

Bankers' excessive salaries as predictors of Depression - soundsop
http://broadstuff.com/archives/1520-Bankers-excessive-salaries-as-predictors-of-Depression.html

======
Prrometheus
Let's see, official recessions are 1907, 1918, 1929, 1953, 1957, 1960, 1973,
1980, 1990, 2001, and 2007.

The evidence looks pretty weak, although it's hard to eyeball. It would be
nice to throw up a simple regression and get objective.

It's interesting that banker pay continued to rise well into the Great
Depression. I'm guessing that this was due to all the demand for financial
talent to work the bankruptcies and restructurings, and maybe businesses
needed more folks to comply with exponentially expanding government
regulations.

On the other hand, maybe LOW banker salary correlates with depressions, since
there are fewer deals to do. Thus, high banker salaries would be A Good Thing
for a country, since it signals high economic growth, and low banker salaries
would be A Bad Thing. The more that I look at it, the worse this "excess wage"
statistic looks as a predictor. Sure, it grew during the housing bubble, but
this is the millionth statistic I've been shown that shot up like a rocket
during that period.

Lastly, what the hell is "excess wage"? That's surely the low-hanging hole in
this analysis. They didn't teach me about that in Macroeconomics. It's hard to
look at this graph and make generalizations when you don't know what the hell
this new, undefined quantity is and how they calculated it. I guess someone
could say, "well go look it up on your own". But then I could say, "Your blog
presents pseudo-information that is not useful, and is frankly misleading".

Of course, the lesson we are supposed to take home is " Greed without
Governance, allowed to build over N years, equals depression, and its
absolutely predictable - now isn't that depressing....". Gee, I wonder if the
blog owner came up with that _after_ being exposed to this information, or
_before_. And I can't think of any "governance" that would have stopped the
massive capital flows going into the housing sector that is even close to a
good idea for the long term economy. But that is another issue altogether.

On the bright side, reading inane writing in support of preconceived ideas
like this inspires me to do better in my own work.

------
psyklic
Although interesting, this is like saying that high CEO salaries are a
predictor of company disaster.

Correlation does not imply causation ...

~~~
trapper
Please explain how better experiments can be run?

------
time_management
_When I was newly out of college, other professional salaries were roughly on
a par with bankers - but the difference skyrocketed from c 1990 on, leading to
probably one of the biggest misallocations of talent and resource in the West
in the last 200 years_

This wouldn't have been such a big problem except for the fact that (1)
academia collapsed, becoming unviable as a career, during the same time, and
(2) housing prices skyrocketed due to competition from the banker douches,
meaning that standards of living declined substantially for the lawyers,
doctors, etc. If these two things hadn't happened, I doubt that the people
"lost" by the other professions would care that a few under-cultured jackasses
in suits were pulling down millions. People don't go into academia or
engineering expecting to be rich, but they expect to be solidly middle-class,
which isn't available when mid-sized houses cost over $500k.

 _“The system”, he says, “filters out the thoughtful and replaces them with
the faithful.”_

This is a really great insight, and it reminds me of Ron Suskind's "Without a
Doubt", on the "faith-based" presidency of George W. Bush.

I think the Strauss and Howe model of cyclical history (see: _Generations_ ,
_The Fourth Turning_ ) is fairly accurate. Third Turnings are characterized by
confusion, socioeconomic stagnation/reversion, and rampant inequality; Fourth
Turnings, by crisis, hardship and rapid social evolution. The last 3T was
approximately 1914-1928, with a 4T from 1929-1946. We crossed the 3T/4T
interface again some time during the Bush presidency.

Do I think that the recent spell of inequality fortells a second Great
Depression? Not necessarily. On the other hand, it was obvious even in 1995
that something was going to break in American society, and that we had to have
a crisis in order to muster the will to move forward. The crisis came about 10
years earlier than I expected, but I have a lot of faith that we'll handle it
well, given that we made an exceptionally good choice for President in 2008.

~~~
puzzle-out
Points (1) and (2) can also be seen in psychological/cultural terms - academia
used to be seen as a respectable career choice, but with the rise of the
bankers there was more family pressure on young people to 'use' their talents
- which mean't making money in the City - otherwise you could be seen as
wasting them, and letting down your family. One further point: academia in the
UK got a lot of kudos from the 2nd world war and academics role in the enigma
code, which is now running out.

~~~
time_management
_Points (1) and (2) can also be seen in psychological/cultural terms -
academia used to be seen as a respectable career choice, but with the rise of
the bankers there was more family pressure on young people to 'use' their
talents - which mean't making money in the City - otherwise you could be seen
as wasting them, and letting down your family._

Really? I am utterly surprised by the thought of anyone choosing finance over
academia for fear of "letting down the family". I grew up thinking of "Wall
Street" as an uncultured and not very respectable profession.

My dad was disgusted when I told him (2003, during my junior year in college)
that I was considering Wall Street as a profession. My parents both wanted me
to get a PhD, and strongly insinuated that finance would be a waste of my
talent.

I come from a family of inventors, architects, and writers, so although I grew
up solidly middle-class, and my parents would've been happy with my choice had
I been a high school teacher, the thought of me working on Wall Street was
seen as a massive "step down" into unpreftigious nouveau-riche territory. (I
softened my view toward Wall Street upon moving to New York; a lot of quants
are brilliant, educated, and cultured people. I still do look down,
reflexively, upon any "profession" connected to real estate. I can honestly
say I'd never marry a woman who worked in RE, and only a woman from a real
estate family if she had been purified through an elite college, a filter I
otherwise don't care about in the slightest.)

I'm surprised that upper-middle-class UK families don't have an even stronger
blue-blooded prejudice against "working on the exchange". Growing up, I always
understood being an intellectual (academics at the pinnacle) as the epitome of
preftige, and investment banking as the thing you did when your family lost
its money/standing and you needed to buy it back by sacrificing ten years of
your life to something unpreftigious but lucrative.

~~~
anamax
> I still do look down, reflexively, upon any "profession" connected to real
> estate. I can honestly say I'd never marry a woman who worked in RE, and
> only a woman from a real estate family if she had been purified through an
> elite college, a filter I otherwise don't care about in the slightest.

Because Ghod knows that folks who build buildings are the lowest of the low.

> I'm surprised that upper-middle-class UK families don't have an even
> stronger blue-blooded prejudice against "working on the exchange". Growing
> up, I always understood being an intellectual (academics at the pinnacle) as
> the epitome of preftige, and investment banking as the thing you did when
> your family lost its money/standing and you needed to buy it back by
> sacrificing ten years of your life to something unpreftigious but lucrative.

In other words, the blue-bloods and the wannabees are essentially parasites
and that's a good thing.

Napoleon was defeated by the "nation of shop-keepers", not the professional
poets. The blue-bloods marched working men into machine gun fire, kicking
soccer balls and talking about their halcyon days at Eton. The mechanics and
engineers invented tanks.

~~~
time_management
Engineering and mechanics are admirable professions. "Any 'profession'
connected to real estate" excludes engineering and architecture, which are
completely fine lines of work. Construction depends on whether the buildings
are beautiful and useful or not. Construction connected to some gauche nouveau
mogul like Donald Trump would definitely not be OK, but construction of
beautiful churches (or temples, mosques) and houses is fine.

Also, my "ilk" have always had a lot of respect for inventors and
entrepreneurs, who are the productive engine of our economy. My parents were
thrilled when I told them I was joining a startup. We just don't like
"business" scumbags-- politically-skilled corporate bureaucrats who masquerade
as entrepreneurs-- who move money around but don't contribute intellectually
to society, and real estate is especially disreputable because of that
industry's exploitation of status-driven and simian emotions.

~~~
anamax
> and real estate is especially disreputable because of that industry's
> exploitation of status-driven and simian emotions.

Then sales of art, clothing, jewelry, and pleasure vehicles must be beyond
mention.

Thanks for the interesting perspective. As a peasant, I've always blamed the
political class for the sins of "politically-skilled corporate bureaucrats".

Then again, I think that construction of a factory, house, or hotel is a
higher calling than construction of a church.

