"Leading bankers destroy £7 of value for every pound they generate."

January 10, 2010 3:08 PM

The New Economics Foundation, also responsible for the Happy Planet Index and Jubilee 2000 campaign, has released a study (full text here) about the values and costs of different professions to society.
posted by emjaybee (16 comments total)

Surprise?
posted by Sova at 3:26 PM on January 10, 2010

Strange, no mention of the cost of police or military.
posted by symbollocks at 3:29 PM on January 10, 2010

Why does the invisible hand of the free market HATE SOCIETY?
posted by uosuaq at 3:30 PM on January 10, 2010 [2 favorites]

Summary of methodology:

"Our model assumes that the financial crisis and recession would not have
happened were it not for highly paid City bankers and traders"

Nice. Start by assuming you conclusion, let everything else follow.
posted by litghost at 3:34 PM on January 10, 2010 [7 favorites]

Nice. Start by assuming you conclusion, let everything else follow.

You could have at least quoted the entire paragraph:

Our model assumes that the financial crisis and recession would not have happened were it not for highly paid City bankers and traders engaging in extremely risky, opaque and complex transactions. We attributed the entire measurable loss to the UK’s economy and public finances to an elite few thousand very highly paid financiers – those earning over £1 million in bonuses. The model balances this value destroyed with the value created during a 20-year indicative career in terms of these financiers’ contribution to UK economic activity, taxes paid, and jobs supported.

I mean, sure, they might not have needed to attribute the entire loss to these people, but I don't think holding them responsible for damaging the economy is contentious.
posted by Sova at 4:00 PM on January 10, 2010 [3 favorites]

If you could increase the pay of all child care workers and hospital cleaners by a factor of ten and make up the difference by reducing banker and accountant salaries I'd be at least willing to entertain their premise. I don't see it.
posted by meinvt at 4:08 PM on January 10, 2010

The assumption was my problem. The remainder of the paragraph is follow through for that. It doesn't change the fact that they assume their conclusion (or at least the "damage" half).

The problem is they don't justify why 100% damages to this group is justified, and that very little growth was attributed to them (factors of 50% everywhere). The rest of their positive (Nursery, Hospital cleaner, Recycler) examples at least start with more reasonable assumptions. The other negative ones have some real bizarre assumptions.

Bottom line, this paper assume that the "bad" jobs are all damages except for job generation, whereas the good jobs are based in some studies of benefits and damages. They are making assumptions that service their conclusions (or are their conclusions), not assumptions that are reasonable bared out by underlying data.

Here are the other basic assumptions, through feel free to read through Appendix 2 for the full details:
- Nursery worker: "we assume that each place in child care will allow for one average annual wage to be earned by a parent"
- Advertising executive: "we consume more than we need and that this has damaging environmental and social impacts" and that this spending was a net negative and some of it is due to advertising companies
- Hospital cleaner: Mostly empirical evidence, looks relatively solid
- Tax accountant: Every pound in tax avoidance is a 400% net loss to society, only benefit is jobs (50 billion in "benefits of tax money going to child care"/ (14,000 jobs * 75000 average accountant salary)
- Recycling worker: Mostly empirical, some assumptions about carbon footprint, but nothing egregious.
posted by litghost at 4:38 PM on January 10, 2010 [2 favorites]

I guess I have a number of problems with this, that others will be far better equipped to describe in concrete terms. When I go to a tax accountant to deprive the government of that money, it keeps it in my family. Without that, we might not be able to place that child in childcare with a nursery worker, and thus diminish (a) the number of nursery workers that need to be employed, as well as the (b) annual wage to be earned by the parent, as a result of the nursery placement. I understand their point, but it seems flawed in the way it fails to account for interconnectivity.

If those advertising executives don't get people to come to Whatever Cancer Treatment Center, then Whatever Cancer Treatment Center neither needs nor can pay it's super-valuable cleaners. I absolutely admit I've only read the article, and not the study, but it all seems fairly silly to me. Like someone remembered in their head that while we might make fun of plumbers or waste management guys, that we desperately need them, and then imagined a faux environment full of unrealistic assumptions to prove it.

Further, for example:

Eilis Lawlor, spokeswoman for the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".

Unless I am reading it wrong, they are essentially saying we need to adjust the way we structure pay, to give more to (for example) cleaners and less to (for example) tax accountants. But part of what makes the cleaners so "valuable" is how low a wage they are paid in relation to the services they provide. So if we restructure and pay them more, doesn't their value go down? And once that hypothetical pay rise happens, do we not then need to restructure and take the money away because now, like bankers, they are paid more than the value they create?

I know the article says it is not intended to suggest that low wage jobs be paid more, but then the next sentence says pay should be more associated with value (i.e. "there should be a relationship between what we are paid and the value our work generates"). So how can you not pay more but still pay more?

To me, the article at least reads like my 8th grade science fair project where I got to pretend half the variables that could affect a given thing don't exist. But then, as an insurance tax law professional, maybe I am just super defensive.
posted by bunnycup at 5:06 PM on January 10, 2010 [1 favorite]

I propose we defer to the superior wisdom of the intellectual elites forthwith.
posted by ZenMasterThis at 5:20 PM on January 10, 2010

If the British people really wanted universal child care that badly, couldn't they still raise taxes high enough to fund it? It seems like an equally reasonable assumption that tax rates are politically acceptable in terms of the actual, and not nominal, tax burdens they generate, and if all of the tax minimization work that accountants did went away, then tax rates would, over time, reset down so that the nominal tax rate was close to the actual rate before.

Of course, it would be distributed differently, but if you were going to model the economic impact of that, it would be much more complicated and not amenable to the sort of back-of-the-cocktail-napkin model that the nef would seem to favor. Under such a scenario, tax minimization consulting would still be a net destroyer of value, but not at anything close to the 1:47 ratio that they've SWAGed their way too.

In any case, if the situation in Britain is anything like that in the US, then not all of the time and energy of the members of the Chartered Institute of Taxation is even spent on figuring out ways of minimizing tax obligation - a lot of it is simple regulatory compliance, and whatever value destruction is caused by that is shared by the people who write the the tax code, and not the accountants who help people administer their payments and reporting.

Count me as unimpressed - there's some interesting analysis to be done in this area, but this report is just a handwave.
posted by strangely stunted trees at 6:00 PM on January 10, 2010

To my mind, this article provides a succinct, pointed critique of the market system and how it valuates labor. I haven't read the study itself, and from the comments here the methodology certainly doesn't look flawless, but I think it's basic point is correct: the market system doesn't necessarily have our society's best interests at heart.

bunnycup:
The article didn't say the study wasn't about paying some people more and others less, it only said that it wasn't about targeting highly-paid people or low wages. E.g. It's ok to pay a low-wage worker more if their job is more valuable, but it's not ok just to pay them more because they have a low wage.

Regarding value itself, you are talking about value solely as a ratio, but they gave those ratios based on (quite possibly flawed but nonetheless independent of salary) calculations of general worth to society. The ratios are useful for comparison; I think if anything they would advocate 1:1 ratios for all professions. (thus probably eliminating many of the professions, yes)

ZenMasterThis:
Currently we are deferring to a hazy, broad concept known as "the market". I think it's a good idea to try and figure out what that means and how to be less deferential in general.
posted by ropeladder at 6:08 PM on January 10, 2010

Bottom line, this paper assume that the "bad" jobs are all damages except for job generation, whereas the good jobs are based in some studies of benefits and damages. They are making assumptions that service their conclusions (or are their conclusions), not assumptions that are reasonable bared out by underlying data.

Well, that's not quite true. They explicitly say that they found no discernible wider positive impact from the work of tax accountants, despite attempting to find it. They also factor in to the method for working out advertisers' value the extra GDP they create domestically by stimulating demand for products. As for bankers, they attempt to include the GVA of the City of London that is attributable to banking/financial services.

I don't doubt this report is a bit thin, and some of the assumptions are off. But even then it's better than the assertions that supporters of financial shenanigans and tax avoidance come out with. I would like to see more economics try to factor in social costs and benefits, which is clearly what nef attempt to do.
posted by Sova at 6:16 PM on January 10, 2010 [1 favorite]

One could also enlarge the scope of a study like this to include the value attributed to foreign labor via currency manipulation. Why does a Chinese laborer earnn so much less than an American laborer? It's really all about the way that currencies are valued, and the assumptions that underlie those evaluations. These are subjective assumptions based on rules that themselves are subjectively rendered. The game is fixed.
posted by Vibrissae at 6:43 PM on January 10, 2010

Was thinking of making an FPP but can't be arsed, so here's something that provides a wider context of social changes in the UK in recent decades that reflects the truth of the quote at the BBC that "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment": Britain: Groundbreaking wealth survey exposes social polarisation

The survey notes, “The inequality of total household wealth can also be seen by comparing the extremes of the distribution.” The wealthiest 10 percent of households were 2.4 times wealthier than the second wealthiest 10 percent, and almost 5 times wealthier than the bottom 50 percent. The poorest 10 percent of society had negative values for both net financial wealth and net property wealth. The bottom 50 percent of British society owned just 9 percent of the total wealth, and this included private pension wealth.

Full report here and summary here [direct links to PDFs].
posted by Abiezer at 9:55 PM on January 10, 2010

It was a neat premise and I wished they'd gone somewhere interesting with it, but all I see is some fairly weak data and lots of assumptions being used to justify already-extant conclusions about the social utility of various jobs.

E.g. they like recycling, so they hand-wave things so that recycling workers are net positives. They obviously have a bullseye on the banking industry, so no surprise that they come up with a strongly negative number there.

Of course, they do this by adding the "social costs" of carbon emissions (what are those? why not go with the actual costs of carbon emissions, using the UK's carbon tax or the EU's cap-and-trade market as a cost basis?) as a positive for the recycler, and putting the entire 'bust' portion of the recent boom/bust cycle on a relatively small number of City bankers.

That last one is particularly egregious, since the main reason that the credit "bust" was and is so painful is due to job losses — jobs created, in most cases, during the preceding "boom" that was fueled by credit magicked out of thin air by those same accursed bankers. There's certainly an argument to be made that the bust was so bad, it would have been better never to have the cheap-credit boom in the first place, but they're not making it — and I question whether most people who got jobs (in construction, for instance) as a result of the boom and recently lost them due to the bust would agree that it would have been better to just remain potentially unemployed the whole time.

It's telling and appropriate that they put their "conclusions" up front, because it looks suspiciously like they just worked backwards from them. Which is unfortunate, because the analysis could have been really interesting if done right, with more reasonable and defensible assumptions.
posted by Kadin2048 at 6:48 AM on January 11, 2010 [2 favorites]

Aside from the contentious basic assumptions made, the message that "Leading bankers destroy £7 of value for every pound they create" is misleading. To me that reads "whenever a banker has made, is making, or will make £1, the wider economy loses £7 every time". The statement should read something like "As of today, recent profits made by the banking industry vs the total loss due to the current financial crisis are in the ratio of 1:7."

Equating the value of a job, and by extension a whole industry, with gains or losses made by an infrequent-but-not-quite-one-off event is like saying that being a politician is a worthless profession because of the recent expense claim scandals

..dang argument fail
posted by 5imon at 7:10 AM on January 11, 2010