Did Bankers Rob the Middle Class? | Hacker News Reader

Did Bankers Rob the Middle Class?

theatlantic.com

51 pointscwan29 comments

The argument is really simple. Big banks (and the bigger of the enterprises) benefit disproportionately from cheap or free money. These businesses are receiving real goods in exchange for "printed" money.

Tyler Cowen's argument is less strict than that though: big banks (or related enterprises) benefit disproportionately from taking high risks. Individuals or small companies would go bankrupt, while big companies are saved with printed money. This money will displace regular consumers from the market, making them relatively poorer (than otherwise).

Privatize profit,

socialize loss,

blame the free market,

and strut like a boss.

"I've abandoned free-market principles to save the free-market system."

- George W. Bush

At least Bush never presented himself as an expert on economics, what about this classic:

"we today in our country have economic stability not boom and bust"

- Gordon Brown

said on March 28 2002, speech to the TGWU conference, Manufacturing matters.

When this might have well been the feeling. For everyone.

Some relevant reading around this notion:

http://en.wikipedia.org/wiki/Socialism_for_the_rich_and_capi...

http://en.wikipedia.org/wiki/Privatizing_profits_and_sociali...

http://en.wikipedia.org/wiki/Corporate_welfare

Game theory at work, on many levels.

That is an argument. However the article doesn't have that conclusion. It concludes:

"I'm with Matt Yglesias, who writes that it's hasty to blame the nation's financiers for literally stealing from the middle class' wages. It seems much more likely to me that a smorgasbord of both conscious public policy decisions (like outsourcing, free trade agreements, and low interest rates) and unintended phenomena (rising education and health care costs) combine to make the rich richer and the poor no richer."

Kevin Drum responds to this argument here: http://motherjones.com/kevin-drum/2011/01/matt-yglesias

Basically, here's arguing from deduction: increasing prosperity from productivity enhancements could have gone to workers, but their wages have remained flat while the top 0.1%'s have skyrocketed. The mechanism is unclear (he suggests the wealthy have manipulated government policy and smashed unions), but the action is not.

The author introduces the topic of banks skimming money off the top during good times and receiving bailouts in bad times, but does not make the connection to the real economy.

Huge interventions in the economy do not happen in a vacuum. If capital chases high returns in the financial sector, it does so at the expense of investment in productive industries. If profits are generated by financial institutions leveraging the "privatize profits, socialize losses" system and then paid out to their employees, they are in essence feeding off the taxpayer to pay their bonuses.

Further, wages rise in a sector when the sector is growing: seeing increased profits and/or increased investment. It's natural to see wage stagnation if the financial sector continues to skim off the top of productive industry.

And finally- the prices of education and healthcare mentioned by the author are most definitely tied to loose monetary policy that benefits the financial sector. While some of these costs aren't measured in core inflation, inflation is still happening, the end result being that people make the same but have to pay more to send their kids to school, take care of their health problems, eat food, drive cars...

I wonder about the "value of degree" graphs in these articles. I don't think they tell the whole story.

In particular, over a person's working life they'll typically increase income by gaining experience and probably jump jobs a few times for a pay raise, particularly early in the career.

Consider that college student with a summer job or the waitress putting herself through school; they will be part of the income statistics for "no degree" but clearly the lack of a degree isn't necessarily holding that person back. The fact that they've chosen to go to school rather than work full time hurts their income.

If that's not clear, consider two people, one who graduates high school and becomes an electrician, and another who has a part time job and goes to college. They're both included in the high-school graduate category before the student graudates, and the student's income drags the statistic down.

Now the student graduates and immediately gets a job with a salary on par with the electrician. Even though they're now making the same amount of money, the statistics show the "no-degree" person is far worse off.

It seems there's a significant demographic bias at play here. Arguing that a specific person is likely to benefit financially from getting a degree based on that data seems wrong.

And the salary chart doesn't include the opportunity cost of not working during the time it takes to get a degree, or the actual cost in tuition, etc.

I don't understand how this gets dropped in every single article on this. They don't differentiate between different types of education. Patio wrote a great blog post about this recently, and there was a ton of HN discussion about it. The shortest answer is that not all the degrees are the same. All these studies really show that a lot of engineers, doctors, lawyers, and yes people in finance, make a good salary and are less likely to be unemployed. That does not mean that college is a good value for everyone. Many people would more likely benefit greatly from learning to be a plumber, mechanic, or other trade than getting a degree in american history. Sure, if you have the money to burn on the experience, fine. But, the idea that a degree in a non-professional field (especially if financed via loans) is worth it should be over.

Link to discussion: http://news.ycombinator.com/item?id=2074044

To me the major problem seems to be that anyone who is in a position to fix the problem has no incentive to do so.

I don't see why his argument, however weak it is, makes an argument as to whether or not banks 'robbed' the middle class. Oddly, he didn't mention that banks underwrote many educational loans. The whole article can be summed up as: "You think banks robbed the middle class? Well, I think education costs did; oh, and probably other things too."

IMO, this is particularly low-caliber for the Atlantic.

of course. robbing poor people is the credit card companies' job.

People don't have to get credit cards. They don't have to buy stuff they can't afford.

People should be taught self restraint and living within their means in schools.

Personally I wouldn't blame credit card companies one bit. They are taking money from silly people who are giving them money in return for crap they don't need.

Correct. But it still does not address the issue why a credit card user bears the risk accruing from his/her behavior, whereas a investment bank can essentially muscle its way into offloading its risk.

> People should be taught self restraint and living within their means in schools.

People should be taught self restraint and living within their means at home.

Sure... both.. Society should change and stop relying on credit.

Banks are in on that too. "Free checking" has always been about hoping you won't have a big enough cushion to avoid occasionally going under a $0 balance. The people getting hit by those fees would then pay for everyone else who can afford to have that cushion.

Nowadays they've had to switch away from such gotcha fees. Instead, you get charged if you aren't using online banking, keeping a minimum balance, and/or depositing over a certain amount every month. And who's more likely to have problems meeting those requirements?

Every statistic tells the same story: If you want to earn more, learn more. Between 1973 and 2007, real wages fell 15 percent for non high-school grads; stayed flat for high school grads and workers with "some college"; and rose 18 percent for both college grads and advanced degree grads. Upshot: Just as the cost of college has become prohibitive for many families, the benefits of college have only increased.

Perhaps OP spent too much time memorizing textbook details in college when he failed to learn what almost every Hacker News reader has long known:

Correlation != Causation

Just because there is a correlation between "years of education" and "income", it does not necessarily follow that "less education" causes "lower income". Just a few scenarios where correlation != causation:

- One without the ambition for education may similarly lack ambition for anything, including hard work.

- One with family responsibilities may lack the opportunity for both college and a better job.

- One with health issues will have equal difficulty pursuing higher education and a higher earning job.

- One able to afford long years of schooling may already be better positioned by family/friends for higher paying possibilities.

- One who cannot even imagine going to college (for any reason) may have equal difficulty imagining succeeding in anything.

In each of these cases, lack of education didn't cause lower earnings, but both were the results of some other cause. I imagine there are many other scenarios, as well.

Especially for the "professional degrees" and "masters" categories, there may also be some causation in the reverse of the implied direction, where people who already have good jobs are more likely to have their employers encourage and pay for them to go get a degree (especially common for MBAs, but also not uncommon for engineering masters).

While your point is theoretically valid, the evidence in the academic literature suggests that the causal effect of education on earnings is roughly the same as one would get by doing a naive regression of earnings on education at the individual level. There's a bias with respect to ability, but it's on the order of 10 percent, and measurement error in education variables attenuates the naive estimates, balancing things out.

There are a number of natural experiments that caused specific groups to get more education than others. This evidence has led to a pretty broad consensus that the returns to one additional year of education are about 10 percent. See:

http://www.demog.berkeley.edu/~ebenstei/litreview/Handbooks/...

I think you are, perhaps, playing with the definition of causation in a strange way.

Causation is constant conjunction of events; that these things are correlative, and that there are other mitigating factors possibly leading to both at the same time, does not mean that there is not a causal relationship between them.

Correlation does not imply causation, but it also doesn't prohibit causation. None of the things that you listed really have an effect on a causative relationship between education and income (even though they might be contributing factors to both).

From a common sense perspective, quite a number of high paying jobs require a technical or professional degree. When you post a job listing, there are often educational requirements. If you don't have a college degree, the highest paying fields, such as doctor, lawyer, engineer... are completely closed off to you. With the industrialization of HR in modern companies, certain things, like years of education, are certainly used to 'weed out' candidates. (Try applying to an engineering job with just a GED).

Aside from that, the author isn't really implying a causal relation, he is just stating a strong statistical correlation. If you want to make a boatload of cash, chances are that getting an education is a good idea.

I think the "correlation != causation" response is overplayed. Thank you for your reply. I was about to respond similarly but what you said was more succinct than what I was going to write.

Certainly on an individual scale, less education doesn't necessarily guarantee less money, and more education doesn't necessarily guarantee more money. In the large, however, I think it's safe to say that a society that has more well-educated people will tend to have more wealth than one with few well-educated people, all else being equal. The old "correlation != causation" line is, I think, orthogonal to the real sentiment of the author's argument.

I mean, I don't agree with our (USA) society's current viewpoint that college is basically high school 2.0, and everyone is expected to go. With employers generally requiring college degrees even for jobs with illustrious titles such as "Administrator" (secretary), I understand why someone would pursue a degree even if they have no love of learning.

Money, power and greed. It's a force like gravity. Let's call it MPG The more some people get the more that seems to fall their way. The acquired resources will be used to keep the MPG going, everyone else be damned.

The number one enabler is the politicos who bend rules, ignore laws and create laws that disrupt an otherwise functioning system in an effort to strengthen MPG for those who have it and potentially acquiring some leftovers for themselves.

I knew a guy who once said the following:

"It takes money to make money, but once you make money, money makes itself."

Cached copy (site is down):

http://webcache.googleusercontent.com/search?q=cache:http://...

Not a very informative article. There's nothing in it other than baseless speculation and weak inferences.

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