…why the extraordinarily outsized pay packets of the high financiers?
Why doesn’t competition–which sorta works elsewhere in the
economy–cause us to see greatly reduced earnings? We understand, we
think, why celebrities get paid so much–a combination of increasing
returns in distribution, being the genuinely best in the world, and
being well-known for your well-known-ness. But why financiers?
What is it that blocks effective entry and competition, exactly?
The post is here. I see the high returns of hedge fund managers as the result of a "who moves first?" game. Someone
is the first to buy a big chunk of an underpriced asset, and indeed the
greater liquidity of capital markets makes it possible for the first
mover to buy a bigger chunk than ever before.
The other buyers might (though might not) come only a second later
with their purchases of the same asset. In that sense the world is
very competitive. Entry into purchasing the undervalued asset is not
blocked. But still someone has bought first and will earn a
huge bundle. Highly competitive "piling on" simply speeds up the
receipt of the eventual capital gain by the first purchaser, it does
not limit the size of that gain.