In re: "Bankers’ Salaries vs. Everyone Else’s"

Regarding "Bankers’ Salaries vs. Everyone Else’s" at http://economix.blogs.nytimes.com/2011/10/11/bankers-salaries-vs-everyone-elses/

Three takeaways:

a) The complexity and diversity of securities available to be traded appears to increase in approximately the same fashion and time as the securities professionals' salaries. This complexity and opacity is often cited to justify regulatory reform.

b) There's an embedded cycle in which securities professionals appear to get a pay increase, followed by a two year decline, starting with election years. This cycle stands out as needing to be explained or discounted from the broader argument concerning links between finances and politics.

c) Securities professionals and the top earnings quintile likely overlap significantly for a very good reason: We select for individuals they demonstrate at least personal proficiency with finances. This matters because the chart presented is essentially a different version of these charts:

http://advisorperspectives.com/dshort/updates/Household-Income-Versus-Medical-and-College-Costs.php

which show essentially the same pattern of wage growth for all income categories. (Even the scale-compressed chart at the NYT shows that private sector salaries move in the same direction and in the same direction as the securities professionals'.)

The question no one has asked is why the income and income growth distributions have held throughout the last 30 years despite essentially three different domestic financial policy regimes, and two to three different international financial policy frameworks. If wealth distribution follows one of the normal distributions, even the most flattening and skewing of policy interventions would not be able to eliminate the tail ends. If the distributions are effectively subject to policy, and if the top income earners can control policy, why have they not used policy to skew the distribution even more strongly in their favour?

(There's also a question here about the kinds of structural factors that enable individuals in the top income categories to better leverage the common environment to accumulate advantages, but that would invoke a different discussion about the tendency of restrictive policies to be profitably circumvented to the great advantage of the innovators.)

RG: B!! In English, please! You've no doubt raised some excellent points, and are dead on, but I have very little idea what you just said. I do know that I disagree with the suggestion that policies are "restrictive"--it seems to me there's very little regulation, which allows for all sorts of crookedness (e.g., sub-prime mortgage defaults)...but then I'm probably mixing up several different issues into one. Please correct me (in Common) when I'm wrong.

B: tl;dr: Securities professionals deal in more than just in retail banking; specialisation, diversification, and increasing complexity of their products and services could explain increased labour costs as with other industries.

Securities professionals' wages changed in the same directions and in the same time periods as everyone elses', no plutocratic theory is required to explain the data presented by the NYT.

With respect to regulation, US Code devotes as many chapters to finance and commerce as to each of: military, all other industries, human resources.

To expand on the last item: As you may be aware from MDROs or the many recent political uprisings, unsustainable restraints to contain a phenomena usually result in catastrophic failure because costs for the restrainer grow exponentially with the number of restraints, while costs for those being restrained grow linearly (at most) with the number of attempts to escape. Thus it would be unsurprising if the securities professionals who most successfully innovate around the restrictions they encounter also receive the most rewards (as in every other industry). In securities specifically, in the months it takes legislators and regulators to codify a technical restriction (and thereby point out a symptom of some deeper flaw in the system), each motivated securities professional could use automated systems to try, with close to zero risk, dozens of other ways to circumvent the proposed restriction or to elsewise exploit the flaw. (This is why I find the current demands for piecemeal finance reform unconvincing as compared to the systematic solutions that I and others have discussed elsewhere.)