A stone in a glass house

Sir Fred Goodwin is under pressure from Alistair Darling to ‘voluntarily’ reduce some of his pension, from a pot apparently worth in the region of £16m, which he will draw annually to a sum of £650,000.

I’d love some of that, thanks.

Now, aside from the usual socialist idea that they who have more should give to they who have less (laudable while voluntary, illiberal and despicable when enforced), I wonder what the law of unintended consequences would result in should Sir Fred agree to this.

If Fred forgoes a part of his pension, where will that money instead go? Will those funds make a significant impact on the day-to-day operation of RBS? What would Fred do with the money if he received it? Would he spend it or invest it, thus ‘stimulating’ the economy? Would he bury it under his bed? Would he save it in a bank (thus providing them with deposited capital)?

I am reminded of Frédéric Bastiat, the French economist, and his essay ‘What Is Seen and What Is Not Seen’. What is seen is that Sir Fred Goodwin takes a reduced pension; public anger is doused (maybe), and RBS has a few million Sterling more in its pension pot. This will reduce the deficit the pension fund faces, but I suspect not by a significant amount.

What is not seen is that Fred no longer buys that yacht from the manufacturing company down south, that entertainment suite from a specialist retailer, that brand new Jaguar or Aston Martin. He no longer chooses to invest in that promising start-up company, or donate to that charitable organisation. Those parts of the economy which might have seen growth from his spending may not now benefit from his money.

RBS is the broken window; is this not simply paying the glazier?

EDIT: Corrected typo. £16m, not £61m!