Climbing The Ladder

Social mobility is weaker in the US than in most of the rest of the developed world:

Meanwhile, between these castes, we’re seeing greater income inequality:

(Chart by percentage increase here).

Former Fed Chair Paul Volcker said a few years ago, “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence”, before concluding that the only worthwhile financial innovation of the past twenty years was the ATM.

Daniel Foster at the National Review(!) links to this 2009 paper, which he describes as follows:

investment banking was basically easy, and boring, in the heavily regulated period between 1930 and 1980; that subsequent deregulation and the rise of exotic financial products created great demand for high-skilled workers, thus increasing both wages and the opportunity for profit in the financial sector; but that, nevertheless, financial workers are overpaid. In part by comparing the compensation of financial workers and engineers with similar innate abilities and education levels, the paper concludes that as much as 30-50 percent of financial compensation is pure rent.

This Kauffman Foundation study concluded that “the industry’s growing size potentially suppressed entrepreneurship as financial services and young companies compete for many of the same employees”.

So the financial industry has managed to extract a great deal of extra money from the rest of America, with no apparent benefit to the efficiency of capital allocation in the economy. (In fact, the financial crisis of 2008 created the worst recession since the Great Depression).

Below the jump, “Climb the Ladder”, by Of Montreal: