The Joy of Markets

Europe\’s banks are facing an exodus of staff to US rivals as regulatory and political pressure drives a growing pay divide between financial institutions headquartered on either side of the Atlantic.

So, maybe bankers really shouldn\’t be earning big bonuses. Maybe they should be?

Maybe paying them is to the benefit of shareholders? They get the best doing their best?

Maybe they\’re not to the benefit of shareholders? Perhaps they are simply the extraction of rents to their detriment?

Given that we\’ve now got something of a market in the regulation of these bonuses, looks like we\’re about to find out really, doesn\’t it?

And that\’s one of the joys of markets. We find out, not what ought to be as a result of theorizing, but what actually will happen when such theorizing is applied to actual people.

This is, of course, why some people really don\’t like markets very much: there are, sadly, those wedded to the theorizing rather than the people.

2 thoughts on “The Joy of Markets”

  1. It may well be an interesting experiment on how a market deals with silly state interventions, but the banking industry represents the biggest state intervention of them all. Moral hazzard, QE, state bailouts, funding windows, CB swap agreements, liquidity scemes and insurance of credit risks are not free market mechanisms. Surely, therefore, the increasing compensation in various bits of the (glabalised) finance industry represents an increased rent on the rest of the free market rather than the reward for free market innovation and success.

    It is no coincidence that the bit of finance capitalism that is now paying the most aggressive compensation, is the bit that had the most money thrown at it by the state….

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