Tyler Cowen quotes himself in commenting on a paper on the central role that the financial sector has played in the rise in incomes of the ultra-rich:
…for 2004, nonfinancial executives of publicly traded companies account for less than six percent of the top 0.01% income bracket. In that same year, the top twenty-five hedge fund managers combined appear to have earned more than all of the CEOs from the entire S&P 500. The number of Wall Street investors earning over $100 million a year was nine times higher than the public company executives earning that amount.
I can’t help but wonder if the Olympian compensation of hedge fund managers has produced something of a positive feedback situation in compensation among those who can get away with it. There comes a point at which compensation is no longer about what you can buy with it but becomes a way of keeping score.
I think it’s unconscionable that those who are most proximately responsible for the financial crisis have suffered so little for their bad bets. As I’ve said before IMO compensation should be capped at every institution that took a penny of federal money or guarantees at the level of a GS-14. If that left these institutions unable to retain employees capable of running them, I would shed no tears.
To date the financial sector has suffered remarkably little. There have been some reports lately that the hammer is about to fall but I have little doubt that it will fall most heavily on those least responsible and not fall nearly as heavily as it should and not nearly heavily enough to shrink the financial sector to the level that’s appropriate for the non-financial sector.
All of which does leave me with a question. If the extraordinarily high incomes of hedge fund managers had the secondary effect of pushing up the incomes of non-financial executives and the air comes out of those incomes, that doesn’t necessarily mean that the air will come out of the incomes that the puffed-up incomes carried along with them. I suspect it almost certainly won’t. How do you rein in compensation that was never really justified to begin with?
I suppose it might be answered that the market will discipline them. Unfortunately, there’s no reason to believe that the new enterprises that out-compete the old, inefficient ones will be American enterprises.
Which is totally unsurprising given the incestuous relationship between Washington and Wall Street.
Well…if you stop bailing them out and propping them up with tax dollars…..
Everyone who thought TARP and such were good ideas…you are part of the problem.
By the way, how many toxic assets has the Toxic Asset Relief Program actually purchased?
Lalalalala…government will work if we just demand it. What nonsensical drivel.