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.
True, a lot of people fall by the wayside in the up-or-out structures of most of the top firms. But that was always true--the whole idea that you deserve to be rewarded for your hard work always involved ignoring the entirely undeserved natural endowment of intelligence and social capital that most upper-middle-class kids are given by their parents. The people who stay in the system and make it to the upper levels do not see it as mostly the product of luck; they view it as the just reward for all their hard work and sacrifices.
I include myself in this group. When I was laid off for a long time in 2002, I felt as betrayed by the universe as if the law of gravity had suddenly ceased to operate. I had worked hard, gone to an excellent business school, and I was supposed to have a job, just as an apple thrown into the air falls back to earth. I was angry, but also deeply shaken, by the notion that I could work hard, do everything right, and still end up unemployed.
We're watching the entire investment banking industry go through what I endured seven years ago. They aren't going to be paid so well in the future, even though they made the colossal mistake of giving up the best years of their lives to the finance industry. It feels--and it is--massively, nearly unfathomably unfair. On the other hand, that's a pretty good description of the universe: massive. nearly unfathomable. unfair.
Just ask any manager at Chrysler with two swell kids and a nice house in a Detroit suburb.
Anyone who has a halfway decent job is incredibly lucky--and yes, journalists and academics, complaining that it isn't fair you don't get paid much, that includes you. If your IQ had been forty points lower, or Mom had been on drugs, or you'd been born in Africa, you'd be spending your days doing hard, disgusting manual labor. The difference in utility between your salary and an investment banker's is trivial compared to the difference in utility between your salary and a Bangladeshi farmer's.
So for all the bankers annoy me, their pay--and its difference from mine--doesn't outrage me. The difference between their pay and that of a physical therapy assistant or an auto line worker doesn't outrage me. No one deserves their pay, so I can hardly be angry at the folks on Wall Street for taking what they could get. And so I wonder why so much of the commentary on Wall Street--not on the pay caps, but just on Wall Street in general--focuses on how much they were paid. Would it have been better if they had only been paid a third, or a tenth, or a twentieth as much? Would that make the recession significantly more enjoyable for the rest of us?
They made colossal mistakes, to be sure. But if you thought that high compensation was supposed to guarantee no errors, I have the same response to you that I have to the bankers: the universe does not owe you anything in the way of guarantees. Besides, their mistakes were no more colossal than those of the homeowners to whom they loaned the money. I don't see why I'm supposed to be angry at either group, or the regulators, or the Chrysler workers. Trying to make as much money as an employer will legally give you, and making mistakes, are neither legal nor moral offenses. Why isn't it enough to say, no, thank you, I'd rather not pay you that much money? Why is it also necessary to hate them?