The Gold Standard | Reflections

(1) Listened to this interview of Dick Bove and Barry Ritholtz in Business News Network (ht: Ritholtz). Dick Bove sets up far too many strawmen to knock them down. He even invokes xenophobic nationalist  sentiments to defend the American banking industry. That is something. At least, the man hides nothing  as to where his loyalties lie.

(2) Was at a ‘good-bye’ lunch hosted by a good friend, moving back to India, yesterday. At my table, there was a discussion on schools, under-graduate programmes in the US, job prospects, etc. One friend recounted a tale of another friend’s son who went to a decent school in the US and managed to land up with offers from a consumer product company and that of a financial services multi-national. He chose the latter.

The logic was that, even if the financial sector compensation had peaked, it would retain an advantage over non-financial sector, on compensation. Two fallacies:

(i) It ignores history. Once the tide turned in the wake of the 1929-32 depression, it took five decades for the process of the financial sector to bottom out, in many respects. Compensation was one of them. Relative compensation advantage could well turn into a disadvantage.

(ii) Second, it ignores our own behavioural response to a diminishing relative advantage. Even if the gap remains, if it keeps shrinking, those of us in the financial services industry would not help feeling miserable and feeling more of it and more often.

The starting point will cease to matter as it becomes distant memory. It is the change at the margin that would loom large. That change won’t be in favour of the financial services industry.

Dan Ariely would be pleased to hear of this story. We are predictably irrational.


DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.