Should The Poor Celebrate Bigger Wall Street Bonuses?

Most people would probably answer the question above with a resounding "no!" Of course the poor aren't better off with greater income equality, right? Well, they might have reason to cheer the recent news that Wall Street bonuses will soar this year -- at least according to Robin Hood Foundation executive director David Saltzman. Bloomberg reports that he's thrilled bankers will have big bonuses burning holes in their pockets, because that means a lot more donations for non-profit organizations like his. Is his exuberance warranted?

Bloomberg says:

"Let me be emphatic about that one: 'Hell yeah,'" Saltzman said during an interview at Bloomberg News headquarters. "It's clear that New York City is better off in all sorts of ways if there's a healthy financial community."

Robin Hood gets more than half of the $150 million in donations it raises each year from investment banks, brokerage firms and hedge funds. The return of record Wall Street compensation will help the charity continue to fund the more than 200 poverty-fighting programs it supports.

So it's easy to see why Saltzman is so happy -- his firm stands to benefit significantly from bigger Wall Street bonuses. So it follows that the causes his charity serves will be better off as well, right?

Well, sort of. There's an interesting phenomenon that occurs with vast income inequality paired with a thriving non-profit industry. It creates a situation where those with the most money have a great deal more income than they need, so they can donate hearty portion of it, which helps those with the least.

But let's imagine that, instead, the income distribution was more equal. In that case, the rich would have far less to give -- and it's unlikely that the middle class would pick up all of the slack. After all, if you took, say, 25% of the top 5%'s wealth and spread it over the bottom 95%, it wouldn't go very far. That money would likely be mostly spent on day-to-day costs and savings. The broader populations' charitable giving may increase, but I find it unlikely that it would increase enough to compensate the decreased giving of the rich, since this money presents a much greater excess to them.

So in a strange sort of way, the poor might be better off when the rich are richer, because if that wealth were spread over them -- and also the middle class -- then they might not benefit as much as they would if the rich's excess income used for charity is focused on them. Unfortunately, it's pretty hard to be scientific about something like this, but the logic seems clear enough. Still, even if this is true, I suspect most people would just prefer better income equality.

Saltzman also says:

"Our hope is that people think carefully about how to spend their bonuses in this time of great need, and that people will remember to help their neighbors," Saltzman, 47, said.

That's an admirable hope, but I worry he might be disappointed. I can see where he's coming from, as he's probably aware that Wall Street bonuses will break records this year. But while I imagine charitable giving will be up versus last year, I don't think the increase in giving will be proportional to -- and especially not greater than -- the increase in Wall Street compensation.

As I've noted, the rich have been significantly affected by this recession. That means many of these bankers and traders are likely eager to use bigger bonuses to replenish their portfolios and nest eggs, which took a beating during the recession. For many of them, charitable giving might come second to that.