Accidental Banksters

March 16, 2012
Posted by Jay Livingston

In a comment about the “Why I’m Leaving Goldman” op-ed, Peter Moskos wrote,

People working there have always been pricks. I mean, they were already pricks in college in the early 1990s.

Were they? 

In my early days in New York, I knew a gentle soul named Bruce. Whatever the opposite of macho is (mousy?), he was it.  Short, soft-spoken, reserved.  Bruce was in a clinical psych program and wanted to be a therapist.  No surprise there.  One evening in a group discussion, we briefly got on to the topic of taxis. Bruce  had worked as a cabby to pay for his tuition.  “If you drive a cab in New York,” he said, “you drive like an asshole.  You have to.”  It was clear that he was talking about himself, not just the other 30,000 cabbies in the city.

We usually think of motives and personality traits as residing within the individual person, as in Peter’s take on the folks at Goldman.  Some people are pricks, and they seek out settings like Goldman, where they can give free rein to their nasty motives and be rewarded handsomely for it.

But motive and character traits also reside in the larger system – in its structure and culture. In Bruce’s view, the aggression, risk, and rudeness of the guy behind the sliding plastic partition are like the dispatcher’s radio and the meter – a basic part of the cab, not the driver.

I’m sure that some of the people at Goldman were the Princeton pricks Peter knew in the 1990s.*  But for many graduates who signed on at Goldman, this quality (prickitude? prickiness?) was something they acquired on the job, probably without even realizing it. In a word, we’re looking at socialization.

A couple of years ago, Ezra Klein posted an interview with a Harvard grad who had spent some time at Goldman.  Reading the interview (here), it’s hard to see this guy or the others of his cohort as greedy cutthroats.

Investment banking was never something I thought I wanted to do. But the recruiting culture at Harvard is extremely powerful. In the midst of anxiety and trying to find a job at the end of college, the recruiters are really in your face, and they make it very easy . . . .  The idea is that once you pass the test at Goldman, you can do anything. . . . .  So it seems like a good way to launch your career.

Q:  The impression of the Ivy-to-Wall Street pipeline is that it’s all about the money. You’re saying that it’s actually more that Wall Street has constructed a very intelligent recruiting program that speaks to the anxieties of the students and makes them an offer that there’s almost no reason to refuse.

Exactly. . . .There are  certainly are people who want to be in finance, but a large portion are intrigued by these jobs for those reasons. I think that’s a majority, at least at Harvard. And the same goes for consulting jobs or even Teach for America . . . . And investment banking has the added advantage that you can make money very quickly and afford a great apartment in New York, which is very expensive.

The bankers don’t arrive on Wall Street with their motives fully formed.  Instead, much like Becker’s pot-smoking musicians of 70 years ago, they acquire their motivation on the job.  The motives – the reasons for doing what you do – also become the reasons for doing more of it. They (bankers, pot smokers) also learn a set of ideas that makes their questionable behavior legitimate and even virtuous.

There’s this notion of the accidental banker, people who get caught up in that world and get more and more pay and find it harder to justify leaving . . . . . A  lot of people decide to sacrifice much more time than they normally would because the money is so good, and then they believe they deserve extremely high pay because they’re giving up so much time. It’s not malicious. But there are a lot of unhappy people who end up in that situation.

This Harvard-Goldman grad winds up taking a much more sociological view of where the flaws are – not so much in the personalities of individuals as in the structural arrangements.

the malice towards the individuals at places like Goldman is misplaced. I get where it comes from, but just like it’s wrong for the banker to say they work harder than everyone else and deserve more, it’s also dangerous to paint bankers as evil. Lloyd Blankfein isn’t out to screw the world. Wall Street’s problems are more systemic.

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* For an example, read this guy, though perhaps I should add a trigger warning.  He may make you rethink your position on the bailouts and TARP and maybe your position on summary execution.

Leaving on a (Private) Jet Plane

March 14, 2012
Posted by Jay Livingston

You’ve probably already seen or heard about the Times op-ed piece that’s getting a lot of attention: “Why I’m Leaving Goldman.” A guy who has worked for Goldman for many years, has risen to a fairly high position, and has probably made a lot of money along the way says that in its greed for profits, Goldman has turned away from its original, admirable principles.

You might not have come across this blog post: “Why I Left Google.”  A guy who has worked for Google for many years, has risen to a fairly high position, and has probably made a lot of money along the way says that in its greed for profits, Google has turned away from its original, admirable principles.

Makes you wonder if maybe structural forces and not just greed have something to do with these changes.

The Wall Street Journal Or Your Lying Eyes

March 13, 2012
Posted by Jay Livingston

This graph tracks the share of income going to the top 1% in seven countries.  It’s from a paper by two Swedish economists, Jesper Roine and Daniel Waldenström (pdf here).

(Click on the graph for a larger view.)

The trend was towards greater equality up to 1980 – the share of the 1% was shrinking.    Since then, the 1% have increased their share of the income pie in all seven countries.  But the graph seems to show important differences, especially in recent decades.  Here is a  cropped version of the graph showing the 1980-2004 years.  I have added straight lines connecting those two points for Sweden and for the US.

Both changes are increases, but are they the same or are they different?  The answer is crucial.  The US and Sweden have different economic policies.  If the changes are no different between countries, then inequality is just one of those inevitable things that’s happening no matter what governments do.  But if the growth of inequality in the US is much greater than in Sweden, maybe government policy can in fact mitigate the trend towards inequality.

The Swedish 1% share went from a little under 5% to about 7.5%.  In the US, the 1% share increased from about 7% to 16%.* You might see those increases as very similar.

In fact, Allan Meltzer in the Wall Street Journal takes precisely that view.  He stretches out the graph to de-emphasize the vertical differences, and adds a title implying that all countries are “together” in this shift of income to the top 1%.

He adds this explanation:

As the . . . chart . . . shows, the share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can’t be the principal reason for the current spread between high earners and others. Since the 1980s, that spread has increased in nearly all seven countries. The U.S. and Sweden, countries with very different systems of redistribution, along with the U.K. and Canada show the largest increase in the share of income for the top 1%. [emphasis added]

If your pay went from $5 an hour to $7.50 an hour while your co-worker’s went from $7 to $16, you might think that your co-worker had gotten a substantially heftier raise.  But if so, that’s because you’re not the Wall Street Journal.  

Meltzer’s main point in the article is that we should not raise taxes on the very wealthy.  However, as Bruce Barlett points out (here), if the rich are getting just as rich in high-tax countries like Sweden and the Netherlands as they are in low-tax countries like the US, we may as well raise taxes on them. They’ll be doing just as well, like their Swedish and Dutch counterparts, and the nation will have more revenue to put towards Medicare, education, deficit-reduction, etc. 

But Meltzer is wrong.  Sweden and the Netherlands are very different from the US.  As the graph shows, the income share of the 1% in the US is twice that of the 1% in Sweden and 3 times that of the 1% in the Netherlands.  And it has risen more rapidly.  Yet Meltzer claims that inequality trends are similar everywhere. 

So who are you going to believe - the Wall Street Journal or your lying eyes?

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* Big hat tip to Andrew Perrin at Scatterplot.  Several economics blogs have also looked at the Meltzer article. 

UPDATE March 16: Gwen Sharp at Sociological Images posted this link to a database of income data from various countries.  You can to create your own graphs of income shares.

Deep Change in the Deep South?

March 12, 2012
Posted by Jay Livingston

The polling news today is that very few Republicans in Alabama and Mississippi (14% and 12%, respectively) think that President Obama is a Christian.  Three times as many think he’s a Muslim. (A pdf of the entire survey is here.)

The poll also finds that only about one in four Republicans in those states believe in evolution.  Five times that many flatly reject evolution, with about 10% “not sure.” 

The results I found most curious were the opinions on interracial marriage.  Alabama 21% thought it should be illegal, 67% thought it should be legal; in Mississippi,  29% illegal, 54% legal.  None of the news stories I looked on this noted that when the same pollsters (Public Policy Polling) asked the same question of Mississippi Republicans less than a year ago, the results were very different.  A plurality thought it should be illegal.  (My post on that poll is here.)

The margin of error is 4% (N = 600), so the 15-point swing supposedly reflects a real change.  But I’m skeptical.  What could account for such a large change if not sampling variation?  Did the GOP organize mass screenings of “The Help” and shame some of their number into allowing that maybe Loving v. Virginia wasn’t a mistake after all? Did the Heidi Klum - Seal breakup make it OK?   I can’t come up with even a dubiously speculative explanation.