Tuesday, March 17, 2009

Trivial Pursuit

The AIG bonuses now being debated in Congress and everywhere else represent about .001 percent of annual GDP. If a typical Congressman spent that fraction of a 2000 hour work year on the topic, it would consume only about 1 minute of his or her time.

Yes, I know, that calculation is silly in many ways, but here is my point: Regardless of how outraged you are about the AIG bonuses, it is probably not an optimal allocation of resources for our elected leaders to spend large amounts of time and energy on the topic. The economy has bigger problems right now, and it would be better to focus attention on those.

Unless, of course, you think that our elected leaders are more likely to make things worse than better. In that case, jabbering on about the AIG bonuses may be the perfect activity to keep them busy.

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Updates from my readers: As evidence for my last conjecture, a reader recommends a research study that finds:
Stock returns are lower and volatility is higher when Congress is in session. This "Congressional Effect" can be quite large -- more than 90% of the capital gains over the life of the DJIA have come on days when Congress is out of session.
Another reader remarks that "the 'Congressional Effect' is merely a modern, attenuated version of John Randolph of Roanoke's famous observation that 'No man's life, liberty or property are safe whilst the legislature is in session.'"

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.)

Yes, indeed, that sounds like what is going on in the Washington right now. Our nation's leaders are focused on the tool shed.