Irrational rage

Members of the House of Representatives engaged yesterday in irrational rage when they voted a 90 percent tax on some people who have received bonuses, especially highly paid people who work at AIG, Fannie Mae and Freddie Mac. It's irrational because it does more harm than good. The head of Fannie Mae came out this morning and said as much. AIG CEO Ed Liddy told congressmen and women that when he testified on Wednesday. At the least, Congress should wait until AIG has been liquidated and Fannie Mae and Freddie Mac are on sound footing before trying to satisfy its rage.

Further, behavior of the kind Congress is engaged in affects markets. The behavior is interpreted as anti-business and it scares investors. A natural response to such behavior is for investors to become more risk averse. They will seek minimal-risk investments like U.S. Treasury Bills. They will not borrow and they will tighten the belt. Speculators will become short-sellers.

Is that what Congress wants? Whether it wants that or not, that's what it's going to get. The result will be fewer new jobs, more unemployment, higher federal outlays for unemployment benefits, smaller tax revenues and bigger deficits, all to penalize a very few people who make more money than Congress thinks they should.