3 ms·

I think it's time to dust off the pg essay on wealth. Wall Street pay skyrocketed because of measurement and leverage: basically, you can trace millions of dol

• geebee 15y ago
  This is indisputably a big part of why people on wall street get paid so much. It doesn't explain why the opportunity exists in the first place, but it does explain why the top players get so much money. As long as we're careful not to associate "bringing in revenue" with "creating wealth", I'm in agreement. My big problem with wall street isn't that top players get money - that's fine by me. It's that they acquire wealth without creating it, and in many cases inflict real wealth destruction on the rest of the economy. In general, I'd say that in a a good economic system, wealth acquisition correlates closely and positively with wealth creation. When it does, people tend to value and admire the wealthy. When the correlation becomes negative, well, you get the French revolution. This is a big part of why wall street pr types try to frame this as a general "anger with the 1% issue" rather than as an "anger with wall street" issue (and even then, plenty of banking activity is highly beneficial to the economy). This is why I was so disappointed to see the "occupy wall street" movement become so diluted ("occupy the ports! occupy berkeley!). In the early days, we could turn to the wall street people and say "hey, this is occupy wall street, not occupy google. we aren't you, don't think you get to hide behind a productive industry that actually creates some value." Now? Well, I wouldn't be surprised by "occupy silicon valley".
• jellicle 15y ago
  Your comment has little basis in reality. The actual measurements of Wall Street productivity are that hedge fund managers, etc. add zero value at all; there is no correlation between performance one year and performance the next year (cite: Kahneman, Thinking Fast and Slow). The "best" hedge fund manager in the world has the same chance of ultra-poor performance next year as the "worst" hedge fund manager in the world. In actuality Wall Street is well paid simply because the job involves truly gigantic streams of money passing by, and it is trivial to get very very rich by siphoning off a bit from each stream. In a similar way, companies like Facebook et al. are "rich" in data, because it's just passing by and all they have to do is siphon it off as it goes by. This doesn't mean that e.g. Facebook's head developer is any more skilled at making data than anyone else is; it just means that due to the nature of the business he has easy access to as much of it as he wants. If you want easy access to money, work for Wall Street, if you want easy access to personal data, work for social media, if you want easy access to food, work in a kitchen, and so on. Working in a kitchen and getting fat doesn't mean you're a better food-gatherer than anyone else; it means you work in a kitchen.
  • rayiner 15y ago
    > The actual measurements of Wall Street productivity are that hedge fund managers, etc. add zero value at all; There is of course a distinction between revenue and wealth. The folks at investment banks surely were bringing in a lot of revenue, on a consistent basis, over the last few decades. The traditional investment banking functions in M&A brought in consistent fees regardless of how well the new company ultimately did. Traders also brought in a lot of revenue without creating any wealth (trading is not quite zero sum, but the value-add case is much weaker than for traditional banking functions), by transferring wealth from people on the losing sides of bets. As someone notes in the article, the explosion of public (401k, pension) money in the system meant there were a lot of less-sophisticated people willing to take the other side on these bets.
• rdouble 15y ago
  The post you are responding to is just saying drones on Wall Street make more money than drones at Google.
• jcnnghm 15y ago
  The problem with the pointy part of spears, is that they are very small in relation to the whole. According to Google's 2011 10-K, 96% of their revenue is derived from Advertising income. So if you want to be in the pointy part of Google, you either have to work on the Adwords team, or be integrating Adwords profitably into some other product. I'd bet that's a small percentage of Googlers, overall. You know what I find really interesting though, the overall similarity between the Goldman Sachs and Google numbers, except employee compensation. Google's Gross Profit (Total Revenue less Cost of Revenue) was $24.7B in 2011, and GS's was $24.5B. At the same time, Google had 32,467 employees to GS's 35,700. Yet, the Google net income was $9.7B compared to $4.4B on the GS side. The difference seems to be made up entirely by the difference in employee compensation. I think that the real reason people on Wall St are substantially out-earning people in Silicon Valley, is that they are in it for the money. Working at Google is sexy. They'll give you a free lunch for $220,000 a year, and who doesn't want a free lunch. Plus there is a ball pit, and doors that don't function. And a mythos about changing the world through social networking. If one company on Wall St starts belt tightening, the top traders will jump ship in a heartbeat. It doesn't take too many big bonuses before you can trade profitably on your own, on your own time. Grab a few other traders with their own money, and pool the risk into your own fund. Hire a few front-office sales types, and bring in other peoples money. That's precisely why outsized bonuses exist in the first place. The best traders are going to make big gains no matter what, with your money, their money, or some other firms money. If they get big pay for big gains, then they'll stay. Better to get a slice of watermelon that a whole grape for the trader, and the firm picks up the bulk of the profit. If pay is even pretty close, how many people would realistically choose Wall St over Silicon Valley. The money is there, but it seems like Silicon Valley engineers are too sheepish to actually demand it, nobody wants to come off as being in it for the money. When people hear, "I really want this job because I'm passionate about changing the world with twitter posts, or Facebook timelines, or amazing time tracking software", they think, I don't have to pay this guy.