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.
This fits with one of my pet intellectual hobby horses: that in modern society we have lost touch with the reality that life is often beyond our control. That one works hard does not necessarily mean that one's labor will bear fruit. That one is a good person does not mean that bad things won't happen to you.
Through most of human history, this reality was constantly impressed upon us by the fact that most people lived by subsistence farming, which meant they were constantly at the mercy of the weather, pests, diseases, etc.
In Victor David Hanson's lyric Fields Without Dreams about the vineyard in Calibornia's central valley which his family has owned for four generations, there's a scene in which he talks about how farmers confront nature's caprice. Hanson and his neighbors all grow grapes for raisins. To make raisins, the grapes are picked and laid out on drying trays to dry in the hot California sun. If it rains while your grapes are still out on trays, you lose the whole crop to a sodden, fermenting mess. If you pull your grapes in from drying too soon, they get lower raisins that sell for less. So each fall the growers are all watching the weather reports, looking at the skies, and judging when to pull their raisins in. One year Hanson and his brother rush to bring all the raisins in at the chance of a storm. Their old-timer neighbor leaves his out, convinced it won't actually rain. It does. And Hanson sees the old farmer the next day, looking over the ruin of his entire harvest and contemplating whether he'll take out one more loan to try to keep the farm or just sell out. "I just didn't think it would rain," the old man says.
Today, very few people in our country have to battle nature's capriciousness for their daily bread.