Sunday, January 29, 2012

Looking back

Megan McCardle on her 10 year reunion at Chicago's Booth School of Business.

The Atlantic: ... For my summer 2000 internship at Merrill Lynch, I chose the technology-banking group despite having watched the March 2000 NASDAQ crash from the lobby of Merrill’s auditorium, where we were supposed to be undergoing orientation. Ignoring the helpless, angry flapping of the HR staff, a bunch of us spent the afternoon telling nervous jokes and watching the eerie flicker that billions of dollars give off when they evaporate on live TV.

Predictably, the technology-banking group had almost no work. Also, I was not a good fit with Merrill’s very conservative, very competitive culture. I felt as if I’d decided to intern with a mathematically gifted baboon tribe, and I’m sure they were just as puzzled by me. Unsurprisingly, I didn’t get a full-time offer. Having learned my lesson, I very sensibly turned around and took a full-time job upon graduation at … a technology-strategy consultancy. I got laid off even before the bankers.

And they were laid off in droves, along with the consultants and aspiring dot-com employees; during my first year or two in New York, my recollection is that at least half my classmates there lost their jobs. Ten years later, only a few of the people I spoke with were still where they’d started out.

How could we have failed to notice the danger? You know how: It’s the same reason your cousin bought that 16-room McMansion on an option ARM. Everyone else had been doing it for years, with seemingly stellar results. Why wouldn’t we follow in such successful footsteps?

... Indeed, if Booth is any indication, the complaint that “the best and the brightest” are being siphoned off into consulting and finance is less true today. ... Morton told me that current classes don’t talk as much as mine did about money; they talk about the things they want to make and do.

Of course, these days, there’s also less money to distract them. Financiers are still rich—in 2010, the industry accounted for 5.3 percent of New York’s private-sector jobs, but 23.5 percent of its private-sector wages. But despite all the news about their huge bonuses, they aren’t as rich or as numerous as they used to be. By the end of 2012, New York’s Office of the State Comptroller expects the post-crisis job losses on Wall Street to top 30,000. Finance-related activities used to account for about 20 percent of state tax revenues; they now account for about 13 percent.

Other data back this up. At some point in the weekend—probably after that second round of shots—someone said, “We are the 1 percent!” I pointed out that this is not literally true, since the entry point (as of 2009) for the top 1 percent is $343,927 a year. (In Washington, but not in Chicago, this is what passes for amusing cocktail chatter.)

However, those of us who left finance can take heart, because we are a lot closer to the top 1 percent than we used to be. In 2007, the entry point was $410,096. The top 1 percent’s share of national income has also dropped recently, as the finance professor Steven Kaplan pointed out when I ran into him. In fact, for all the fanfare greeting recent studies by the Congressional Budget Office on rising income inequality from 1979 to 2007, according to Kaplan’s calculations, between 2007 and 2009 the share of adjusted gross income that went to the top 1 percent dropped from 23.5 percent to 17.6 percent—the largest two-year drop since 1928–30.

A few years back, Kaplan and the economist Joshua Rauh compared the incomes of Wall Street executives, “Main Street” executives, and celebrities such as professional athletes. They found that much of the rise in income inequality between 1994 and 2004 was due to the jump in Wall Street incomes: those of investment bankers, venture capitalists, hedge-fund managers, and top securities lawyers—the incomes that so many in my class were chasing.

... WITH EVEN QUITE conservative economists agreeing that the financial sector got too large and too risky, that’s not a bad thing—not even for my classmates. A banker who parachuted into equity research years ago said frankly, “I wish I made more money.” On the other hand, he pointed out, waxing on about the shorter hours and lower stress, “the lifestyle is much, much better.”

My classmates and I might not all have 1 percent–level incomes, but almost everyone seemed to have what Occupy Wall Street says it wants: stable, interesting, well-paying jobs … and a clear future. The few people who are still in finance are the ones who really like it, and are presumably really good at it. And the rest of us are probably better off than if we’d bartered away every waking moment of our 30s.

The most remarkable thing about my business-school reunion was, in fact, how little people talked about money or jobs. They talked about family, friends, the trips they took, and the houses they were turning into homes. According to the behavioral economist Daniel Kahneman, they were talking about what is really important: “It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you.” Now, that’s a universe worth mastering.


Sam H said...

Steve, if you could do it all over again, knowing what you know now, would you have gone into finance? Surely you could be a zillionaire, but it sounds like finance work is boring VS startups and physics and other brainiacs outside of finance would consider you a sellout.

steve hsu said...

> finance work is boring VS startups and physics
Yes, but the pay is better!

> other brainiacs outside of finance would consider you a sellout

What do they know?

David Coughlin said...

 Is it satisfying to know that you ventured down an uncertain path?  If you think you have an edge, you are only going to get it in play by betting the doubles and the triples.

LondonYoung said...

actually, IMHO, I think Steve always knew he could bunt and get on base ...

David Coughlin said...

 Whoops, I should have been more clear.  I meant betting the [exactas|quinellas] and trifectas.  Stringing together a couple of uncertain choices to make a big payoff. I reckon about Steve that he has 'enough' money, and that he is chasing things that can't be bought.  The outcome very cloudy [and fraught with peril] but if his horses come in ...

steve hsu said...

> I reckon about Steve that he has 'enough' money, and that he is chasing things that can't be bought. <
Bingo! But if the horses don't come in I might reconsider and wish I had flown more miles in first class or on my own jet ...

David Coughlin said...

In some worldline, your horse comes in.  You have to hustle to be there when it happens.

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