Fair Pay

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One of the dividing lines between me and a lot of the commentators on the Wall Street crisis is that I am not outraged by their pay.  If any of my classmates are left on the Street, I'm well aware that they mortgaged their last ten years in order to bet on a directorship that's now at best a badly tainted prize, and at worst just evaporated beneath their fingers.  I work 60 to 80 hour weeks doing something I love.  They've been working 30-50 hours a week more than that, doing work that no reasonable human being could claim to enjoy the mechanics of.  I do not resent the difference between their well-located New York co-ops and my tiny row house in an "emerging" neighborhood in DC.  I'm only thankful I'm the one in the row house.

As Economics of Contempt says, this is what builds their outsized sense of entitlement to their compensation:


To me, the former Lehmanite was simply expressing a well-worn sentiment in the financial sector: yes, compensation is extremely high, but it's not like working on Wall Street is all champagne and caviar. The hours are insane, the lifestyle is brutal, the pressure is never-ending, etc., etc.

This, to most Wall Streeters, is justification enough for their exorbitant compensation. I don't buy this argument, but this is the way they think about it. Yves Smith--not one to sympathize with Wall Street, mind you--summed this mindset up well (in what was probably the last thing I agreed with her on):

You do not know how hard you can work, short of slavery, unless you have been an investment banking analyst or associate. It is not merely the hours, but the extreme time pressure. Priorities are revised every day, numerous times during the day, as markets move. You have numerous bosses, each with independent demands and deadlines, and none cares what the others want done when. You are not allowed to say no to unreasonable demands. The time pressure is so great that waiting for an elevator is typically agonizing. If you manage to get your bills paid and your laundry done, you are managing your personal life well. Exhaustion is normal. One buddy stepped into his shower fully clothed.

And exhaustion and loss of personal boundaries is an ideal setting for brainwashing, which is why people who have spent much of their career in finance have such difficulty understanding why their firm and their world view might not be the center of the universe, and why they might not be deserving of their outsized pay.

The difference between me and them is that I don't think they deserve their pay, either.  Now it may be that I, in my position as taxpayer, have to continue to pay these guys their huge salaries, because the unintended consequences of trying to regulate their pay will make it harder to get the banking system back on its feet.  (It also may not be so--it's an empirical question to which I don't have any good answer).  But the bankers genuinely seem to believe that I have a moral obligation to do so, that they are entitled to two million a year, or whatever it is they're pulling down, because they work so hard.

Guess what, honey?  You're not entitled.  You can do everything right, and the universe doesn't owe you anything.  Neither do your fellow taxpayers.  If there is any way to save the banking system without paying you $2 million a year, I will do it, not because I hate you and want to rob you, but because I don't want to pay more than I have to.  You may have come across this concept in business school.  At Chicago, we called it "a market".

The real problem with investment bankers goes deeper, and is the problem of the entire upper middle class:  we have come to believe that complying with the rules produces excellent results as by some natural law.  In school, if you do your work, teacher gives you an A. It comes to seem like a sort of a natural law:  if you have a good education and work hard, the universe is supposed to reward you.  After school, the upper middle class gravitates towards careers with very well defined advancement hierarchies:  medicine, law, finance, consulting, where this subtle belief is constantly reinforced. 

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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