What’s a Banker Worth?

Here’s a short excerpt from an article with the title What’s a Banker Worth?

[Thomas] Philippon [of New York University] and the University of Virginia's Ariell Reshef have found that, starting in the mid-1980s, financial-sector paychecks began to outstrip those for jobs in other sectors demanding similar skills and education levels. Since the late 1990s, Philippon and Reshef estimate, 30% to 50% of financial-sector pay has amounted to what economists call rents — windfalls that serve no economic purpose. They may even hurt the economy by pulling highly skilled workers out of other, potentially more productive fields.

http://www.time.com/time/magazine/article/0,9171,1933210,00.html(The full article will appear in Time on November 9, 2009).

I think it’s becoming clear that the financial industry is one of the exceptions to the normal rules of supply and demand. When there isn’t sufficient work to keep everyone in the industry busy, then the industry simply creates more work. I imagine that’s because most of us don’t really understand what most of the people in the industry actually do. If we don’t know what someone does, then we don’t know whether the work is useful or not.

There is also money available to pay people. Unlike a manufacturing concern, financial institutions have money available—it’s just a question of whether the money properly belongs to the bank or to you. When the banks are making the rules, I wouldn’t bet on the money being yours.

In short, financial institutions have our money and we don’t understand what they do with it. You’re a more trusting soul than I am if you think that’s a good idea.