Wednesday, September 24, 2008

Finance Schadenfreude

About the only time I ever feel like I need more money is when reading the New York Times Magazine architecture issue. Typically my wants are such that money is not a problem, but in that issue, every ad is for beautiful yet reasonable apartments, with sub-titles like "Studios starting at just $2 million!" At those times, I ponder what could have been had I stayed in finance, instead of dropping out for grad school. As I saw friends and friends of friends, rolling the hedge fund life style, with 7-figure incomes within reach, I often thought that could have been me. I have no regrets at my choices, but still it makes you stop to think.

The economist in me also always knew the salaries in finance couldn't last. At least that's what I used to tell myself. In efficient labor markets, all jobs that require the same level of skills/abilities and the same level of risk should pay roughly the same salaries (more or less). Sure, some factors like market imperfections and compensating differentials may justify some differences, but not the factor of ten difference seen between finance and other fields. That should not be sustainable.

And sure enough, it seems like that era is coming to an end. Risk and regulation are conspiring to realign salaries. And so while the financial realignment sucks, not just for those in finance but for all of us, who will face a slower growing economy as a result, it does make me feel better about my own career choices, in a perverse way.

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