A piece at Bloomberg today confirms that the financial crisis did nothing to shift the gap between what someone can earn on Wall Street versus more worthwhile lines of work:
Wall Street traders discouraged by declining bonuses this month can take solace: They still earn much more than brain surgeons and top U.S. generals.
An oil trader with 10 years in the business is likely to earn at least $1 million this year, while a neurosurgeon with similar time on the job makes less than $600,000, recruiters estimated. After a decade of deal-making, merger bankers take home about $2 million, more than 10 times what a similarly seasoned cancer researcher gets (see table below).
The pay gap between finance and other professions widened between the 1980s and 2006, exceeding the record set before the Great Depression, according to a 2009 study by Thomas Philippon, a professor at New York University’s Stern School of Business. After the 2008 financial crisis, Wall Street started paying a larger portion of bonuses in stock and restricted cash. Yet there’s little sign the gap with Main Street is narrowing.
“I don’t think it’s healthy for the economy to be this skewed,” said Stephen Rose, a 63-year-old professor at Georgetown University’s Center on Education and the Workforce. “I believe there’s some sort of connection between value added to the economy and pay. Everyone is losing sight of any fundamentals.”
It’s important to stress that this is a new pattern. In the stone ages of my youth, top earners in investment banking were on a par roughly with top heart surgeons and when someone became a partner at Goldman, his cash compensation fell sharply. The old line was that partners lived poor and died rich.
And their aspirations were modest by contemporary standards: a nice apartment in the better sections of the Upper East side, having their kids in private schools, and having a summer home, likely in the Hamptons (which were much cheaper then than now).
One of the perverse elements of the pay escalation in finance is that more dollars are being thrown at social signaling. Anthropologists would have a field day. To a significant degree, top end goods have been repriced upwards to reflect competition for the same assets (paintings, luxury goods, prime residential real estate), with admittedly some new creature comforts now on the list (private jets).
But a much uglier element is how this trend continues to suck “talent” into socially destructive activities (if you think that’s an overstatement, read this post from yesterday). And it is becoming institutionalized, not just due to the pay gap between jobs in TBTF financial firms, but also due to the seemingly unending rise in the costs of higher education, well outpacing inflation for more than 20 years. As Jamie Galbraith pointed out in his book The Predator State, there’s a fallacy in thinking that having more people get more advanced education leads them to higher levels of lifetime earnings. While that can be true for individuals, if large numbers of people adopt the same strategy, more credentialing simply becomes a new normal (look at how many college and even advanced degree graduates take jobs that don’t require their level of educational attainment).
So the result is increasingly costly higher education, due to more and more people going to college and grad schools, and students being less price constrained due to student loans. So students who don’t have affluent parents are forced to be mercenary in their career choices or risk having huge problems in contending with their school loans (which can’t be discharged in bankruptcy). A widely discussed article in the New York Times pointed out how law school is now a bad investment, and also described “Enron-type accounting” on behalf of the law schools themselves in misrepresenting the value of their degrees.
So the normal avenues to upward mobility or even normal middle class prosperity are eroding, and demanding and socially valuable careers that were once highly respected are now falling in relative standing in increasingly Plutocratic America. This is not a blueprint for economic success or rising social well being.
Another reflection of this sorry trend was an article in the Atlantic, “The Rise of the New Global Elite,” which was admirably shredded by reader paper mac:
The cherry-picked anecdotes of blue-collar, self made executives used to suggest that entry into the ranks of the ultra-rich is somehow “meritocratic”, despite extensive evidence showing that the relationship between heriditary wealth, education, and socioeconomic status is strengthening; the suggestion that these elites somehow “produce wealth”, despite the clear evidence than in fact most of them do little but extract it; the absolutely laughable assertion that attending elite wank-fests like TED talks or Davos conferences somehow constitutes engagement with serious ideas; the absurdity of claiming that the handful of billionaires with significant philanthropic contributions to their pet causes shows us that the ultra-rich are legitimately attempting to better the condition of their inferiors- I’m amazed this trash got past any editor, anywhere.
Freeland is clearly far too close to her subjects. She spends most of her 7 pages fellating a handful of executives she had access to (include a puke-worthy passage suggesting that Lloyd Blankfein is, after all, just a regular, salt-of-the-earth boy)….
It’s nonetheless worth pointing out a few bits that provide some insight into the psychopathology of the subjects and the author. One that struck me was this:
“The clincher, Peterson says, came from the wife: “She turns to me and she goes, ‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20 is only 10 after taxes.’ And everyone at the table is nodding.””
In what way is this person not mentally ill? In what world is this not simple addiction to money? Who in God’s name needs 20, or even 10 million dollars a year? If we lived in a sane society, this person would be the object of pity and ridicule- someone so completely given over to their wealth addiction that they will literally never have enough. It is people like this who will kill us.
There’s also an interesting fallacy that at least some members of this cohort subscribe to:
Our light-speed, globally connected economy has led to the rise of a new super-elite…Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.
To the extent that members of this group have wealth that depends on assets or operations located in, say, China or Russia, their assumption that they can operate above states is a tad optimistic. They are effectively projecting their success in capturing the American government apparatus and assuming that other states will also hew to their will. But America is an empire in decline, hence ripe for exploitation. And American has long had plutocratic tendencies, while the elites in other countries, notably China are keenly sensitive to foreign exploitation, having been on the wrong side of that trade far too often, and are likely to turn the tables outsiders once they cease to be of use to them. They probably won’t wind up as badly as Mikhail Khodorkovsky, but their optimism that they can continue to operate unfettered, beyond the reach of governments is more than a tad optimistic.
No comments:
Post a Comment