4 ms·

Bankers' excessive salaries as predictors of Depression

18 points by soundsop 18y ago

psyklic 18y ago
Although interesting, this is like saying that high CEO salaries are a predictor of company disaster. Correlation does not imply causation ...
- trapper 18y ago
  Please explain how better experiments can be run?
  - zack 18y ago
    His point was that a lot of companies paid their CEOs well and that a lot of company stock has been plunging recently.
- fh 18y ago
  > Correlation does not imply causation ... "Correlation does not imply causation" does not imply that correlations are meaningless or uninteresting. Certainly, you can use strong correlations to predict a likely future even if you don't understand the underlying mechanism.
time_management 18y ago
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 18y ago
  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 18y ago
    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.
Prrometheus 18y ago
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.

18 points by soundsop 18y ago

Although interesting, this is like saying that high CEO salaries are a predictor of company disaster. Correlation does not imply causation ...

trapper 18y ago
Please explain how better experiments can be run?
- zack 18y ago
  His point was that a lot of companies paid their CEOs well and that a lot of company stock has been plunging recently.
fh 18y ago
> Correlation does not imply causation ... "Correlation does not imply causation" does not imply that correlations are meaningless or uninteresting. Certainly, you can use strong correlations to predict a likely future even if you don't understand the underlying mechanism.

time_management 18y ago

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 18y ago
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 18y ago
  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.

Prrometheus 18y ago

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.