A provocative report by the New Economics Foundation has made an effort to put a price tag on the broader costs and benefits of various types of work. As quoted in the Financial Times (hat tip Swedish Lex), the leader of this effort put it:
Pay levels often don’t reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit, rather than those that generate profits at the expense of society and the environment.
But where this study gets interesting is that it attempts to measure the costs of the looting that the banksters just pulled off:
The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions. Applying a guess about the cost of the recession on the rest of society, they estimate top City bankers des-troy £7 of value for every £1 they are paid privately.
This of course, not only said that top financiers took advantage of the rest of us, but they did so very inefficiently. But they still appear to be more efficient than AIG Financial Products was (in terms of money extracted relative to value destroyed). If we assume that $30 billion of the AIG rescue was for its securities lending operation, and $100 billion plus went for AIGFP. If they were to have destroyed $10 for every $1 they earned, that would still imply average pay of over &8 million each for every person at AIG FP for three years. Now of course, that $100 billion includes loans, and one can charitably assume that there could be some recoveries, but I would not hold my breath. But then we have also omitted the collateral damage (no pun intended) from the AIG meltdown.
This line of reasoning says the 50% surtax on banker bonuses is warranted; indeed, perhaps a 95% surtax would be even better to discourage people from joining this line of endeavor.
I would be pretty certain that the NEF effort is at best a rough cut. However, it raises important questions that I hope others pursue. I sincerely hope that this NEF exercise leads others to sharpen their pencils and come up with more refined efforts of what the meltdown cost us collectively versus the bankers’ take.
Believe it or not, there is some consolation to bankers. Advertising execs are deemed to be even more destructive (although not meeting the likely AIG level).
Next, they look at pay versus collective benefits for hospital cleaners:
The report says good hospital cleaners prevent the spread of infection, saving lives and protecting the wider health of the public. The authors calculate they provide £10 of benefits for which they are directly paid only £1.
Since we accept that manufacturing can result in externalities (pollution), I don’t see why it should be at all a stretch to think that the same could not apply to service industries. And the “right” solution, from an economist’s perspective, to externalities are taxes to impose the full social cost of the goods on the manufacturer, or regulations to make them make low or no-externality products.
The BBC gives a longer-form summary:
A total of six different jobs were analysed to assess their overall value. These are the study’s main findings:
The elite banker
“Rather than being wealth creators bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse
Paid between £500,000 and half a million and £80m a year, leading bankers destroy £7 of value for every pound they generate”.
Childcare workers
“Both for families and society as a while looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up £9.50 worth of benefits to society”.
Hospital cleaners
“Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created”.
Advertising executives
The industry “encourages high spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. For a salary of between £50,000 and £12m top advertising executives destroy £11 of value for every pound in value they generate”.
Tax accountants
“Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate”.
Waste recycling workers
“Do a range of different jobs that relate to processing and preventing waste and promoting recycling. Carbon emissions are significantly reduced. There is also a value in reusing goods. For every pound of value spent on wages, £12 of value is generated for society.”
The research also makes a variety of policy recommendations to align pay more closely with the value of work.
These include establishing a high pay commission, building social and environmental value into prices, and introduce more progressive taxation.
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Link to the Report: http://www.neweconomics.org/sites/neweconomics.org/files/A_Bit_Rich.pdf
Bonne lecture
Thank you for bringing this fascinating report to our attention.
A two part question for you Yves (and anyone else who cares to respond): if money is a store of value, what is value and can it be stored?
I don’t have an answer, so this is an honest enquiry.
My view, which does not matter and can be disappeared at any time, is that economics as a whole constitutes a shared delusion. There is no value except that which we agree to, and there is no store of value unless we agree to it.
Take gold, for example. We have a lot of people running to gold these days as a “store of value.” But can you use gold at any store anywhere in the world to buy food? Doubt it. Indeed, a lot of people are buying “gold” by buying an ETF. While it is at least plausible that when you are traveling “The Road” with Viggo, some people might accept shiny pretty metal as currency (doubt it; bullets, seed, and gasoline will be worth a LOT more), ETFs will be absolutely worthless (and will probably get you shot).
So, value is what we agree it is, and it can be stored because we agree that it can be. The good news for neoclassical economists is that money is exogneous (that is, assumed away) from economics, so they don’t have to deal with your difficult question.
A more wonkish explanation is provide by Steve Keen at the following URL, but, as I recall, this post was provided on Naked Capitalism, as well (thanks to Yves for letting him cross-post here). I loved his book. Wish he’d post more.
http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
Your view does matter, and thank you for it. I agree with it too, but always like to hear what others think. I have read the article you link to twice and love it, and am a fan of Steve Keen generally.
Other problems with economics are perfect competition, a decent definition of scarcity, and a sensible, all inclusive definition of growth. Until those things are sorted out properly, economics is deeply in the dock, and may not be allowed to be certain about anything.
But I’m no expert. WTF do I know ;-)
>> ETFs will be absolutely worthless (and will probably get you shot)
LOL. I can imagine disagreement at a border crossing: “But, *this* ETF has low administrative overhead and beats its 1, 5, and 10-year Lipper averages!! Why won’t you accept this as legal tender?? Why are you still shooting at me??”
Some (non-mainstream) economists think money’s alleged “store of value” function is bogus. That where someone’s not using money as a medium of exchange, but just hoarding it to store “value”, he’s acting in an illegitimate, socially destructive manner. So there’s no such thing as “value” in the abstract, but it can only come into being through use, or be destroyed through removing something useful from use.
That’s right, it’s always going to be arbitrary at some level but related to perceived utility too, as well as the consequence of some hard-won consensus. Consensus is always hard-won, and hard to change. But that’s where we are, on the foothills of a paradigm change, and all of us need to be chipping in, expert and non-expert alike. Discussions like this are essential.
I like to think of money as an abstraction of value, but this is unsatisfactory too, since I cannot define value. It seems to be a moving target. Ah me…
I agree that money is not a store of value. How can you take the value “out” of anything with real value and put it into a computer?
Toby,
Hannah Arendt in The Human Condition has a nice discussion on the meaning of “value.” She says there are three ways of determining value:
1) Use Value—Intrinsic or objective value or what Locked called “worth.”
2) Exchange Value—The value assigned by an exchange market.
3) Arbitrary Value—The value assigned by those with power.
Libertarians, adherents to the Austrian School and neoclassical economists have a built-in blind spot in that they see government as the only entity in society that can possess and exert power. They are blind to the fact that powerful, non-governmental actors within society, such as wealthy industrialists or financiers, can also exert power to arbitrarily distort the exchange market.
She goes on to explain that:
Marx, too, accepted this terminology and, in line with his repugnance to the public realm, saw quite consistently in the change from use value to exchange value the original sin of capitalism. But against these sins of a commercial society, where indeed the exchange market is the most important public place and where therefore every thing becomes an exchangeable value, a commodity, Marx did not summon up “intrinsick” objective worth of the things in itself. In its stead he put the function things have in the consuming life process of men which knows neither objective and intrinsic worth nor subjective and socially determined value. In the socialist [ideal it is] equal distribution of all goods to all who labor…
–Hannah Arendt, The Human Condtion
So Marx completely dispenses with the exchange market, and instead it is the government that is charged with insuring an “equal distribution of all goods to all who labor.”
But the same thing happens in Marx’s utopia as happens with the libertarian-Austrian-neoclassical utopia. Man’s “avarice, ambition, vanity and all passions vulgarly though improperly comprised under the denomination of self-love,” to use the words of Hume, always crash the party, imposing themselves upon the imaginary “paradise of innocence” (Niebuhr). Powerful government authorities are no more immune to these irrational impulses than powerful industrialists or financiers.
Love your posts, DownSouth.
Thanks for the response DownSouth. Very interesting.
It’s the self-referential nature of value which confuses me. It’s impossible to get a bead on it. To my mind there is no intrinsic value to anything except in relationships. Someone has to be able to see utility in granite, or sand, or gold, or diamonds. Without this act of human imagination utility does not exist. Among the less complex animals which exhibit tool use, it’s hard to attach notions like “value” and “worth” to, say, a thin twig a monkey uses for fishing termites out of their mound. Words like “value” and “worth” and very slippery and highly contextual. Because I cannot find any objective thing called gravity, the “higher level” definitions seem fatally flawed too.
It’s not my intention to provide a solid definition (I don’t think there is one), rather to point out that economics rests on very shaky foundations indeed. To call money a store of value is to say nothing more than that this medium of exchange works by consent. Consent is the ultimate issue, which comes down to power. And then we come to the government-private enterprise split, which is also false in my mind, since neither can exist without the other. They are manifestations of the same process, namely maintaining a functioning status quo, and defending it too.
As to Hume’s insulting take on us poor humans, that is nature-nurture territory (another false dichotomy). Here I like John Holt’s observation:
“To ask what is fundamental human nature is to ask what a human being would be like without a culture. Such a question is meaningless, and cannot be answered. There is and can be no such thing as a human being without a culture.” From Instead of Education.
Of course there can be no such thing as Utopia, because that would imply perfection. This does not mean, however, that something called “human nature” makes all humans greedy brutes, and that we therefore will always need a Hobbesian Big Brother breathing down our necks making us do (mainly) good to one another. If we humans were brutish and greedy at base, why did we go to the trouble of building cities and nations? What of the medieval city states and their astonishing cathedrals? The level of cooperation this demands is tremendous. Why would we put ourselves through such constraints and travail if we didn’t enjoy society, need each other, etc? Why not just stay “wild?”
I still back the idea of a resource-based economy. I think there is such a thing as ethical evolution, i.e. it’s not just the same old patterns of rise and collapse over and over again without any learning at all. There is also progress.
not “gravity,” “value.” How in the name of all things holy did that slip out of my fingers????
Toby,
Forgive me if I gave the impression that Hume is in the same camp as Ayn Rand and Richard Dawkins.
Hume certainly had a more nuanced conceptualization of human nature than the simplistic “red in tooth and claw” fiction peddled by the New Atheists. For in addition to the human impulses mentioned above, Hume committed what, in the eyes of the New Atheists, would have been an unpardonable sin when he wrote: “[S]urely without the greatest absurdity [it]cannot be disputed, that there is some benevolence, however small, infused into our bosom, some spark of friendship for humankind, some particle of the dove kneaded into our frame along with elements of the wolf and the serpent.”
The New Atheists fall within the libertarian-Austrian-neoclassical constellation, and are just the latest incarnation of a phenomenon that always seems to manifest itself during periods of heightened speculation and political corruption. As Kevin Phillips observed:
The second imprint left by the money culture during eras of unleashed capital and speculation (Gilded Age, Roaring Twenties, our current era) has been cultural and intellectual: the marshalling of thinkers, writers, publications, and academies on behalf of wealth, markets, and corporations…
The economic thrust may come first, but supporting ideology, with its deification of self-interest, greed and consumption, gives boom and bull market circumstances greater momentum and longevity…
[P]hilosophy and public policymaking during such periods has shifted to emphasize markets and Darwinian behavior and to find civic virtue in erstwhile private sins like greed, self-interest, and profligacy.
–Kevin Phillips, Wealth and Democracy
The New Atheists always portray themselves as being locked in some Chiliastic battle with the religionists. So its atheists vs. religionists, evolution vs. creationism, rationalism vs. faith, science vs. the supernatural. This, however, is not really what is going on. What is really going on is that this is a staged battle between immoral, unprincipled atheists and immoral, unprincipled religionists.
The battle that needs to take place is an alliance of moral, principled religionists with moral, principled atheists vs. immoral, unprincipled religionists and immoral, unprincipled atheists.
“The battle that needs to take place is an alliance of moral, principled religionists with moral, principled atheists vs. immoral, unprincipled religionists and immoral, unprincipled atheists.”
Only if they wore spandex and battled in out in a vat of baked beans would it get the audience figures it needs ;-) Now that film would get made.
Joking aside, the hard part would be determining who is moral, and who amoral. And as for slithers of goodness glinting out from a preponderance of murk and EVIL, I suspect we are mostly “good,” although, as with value (and gravity) I have I hard time defining those things too. Ah me. One thing’s for sure though: I don’t want a Hobbesian Big Brother world.
Thank you for your responses. They are always interesting.
Toby,
For a very enlightening discussion on morality, I highly recommend the following:
http://www.edge.org/3rd_culture/haidt07/haidt07_index.html
Or if you prefer video-lecture format:
http://thesciencenetwork.org/programs/beyond-belief-candles-in-the-dark/jonathan-haidt-1
“Libertarians, adherents to the Austrian School and neoclassical economists have a built-in blind spot in that they see government as the only entity in society that can possess and exert power. They are blind to the fact that powerful, non-governmental actors within society, such as wealthy industrialists or financiers, can also exert power to arbitrarily distort the exchange market.”
Spot on!
Libertarianism boils down to the idea that all morality can be reduced to the rights of property and contract.
Three simple questions can be used to demonstrate that the entire foundation of libertarianism is a foundation of sand:
1. How does one obtain a property right to land and other unproduced natural resources, which were not the product of human labor? More to the point, how can one justify claiming an exclusive property right to land and natural resources that, prior to such claim, were available for all to use (IOW, what gives someone the right to extinguish the right of all others to use something not created by anyone but required for existence by all)? Nozick struggled with this question in Anarchy, State, and Utopia under the guise of justice in original acquisition but never came to a resolution. The solutions offered by Rand, Rothbard, and others (variants of the homesteading justification) were all logically incoherent dodges.
2. How does libertarian morality deal with pervasive externalities? Not just with regard to big issues like pollution, but the fact that virtually everything someone does affects others and their property – even things such as talking while walking down the street or turning on a light in your house cause photons and sound waves to transgress the property of others. David Friedman, well-known (consequentialist) libertarian points this out as a fata flaw in natural rights libertarianism in his Machinery of Freedom. Libertarianism requires swallowing the (obviously false) idea that every man is an island.
3. As you note above, the idea of power. Liberatrians would like to bifurcate exchanges as either voluntary action or force/fraud, with all action by government falling into the latter. Obviously, private parties can also engage in force/fraud. But more to the point, force and non-force, fraud and non-fraud are not binary choices. Rather they represent a spectrum of bargaining power and information asymmetry, all of which are represented in differing degrees in ostensibly voluntary exchanges within the private sphere.
If ultimate value comes from energy and matter, with which we do work and create “valuable” commodities, etc, then even gold is not a store of value -you cannot eat it, put it in your tank, etc.
The missing component of most contemporary economic outlooks is a realization that easily available energy and matter can decline. Most think technology and substitutes for oil will save us and allow growth to resume. Another way to view our current crisis is one of a peak in cheap energy and matter(resources) with which to create value -and support life.
Remove all money, make everything free, half the population moves to worthwhile jobs, everybody retires at 40. M25 emptys overnight. Think about it.
I’m in, even though I live in Germany. We need a good plan though, and it won’t be easy.
We could get to “everything is free” (almost) if ever the nanotech “universal builder” is ever created. Of course, the Bastards of Greed(tm) of the corporate world would find a way, with their political puppets, of sucking “money” out of the People again and again even though essentially everything would be free at that point (free of labor, free of mining inputs, free of energy inputs).
So, first thing that must be done when/if universal constructors are built: use them to deconstruct corporatists and their political lackeys whenever they pop up and their component atoms used (by the constructors) to first feed and cloth the previously poor peoples of the world.
Praedor – out of curiosity, have you read Nano Comes to Clifford Falls by Nancy Kress?
Praedor,
it doesn’t need to be a paradise, only a change of direction. Utopia is impossible, since it would imply perfection, which is static and unchanging. Change is the only constant. Money is a technology we created and tweaked over time to enable complex trade, nothing more. It has built in problems which have led us to this impass. Frustratingly it is very difficult to imagine making things available without a price tag (nothing is “free”), because we have for millennia had a distorted idea of value, and, in my opinion, a poor idea also of human nature. Societies have lived in systems approaching resource-based economies (for example on St Kilda where it’s very harsh, and on the island chain of Tua Motu where its tropical). The trick — admitedly a very, very hard one — is gaining momentum with the idea at the popular level. To my mind, distributing resources via price is a system that has outlived its usefulness. The alternative is so radical though, that hardly anyone can take it seriously. And there’s the rub…
A year ago, I knew nothing about economics. Neoclassical economists (which I now define by the pols of DeLong and Mankiw) would argue that I still don’t, but I’d retort that I know more than they do because I refuse to assume away reality for my models to work.
I have no comment on what NEF did except to say that Gunnar Myrdal had a lot of worthwhile things to say. I particularly enjoy his “The Political Element in the Development of Economic Theory.” Neoclassical economics assumes that human beings make decisions based solely on monetary concerns, but insitutional economists like Myrdal (and John Kenneth Galbraith) argue that there are other metrics of value that are brought to bear in these kinds of calculations.
I applaud anybody who, like NEF, attempts to take us back to a more sane time when there was a society, when economics in America (some say that Institutionalists dominated U.S. economics until the rise of neoclassical economics) accounted for other metrics of valuation beyond mathematical “rationality” and monetary gain.
As to your final paragraph, I’d argue that the GDP metric glosses over the fact that manufacturing industries and service industries are fundamentally different. GDP does not actually measure production, it measures consumption. The consumption of products produced by manufacturing has a multiplier effect. The consumption of services provided by services does not, or, if service industries do have a multiplier effect, it is much less than that of manufacturing industries. The bottom line is that service industries, particularly service industries that are supported by de facto monopolies (e.g., banking and health insurance) do little more than impose taxes for private gain because government mandate allows them to do so. While that sounds remarkably glibertarian, that’s not my ideology, only my observation.
To many long words, all that is necessary is food production, health services and maintaining and enhancing any area that is chosen by all to be necessary or desirable.
All finance is a repetitive pointless exercise in providing worthless occupations.
The numbers required to maintain food production etc. etc. is minimal and with todays technology that will only improve, and much faster if many people working in worthless finance related jobs move to health, design, research etc. etc.
There are problems, but real progressive problems that are worth solving.
It just needs some bright people to start.
It is well worth a proper read and although I think their examples of value are misleading I have a lot of sympathies with this.Perhaps it is too socialist for politicians and personally I am not a great fan of government intervention whatever the merits of that intervention. This will repeatedly come back onto the radar as things get worse and eventually the electorate will pick up on it. Some more quotes.
Empirical studies have demonstrated that pay arrangements are geared towards serving the financial interests of managers, not shareholders.Without proper checks and balances we believe our economic system could squeeze out those aspects of life that people value most.
The Royal Navy, for example, has had a de facto differential of eight, whilst some Japanese firms voluntarily impose pay ratios limiting the gap between the top and bottom pay.
Closing tax loopholes would also be a good place to start.
Over the past decade the ratio between the average rate of pay for chief executives and the average earnings of employees has risen from 47:1 to 128:1. Executive pay has risen by 295 per cent in this period, compared with a rise of 44 per cent for employees.
nef has calculated that restoring Danish levels of equality in the UK could generate about £7.35 trillion of social value between now and 2050.
the International Monetary Fund’s outgoing executive director, Michel Camdessus, argued that the gap between the rich and poor within nations (as well as between rich and poor nations) was morally outrageous, economically wasteful and potentially socially explosive.
The International Labour Organisation points out that depressed wage levels have forced many workers and their families to fund not only investment (predominantly for housing) but also consumption through debt.
Remuneration committees are both self-regulated and self-fulfilling, comprised as they are of members of the executive elite. Shareholders have little power to contain management pay.
Harvard professors Bebchuk and Fried in 2004 argued that executive pay arrangements were intended to benefit the financial interests of managers, not shareholders. They believed that shareholders, often pension funds representing the average worker’s future financial welfare, were captive to executive influence on this matter.
There has been little or no political appetite for reining in high pay and this reflects a systemic malaise and complacency that have created a climate for market failure.
Category error: fail.
Menu addition: succulent win!
Is this serious?
Did some marxists just walk into the room?
I mean seriously, pay people by what they are worth to society… and pray tell, how do you suggest we do this? Some person at the top arbitrarily saying who gets paid what, is this the Soviet union now, fascist Italy??? Wow, this is complete and horrible tripe, it doesn’t deserve mention on this blog.
Price and value are two different things. Most people, from Oscar Wilde to Warren Buffett understand that concept, but I gather you slept through that lesson.
And this bit about someone setting a price is your creation, no where in the post. By contrast, using taxes or regulations to combat externalities, and destructive banker behavior fits, is hardly a radical idea.
It never ceases to amaze how how often people fail to read the underlying studies. Instead they opine on the basis of Yves’ selective cut-n-pastes…
Read the damn article. Pick any random page, chances are you will find some missive about establishing price.
Here’s one snippet straight from the article which you didn’t read:
“End the policy silence on high pay. nef (the “independent think(?) tank that’s responsible for this mess of an article) has previously advocated a national maximum pay differential. This has been echoed recently by Compass and others with calls to establish a High Pay Commission. Its task could be to examine what the appropriate differentials should be.”
Here’s the freaking subtitle: “In this report nef calculates the value to society of a number of different jobs and advocates a fundamental rethink of how the value of work is recognised and rewarded.” [What do you suppose the statement about a “rethink of how value of work is recognized and rewarded” means? If “price” is not involved, what do they advocate–a pat on the back?]
Other points in this article include establishing Price Floors in addition to Price Ceilings.
Another quote: “Explore the possibility of positively discriminating towards people from low-income backgrounds to level the playing field in access to highly paid professions.” [Yes, and let’s do the same with bloggers.]
Here’s my favorite, though:
“[We advocate] Mutually owned building societies, co-operatives and land trusts are all models in which ownership takes a more collective form, and benefits are more evenly shared.”
[Hey, Yves, it’s safe to say, you wouldn’t have a book deal without this blog. And this blog just wouldn’t be the same without the commentary from Richard Kline, “i on ball patriot”, etc…let alone the guest posts from Ed and Marshall…how about if we get the nef involved, get you some minority contributors (I can’t help but to notice there doesn’t seem to be much commentary from people of color)…and then the nef will help you set up a mutually owned co-op where advertising revenue and book royalties are distributed accordingly.]
Anyways…back to snarkman…the fiction that this article merely addresses value and not price is strictly your creation, not Doc Merlin’s.
I have long been on a tear about executive pay and decreasing the differential between worker and exec.
I propose a tax law that minimizes corporate taxes AND personal income taxes on the upper incomes when the top of the pay scale in a corporation is no more than 50x the pay of the lowest paid worker (including temps!) in a corporation. If a CEO wants more money, s/he is free to lavish unearned wealth upon himself/herself but also has to suck up a very high personal and corporate tax rate as a result. The more disparity between top and bottom in a corporation, the higher the tax rates.
As for trickery like trying to outsource your workforce and claim that your $1/day pay to (slave) labor in East Timor is the same as $29/hour in equivalent domestic pay…NOPE. That $1/day counts against you. You get maximal taxes on yourself and your corporation in this case if you pay your top execs more than $50/day. To allow for development of poor nations, however, this system would only kick in when outsourced work goes above, say, 20% of your total corporate workforce.
Thus, you nail greedy do-nothing execs who think they are worth far FAR more than they actually are AND minimize outsourcing AND still allow for advancement/development of poorer companies.
Well, it pretty much is Fascist Italy. With the notable difference that Mussolini had a much better sense of humor than Oh’bama…
Vinny
Doc Merlin,
You say: “Some person at the top arbitrarily saying who gets paid what, is this the Soviet union now, fascist Italy???”
Hum. What you described sounds pretty much like what we have in America now.
[I]t is impossible to justify the degree of inequality which complex societies inevitably create by the increased centralization of power which develops with more elaborate civilizations. The literature of all ages is filled with rational and moral justifications of these inequalities, but most of them are specious. If superior abilities and services to society deserve special rewards it may be regarded as axiomatic that the rewards are always higher than the services warrant. No impartial society determines the rewards. The men of power who control society grant these prerequisites to themselves. Whenever special ability is not associated with power, as in the case of the modern professional man, his excess of income over the average is ridiculously low in comparison with that of the economic overlords, who are the real centers of power in an industrial society. Most rational and social justifications of unequal privilege are clearly afterthoughts. The facts are created by the disproportion of power which exists in a given social system. The justifications are usually dictated by the desire of the men of power to hide the nakedness of their greed, and by the inclination of society itself to veil the brutal facts of human life from itself.
–Reinhold Niebuhr, Moral Man & Immoral Soceity
Many thanks for that, DownSouth — except now I have to go read Niebuhr!
Marxist, etc. ??? are there still people about who’s brains only work in black or white.
No wonder finance is in such a shambles.
My posts where for the thinking members of the community.
Bankers receiving only a a dollar for every $10 of destroyed value sounds about right. That is about what a fence will pay a common thief.
YS:
I have said this for decades. Banking as we know it today is economic “rent seeking”. Kill the big banks. We don’t need them.
If the tax accountants destroy at 47:1, I wonder what the tax code authors destroy at? 10000:1?
We don’t need, nor is it proper, to put ceilings on bankers’ salaries and bonuses. Rather, this compensation is just a reward for rent-seeking.
The solution is to impose draconian regulations on the FIRE sector that (a) preserve its socially useful function of capital allocation and (b) inhibit the perversion of that function into rent-seeking parasitism.
Ah the age old argument of what various jobs are worth. (The assessment of value differs from society to society. Continental Europe values bankers and executives less than Anglo Saxon society. Asia appears to value teachers more than the west. Another example of the dispute is the gender pay disparity. Of course in the Anglo Saxon societies when you and your cronies get to set your pay, why not the top? That is nice work if you can get it.
I have said so before (on this blog), and now a cleaned up version of what I had said here before..
http://dissention.wordpress.com/2009/12/12/alternative-view-on-money-01/
http://dissention.wordpress.com/2009/12/13/alternative-view-on-money-02/
Ironic, that the people who aim to quell speculation are themselves speculators…
“The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions. Applying a guess about the cost of the recession on the rest of society, they estimate top City bankers des-troy £7 of value for every £1 they are paid privately.”
I do not understand how people who are most nuanced on other subjects resort to binary logic in this instance. To be sure, the financial system needs an overhaul and new rules put in place. To be sure, a lot of the financial engineering and many innovative pracices, proved, AFTER THE FACT, to be value-destroying. This was most likely due to a high number of reasons, one of which might have been that some people in the financial industry were paid in a way that didn’t maximize their social value contribution.
I don’t know. It seems like people are to angry to discuss with any sense of proportion in this. Please note, however, that a lot of people working in the financial industry were screwed as well. Even though they never touched a CDO, CLO, CMO or any other kind of “innovative” product with “negative social value”. To lump everyone together is just not fair in my opinion. And I am not a 100% sure, but I don’t think this is the right forum to discuss whether we should abolish currencies and our payment system. I would suspect that a little more pragmatism than that is needed to bring world back on its feet.
The whole thing is value extraction. In the old phrase, if you’ll excuse me, “don’t bullshit a bullshitter.” Paul Volcker knows what he is talking about, and after all it is common sense. If you don’t understand that, then you need to learn something that finance books cannot teach you.
Somebody has to allocate risk and facilitate trade — to allow society to reap most of the “gains from trade”. You don’t need that function to make up a large percentage of GDP, gimme a break.
Fixed income, equities, commodities, I’ve touched all those areas as well as credit, and the mentality is no different. Actually it’s unfair to make such a big distinction between the people who work in the bond department and those who work in the credit products department, just because of which part of the contracts happened to blow up this time.
So, in essence, what are you saying? That working in finance makes you immoral? Or only immoral people work in finance? That is not my experience. I also disagree that things just “happened” to blow up, as you put it. Was it equally likely that we would have a crisis caused by equity derivatives or currency swaps, or what is your point?
When I was an engineer, I think perhaps immodestly that I was adding some social value. I went into the field because it seemed useful, and it was common sense that if I used my talents at something useful, society would allow me a decent life as a contributing member. And it was OK, only OK.
But the finance types seemed to be having all the fun, and they could possibly make a lot of money. And, well, I was tired of having my wages cut by various means, all the while the government was decrying an engineering shortage. I felt that my common sense was a bit too common; I was being taken advantage of, and missing out on an interesting life experience. There was something sneaky going on, and I wanted to be a part of it, and to get my share of the good stuff.
So I went back to school and became a finance type. To a large extent my motivation was to see how the world really worked. And I did learn a lot about that, from theory and from coming in contact with forces that I didn’t have an opportunity to see before. So I got what I came for. As it turned out I didn’t make all that much money, even though I learned my stuff quite well, but it was fun until recently.
Now it’s not fun, because the world isn’t working that way any more. It’s good that things have changed. It was wrong before, I already knew that long ago and should not forget that, and it was my evil pleasure to experience it slightly, but I should not get wrapped up in that experience and think it was more than a temporary fling.
So now I have to figure out what to do next, in this world that is in between phases.
Thank you Toby, DownSouth, et al for one of the most intelligent/compassionate discussions I’ve read on economic blogs. You put the cynics at Zerohedge and the self-absorbed greedaholics at Global Economic Analysis to shame.
I don’t know if this point has been brought up, but it is one of those 1+1 =2 things. The hospital cleaners should audit the bankers. In a world where almost every financial engineer smells like feces, it seems obvious that someone should do society a favor and keep these poor bastards out of the garbage they keep getting into. The bankers obviously have no self-respect and are incapable of taking care of themselves without public support, so why not just put them in mental institutions and have someone watch after them and keep them out of trouble. Society would be far better off!
I worked in hospitals for years, and I can tell you that hospital cleaners (housekeeping, we called them) are very carefully trained and very strictly supervised. It’s down to the level of “Hold the sponge in your left hand and the brush in your right hand, and start from the top and work down”. Everything has to be done exactly right because one mistake can recontaminate an area.
And by contrast, doctors cheat on infection-control rules all the time. Infection-control doctors lead hellish lives because they can’t really supervise their peers.
This study of the negative impact of bankers on society is important. It is a nice building block, among many which are needed, to reform our monetary and banking systems by returning to sound money and sound banking.
There have been other useful building blocks–the story that bankers got the H1N1 vaccination first, the story that bankers were buying guys to protect themselves from angry citizens, etc.
All are helpful anecdotes to plant the popular notion that bankers need to be punished severely via every means possible — and certainly through intense regulation and reform.
We have to break the grips of the bankers on our nation and end the most successful instance of regulatory capture in history.
There should be a word for situations when everyone in a certain place and time loses their minds and goes completely nuts.
This would really help, to have this word, because then it wouldn’t be such a struggle to point out all the insanity.
All you’d have to do is say, “Well, Look at them over there, they’re having a real ______.”
It should be a word that connotes a sense of shameful loss of control. So that people would want to deny it and feel deeply ashamed and embarrased. Sort of like they’d feel if they were caught in a brothel paying for sex with a 12 year old.
It should probably be a German sounding word, because it would have psychoanalytical overtones and that Germanic capability for social catastrophe and collective psychosis.
I don’t speak German, but it should sound like you’re spitting from the back of your throat, the way German sounds.
So when a bunch of dip-shit nobodies makes a few million a year looting prudent savers and small children’s futures, and tries to justify it by reference to their “talent” and gets the government and academia on their side somehow, you can just use that word. “Crime” is too blunt a word. I’m thinking of something with at least five syllables that hits like a mind missle.