuses for teachers as well, because both systems can be just as corrupt.

  3. Greg Forster says:

    Ryan, “can be just as corrupt” may be the wrong way to put it. “would be just as counterproductive” is probably better. The point is not that people are somehow defrauding the government or embezzeling funds, but that the bailout is rewarding behavior that causes failure (and hence future bailouts).

  4. Jamesmmm says:

    Did anyone catch Marcia Kramer on the CBS(NY) news program a few weeks ago (July 2009). She made a reference to the NYS Board of Education and she referred to it as a ‘slush fund’ I don’t think she wanted to do that, she just sort of blurted it out. It makes you think.

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