Our Financial Incentives

Significant intervention in the banking system and economy with the ‘strong dollar policy’ and various forms of government credit and subsidies has paid some of us extraordinary amounts of money to do things that lower the total economic return of our overall society. We profit from debt bubbles, speculation and looting, rather from hard work, saving and investment. This intervention, highly profitable for those leading global economic warfare, has created privileges and expectations that are often not rational when viewed from an integrated economic whole.

Not surprisingly, extraordinary gapping in the perceptions of Main Street v. Wall Street and Washington are growing as bankers who implemented the “pump” are now being “dumped.” How these groups come into alignment as the economy adjusts will be a fascinating process to watch.

One of the more interesting polls I read this week was “Economic Crunch Time” in Men’s Health. Their poll of 758 men found that 9% said that the worst white-collar crimes were more serious than murder, 70% said they were as serious as murder and 21% said that they were less serious than murder.

How are we going to reconcile those attitudes with those of wealthy Wall Street?

In Gabriel Sherman’s article in New York Magazine, “The Wail of the 1%: As the privileged class loses its privileges, a collective moan rises from the canyons of Wall Street,” a Citigroup executive is quoted:

“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.”

I have a Wharton MBA, am a former member of the Wharton Graduate School Advisory Board and am the grandchild of a former Dean of Wharton. I would respond to the Citigroup executive quoted above that deliveries of restaurant supplies have a positive total economic return to society as a whole, whereas Citigroup has a negative total economic return, including a negative return to investors. Hence, on a sustainable basis, we should be paying the delivery guy more than the Citigroup executive, irregardless of where he or she went to school. In a nutshell, the delivery guy adds more value.

Given the debt and derivative overhang on the US and global economy, Wall Street compensation may have a ways to fall. Even if our naval, space and intelligence supremacy succeeds in keeping the dollar functioning as the world reserve currency, why would we be willing to pay someone at Citigroup many multiples what we pay the engineers who make the weapons or the agents who implement the torture and terror that makes an empire and its currency go? This is a good question as the Secretary of Treasury contemplates special provisions so Citigroup commodities traders can continue to make $100 million.

How do we get everyone relating their contribution to our total economic return with how well we each do individually? This is pretty basic economics. If we all generate income and equity by doing things that build up our economy and the health of our environment, then the world could be a pretty nice place. If we all make money doing things that steal from others or wreck the economy and the environment, how is that supposed to work?

This is not an issue that ultimately pits Main Street vs Wall Street. The problem is throughout our economy. We need all the talent available engaged in transforming to a system that encourages each of us to build real wealth and compensates us for doing so.

Truly, there is no more important conversation in the economic sphere than this.