A Wolf whistle on bankers' pay

Almost two years ago, FT economics columnist Martin Wolf surprised himself (rhetorically, anyway) by seconding a proposal by Raghuram Rajan, former chief economist of the International Monetary Fund, that regulators force banks to tie bonus pay to long-term performance:

Yet individual institutions cannot change their systems of remuneration on their own, without losing talented staff to the competition. So regulators may have to step in. The idea of such official intervention is horrible, but the alternative of endlessly repeated crises is even worse.

Today, Wolf further surprises himself by calling for a windfall tax on bankers' bonuses. Here's how his case begins:

Windfall taxes are a ghastly idea. They are a sop to prejudice, a burden on risk-taking and a form of arbitrary confiscation.

So Wolf once again casts his stance as a Nixon-to-China moment. But the logic seems incontrovertible:

“Windfall” support should be matched by windfall taxes.

And in a bit more detail:

Fourth, ordinary people can accept that risk takers receive huge rewards. But such rewards for those who have been rescued by the state and bear substantial responsibility for the crisis are surely intolerable. What makes them yet more so is that the crisis has devastated the prospects of tens, if not hundreds, of millions of innocents all over the globe. The public finances will be devastated for decades: taxes will be higher and public spending lower. Meanwhile, bankers are about to reap huge rewards. This damages the legitimacy of the market economy.

Fifth, it is hard to argue in favour of exceptional interventions to bail out the financial sector at times of crisis, and also against exceptional interventions to recoup costs when the crisis is past. “Windfall” support should be matched by windfall taxes.

If a nonideological free marketer like Wolf can make this case seem watertight, there ought to be ample cover for a large Democratic majority badly in need of landing a populist blow. But then, Wolf presumably doesn't take campaign contributions.