ShelbyC: if you really feel that market distortions cause bank exec’s services to be significantly overvalued, you are perfectly free to form JT’s bank, with limits on executive compensation. That is the mechanism by which these distortions get corrected.

I agree, want to be my first client :). I would also love to have more detailed knowledge. The information I do have though comes from representing the banks for 4 years. I did get some chance to look under the hood, and see how the business operates. But, it was not the involvement of a true insider.

I realized I should expand my narrative.

Someone offers to trade her Vermeer for my Turner. My spouse says, “Jeesh; a Vermeer? And it’s worth three times as much!” I say, “I don’t care about the money; I love my inherited Turner.” Still, I am persuaded to trade; after all, it is a Vermeer (and hubby loves Vermeer).

Months later, the spouse and kid say, “We need money. Why not sell the Vermeer?” After some accusations that they have tricked me, I say, “Whatever; we could use the money.” I part with the Vermeer because I do not love it. But I would never have sold my (my grandmother’s!) Turner for that amount of money in the same circumstances.

loki13: ChrisTS-Actually, in your example:Going price for your Turner: XAt X you will not sell.Price offered for your Turner: 3X(you’re not keeping the Vermeer, you’re selling it, right!).Ergo, the value of the Turner to you was *exactly* 3X, because that’s what you were willing to part with it for. (And no fair blaming the missus and the kids- you’re a rational actor )

Well, I guess I’m the missus. My claim was that I would not sell it for 3X or anything more. (Which is true, in fact, and very difficult to explain to the hubby and kid.)
I guess a simple way to make my general point is this: market value reflects something about how people value various objects and services at a given time. It does not do so perfectly, precisely because there are hidden aspects of valuation, vagaries of human reasoning, and distortions in the market.

Vagaries in human reasoning might explain being willing to trade for the Vermeer and then sell it while being unwilling to sell the Turner for the same price. Hidden aspects of valuation could include other valuations, such as getting the jerks off my case. :-)

A. Zarkov: Not every group is going to operate the same way as your Kentucky example shows. Obviously all groups are not equivalent in all ways.

A. Zarkov: I should have said “… destroying America as we know it.” I say that as a resident of California who is witnessing its conversion into “Mexifornia” without any obvious benefits.

Given A. Zarkov’s previous posts about race and crime, it would seem that “multiculturaism is destroying America” translates to “blacks and hispanics are destroying America.”

He is of course, entitled to his opinions. And Zarkov is always polite. So in addition to pointing out the obvious from his words, I would like to add the following constructive comment:

The conception of what is “white” in America has undergone substantial revisions. For example, in the past people who complained about immigration (the multiculturalism that destroys America) belived that “white” meant northern European, protestant immigrants. They didn’t want those Catholics, Jews, and swarthy southern europeans in, not to mention the Irish! Of course, with time, this attitude changed, and white became more encompassing. Italians? Yo! Jews? Mazel tov! Catholics? We had ourselves a president with some chowdah. Each of these groups were bent on destroying America with their “inferior” ways, and somehow we muddled through it.

I think we’ll be fine.

great unknown: Society needs an outlet for the ethically challenged.

Clearly the best comment in the entire thread. :)

Havoc Jack:
Funny. It seems to me that the significant feature of this arrangement isn’t trust, it’s the social stigma.

It’s both. Let’s say trust is a necessary but not sufficient condition for such a system to operate. The diamond merchant Jews also have a creed– an ethical system that dictates behavior.

JT: That is my perspective. If you have a different one formed from your level of information and incentives I would love to hear it.

I don’t. Your perspective is, of course, perfectly valid. My point was that presumably neither you nor I have the level of information neccessary to accurately price banker’s services, nor do we have the incentives necessary to aquire that information. We are constantly seeing folks with limited information claiming that they can see market distortions (i.e. the price of gas can’t possibly be this high, there must be some kind of manipulation), and we can’t let those opinions trump the opinions of the actual stakeholders.

Of course, if you really feel that market distortions cause bank exec’s services to be significantly overvalued, you are perfectly free to form JT’s bank, with limits on executive compensation. That is the mechanism by which these distortions get corrected.

A. Zarkov:
It’s then natural to ask: “Where else might such a system work? I think the answer to that is wherever there is a high level of trust.

Funny. It seems to me that the significant feature of this arrangement isn’t trust, it’s the social stigma. To borrow a physics term, a society based only on trust is in unstable equilibrium (think of a pencil balanced on it’s end); sure it’s stable now, but a shock to the system brings everything down. If they only relied on trust, then sooner or later they’d trust someone who didn’t deserve it, who’d screw them over in a big way as soon as it was worth his while. And then what happens? They don’t trust anyone anymore and in come the lawyers they were doing so peacefully without.

But if you bring in the punishment, then it becomes a much worse idea to screw over the group; you’re trading long term value (a profitable relationship with the diamond industry) for a relatively small short term gain. People don’t, and the system works. It’s much safer to trust someone when it’s in their best interest to fulfill that trust. (Note that this leaves out the possibility of someone stealing enough to spend the rest of their days somewhere with warm sunny beaches. I’d argue that the Orthodox Jewish concepts of time and family (it’s not just about you, but about your children, and grandchildren and so on) tend to limit this sort of calculation).

Re the original post, whether or not a lawyer’s abilities are easily translatable to engineering is beside the point. To excel in lawyerdom, you need to be able to quickly dissect an argument, evaluate it, and reply intelligently. These same skills would serve well in the worlds of business, philosophy, diplomacy or (dare I say it?) politics. The question isn’t what to do with unemployed lawyers.

The question also isn’t whether some lawyers are beneficial; I think it’s obvious that we need lawyers. Every case needs a lawyer to argue for it and against it, and I certainly hope the judge has opened a law book somewhere along the line. Similarly pretty much any other branch of the law.

The question is whether we’re wasting our brilliant minds arguing the law when they could be out doing something brilliant. Note that his specific example is inventing the automobile. The public defender representing a shoplifter is doing something noble and useful, just as the engineering intern who’s adjusting his AutoCAD file so that the part now has a 17 degree slope is. But neither is revolutionizing society with the next generation’s tech leap; that brilliant public defender could be out there talking Iran out of it’s nuclear material.

Now, assuming there is for the moment an oversupply of brilliance in the legal profession (we need brilliant lawyers too, but perhaps not so many), we’ve got two options. The stifled legal clerk could quit his job to study philosophy like he’s always wanted to, eventually formulating the idea that defines the next century, or we can alter society such that there is less need for lawyers, thus reducing the total number of lawyers by economic pressure, and proportionally reducing the number of brilliant lawyers to the level we actually need. (Get back to me when either happens.)

All that has been retreading arguments already spoken. I still haven’t said anything to answer the question. I’d like to suggest a correlation between the number of lawyers a society needs and the number of laws it has; it takes a lawyer to understand a law. I think I understand what the second amendment means. So does my buddy over there. Trouble is, we understand different things about it. Suppose we get to arguing, how do we settle the argument? If it’s serious, we call a lawyer or several. As far as laws go, the second amendment is pretty easy to read. What if I’m dealing with something complicated like the tax code, or environmental regulations? If the market demand for lawyers is proportionally related to the number of laws, and if the number of laws keeps growing (it does), then the market demand for lawyers keeps growing such that either we get more expensive lawyers, more lawyers, or more lawyers who are also more expensive. As the population of lawyers proportionally rises, the number of brilliant people in the profession rises, and the number of brilliant people going into law gets larger and larger in relation to those entering the rest of society.

Actually defining the difference between not enough brilliant lawyers and too many is a riddle which I’m not able to solve.

The pending question: do lawyers as a class resemble extortionists (unjustly harming others, thereby creating “demand” for their services in undoing or mitigating the harm) or do they resemble physicians (who work to reduce harm caused by natural processes or third parties)?

In some instances the former, in some the latter. But the opportunities to act in the latter role are limited, and so any expansion of lawyering beyond a certain point is in the former category.

And we passed that point a LONG time ago.

Woe unto you, lawyers! for ye have taken away the key of knowledge: ye entered not in yourselves, and them that were entering in ye hindered.

JT: Finance people work with money.

You need to be clear on which bank execs you are concerned with. I suspect it is with executives at the top investment banks like Goldman Sachs or Morgan Stanley rather than with your local community savings bank. Investment bankers do a lot of their business through established relationships with CEOs (for M&A or underwriting activity), government officials (for bond placements), or the heads of leading pension funds, endowments or sovereign wealth funds (for institutional brokerage). The reality is that often these institutions do business with a specific individual rather than a specific firm. If a banker is unhappy with his bonus, he can always threaten to leave and take his clients with him to another firm. This can and does happen in the financial world.

Bonuses for traders are another story entirely. I would also like to see these based on long-term performance.

JT: Or, why are banking execs so expensive? Another question we are asking. (And the ‘we need to be able to attract and retain the best talent’ argument is the biggest steaming piece of BS that people currently get away with.)

Well, that’s your opinion, formed based on your level of information and incentives. But the folks who actually have skin in the game, and for whom the stakes matter, take a different view. Sure there are agency issues, but the principals aren’t flocking to banks with lower-payed execs.

It sounds like you think that markets should set market price unless you think the market price is a steaming pile of BS. That’s just not a good way to align decision-making with incentives.

Ricardo:
It doesn’t.But one would think that after making the statement “multiculturalism is destroying America” the burden of proof would be on the person making such a strong statement to back it up.Instead, the one example you cited was actually a counterexample: an ethnic minority that supplies diamonds to consumers at a cost not artificially inflated by legal fees sounds like a net positive for America and one made possible by multiculturalism.But I would just as soon not get side-tracked into a debate on multiculturalism when the original topic was about the social utility of lawyers.Some people here seem to always try to steer conversations back to their hobby horses like immigration, multiculturalism, Islamic extremism, the Obama administration, hate speech restrictions, and the like.

I should have said “… destroying America as we know it.” I say that as a resident of California who is witnessing its conversion into “Mexifornia” without any obvious benefits.

I brought up the diamond merchant example to show we don’t always need lawyers to do business. It’s then natural to ask: “Where else might such a system work? I think the answer to that is wherever there is a high level of trust. That in turn leads into the ideas of social capital as put forth by Putnam. It’s Putnam’s research (not mine) that demonstrates multiculturalism reduces trust in a community. In other words, there is linkage between the need for lawyers and multiculturalism.

A. Zarkov: That’s true, but how does that prove that multicultural in general is always desirable?

It doesn’t. But one would think that after making the statement “multiculturalism is destroying America” the burden of proof would be on the person making such a strong statement to back it up. Instead, the one example you cited was actually a counterexample: an ethnic minority that supplies diamonds to consumers at a cost not artificially inflated by legal fees sounds like a net positive for America and one made possible by multiculturalism.

But I would just as soon not get side-tracked into a debate on multiculturalism when the original topic was about the social utility of lawyers. Some people here seem to always try to steer conversations back to their hobby horses like immigration, multiculturalism, Islamic extremism, the Obama administration, hate speech restrictions, and the like.

Ricardo:
Multiculturalism is what allowed that Jewish community to exist in New York as a distinct group whose members trusted each other in the first place, Zarkov.

That’s true, but how does that prove that multicultural in general is always desirable? Not every group is going to operate the same way as your Kentucky example shows. Obviously all groups are not equivalent in all ways. Some will benefit the host country more than others.

A. Zarkov: As the US becomes more and more multicultural, we become less and less trusting and more and more in need of lawyers. Multiculturalism is destroying America.

Multiculturalism is what allowed that Jewish community to exist in New York as a distinct group whose members trusted each other in the first place, Zarkov.

Small inter-related communities are also not always cooperative. Harlan County, Kentucky and the surrounding rural counties were extremely isolated and populated by only a handful of families in the 19th century but had shockingly high murder rates as a result of the bloody family feuds that would inevitably break out. Orthodox Jews can settle business disputes by having the community ostracize the offending party. Immigrants from the British Isles who settled in Kentucky settled business and other personal disputes by a duel or by murdering the offending party in cold blood.

loki13:

What does “multicultural” mean to you? We shouldn’t allowed jewish people in? We shouldn’t have allowed in the Irish and the people from the Southern Mediterranen?

I’m using “multicultural” in the same sense as Robert Putnam in his study

E Pluribus Unum: Diversity and Community in the Twenty-first Century The 2006 Johan Skytte Prize Lecture

In the Abstact he writes

Ethnic diversity is increasing in most advanced countries, driven mostly by sharp increases in immigration. In the long run immigration and diversity are likely to have important cultural, economic, fiscal, and developmental benefits. In the short run, however, immigration and ethnic diversity tend to reduce social solidarity and social capital. New evidence from the US suggests that in ethnically diverse neighbourhoods residents of all races tend to ‘hunker down’. Trust (even of one’s own race) is lower, altruism and community cooperation rarer, friends fewer.In the long run, however, successful immigrant societies have overcome such fragmentation …

However after reading his report I see that his “in the long run” is more a hope than a fact. Putnam was extremely uncomfortable with his own result and declined to publish it for a long time. But I think we have to face facts about multiculturalism. I bring this up because the diamond merchants are an extreme form of mono-cultrualism as well as an example of a group with an extraordinarily high level of trust.

Actually, in your example:

Going price for your Turner: X

At X you will not sell.

Price offered for your Turner: 3X
(you’re not keeping the Vermeer, you’re selling it, right!).

Ergo, the value of the Turner to you was *exactly* 3X, because that’s what you were willing to part with it for.

(And no fair blaming the missus and the kids- you’re a rational actor ;) )

ShelbyC: Put another way, the “value” of something only has significance when I wish to exchange it for something else. And in that context, it is “worth” however much of that something else I can get.

Ah. I think ‘exchange’ offers a thought experiment of sorts: what would you give/give up for X? That is, I think such a thought experiment can be helpful in determining valuations. BUT, to equivocate between ‘exchange value’ and ‘monetary value’ is to simply fall into a particular kind of economic paradigm.

For example: Suppose someone offers to trade her Vermeer for my Turner, but I love Turner much more than Vermeer – or, perhaps, I love my particular Turner more than I love her Vermeer . I might love my Turner more than her Vermeer because I a) love American artists more than Dutch ones; b) I love sea scenes [and mine is one]; or c) my Turner came to from my family, and I value it as a part of my family heritage.
I will not trade.

However, it happens that Vermeer is much bigger in the art market, and I learn that her Vermeer will bring in three times the price of my Turner if I were to try to sell either. The money looms large. I love my Turner; it is more valuable to me than any Vermeer. My spouse is yapping at me about the MONEY. My youngest child wonders if there will be any funds left for his college education . I cave. I make the trade and sell the Vermeer, even though I would not have sold the Turner. But, I do not think this Vermeer is more valuable to me than my Turner .

Looked at externally, it appears I ‘value’ the Vermeer more than the Turner. But this is, at the least, a misrepresentation of my valuations.

I suspect that many ‘market transactions’ are also misrepresentations of persons’ actual valuations. And that is just another reason that ‘price’ is not a simple equivalent for ‘value.’

A. Zarkov: As the US becomes more and more multicultural, we become less and less trusting and more and more in need of lawyers. Multiculturalism is destroying America.

Wow…. and to think I was enjoying your post before that (lawyers to diamonds, full circle).

What does “multicultural” mean to you? We shouldn’t allowed jewish people in? We shouldn’t have allowed in the Irish and the people from the Southern Mediterranen? No? Not what you meant?

hmmmm…. I think the Native Americans would agree with you. Been going downhill ever since Columbus. All we brought them was smallpox and John Edwards.

Yes, it was Vermeer. *doh* Bad memory, and that. I would never be so bold as to say that there isn’t some inherent value to things, or that people could not (or should not) make normative judgments about the value of things relative to the price. However- I think ShelbyC is exactly right, the only way that we can know what something is “worth” (as opposed to a subjective idea of what it should be worth) is to measure the price when it is exchanged by a willing buyer and seller. Think of a classic example- A, B, C and a widget.

A owns a widget. A is willing to accept any offers greater than $7. B soesn’t want the widget, but knows that C wants it badly. C is willing to pay up to $23 for the widget.

A sells widget to B for $10.
The next day, B sells widget to C for $20.

What is the “value” of the widget?

As the US becomes more and more multicultural, we become less and less trusting and more and more in need of lawyers. Multiculturalism is destroying America.

Yes! But it was Vermeer, wasn’t it? I loved Morris’ take on it as a perfect scam precisely because the forger did not try to perfectly emulate Vermeer.

I got started thinking about art objects years back when thinking, perhaps oddly, about the value of natural objects. You know: ‘a perfect replica of a tree that is not a tree’ sort of thing. I think those objects whose value is closely tied to ‘provenance’ – genesis – offer a particularly good counterexample to the ‘it’s all what the market will bear’ view.

I do not believe there is a ‘single, true’ value to anything. We can identify some basic goods that will always be valuable – of value – to humans (food, water, shelter, etc.). Other ‘things’ and experiences will be more or less valued by cultures and individuals. But, I do think that what people will pay is only a marker for what people value in a market economy. The price=value view* is a kind of value-theory version of misplaced concreteness.

Still, I think you are correct (haha) in thinking that diamonds are overvalued. They are valued, to the extent they still are,** as luxury items/symbols of love and as useful for various technical purposes. The latter is likely to be a more lasting – less purely market-driven – value, because it is grounded in use that is grounded in need.

*I do not presume to imply that your position is so reductivist.

**My son thinks the diamond jewelry adds should be edited to show a severed arm hanging from every ring.

ChrisTS: But we do not value the ‘real’ Van Gogh because it brings a high price. We value it because of its provenance. And that is why folks with money to burn will pay high prices for the real deal.

The buyer values the Von Gogh because of it’s provenance, more than the $$. The seller values the $$ (or more accurately, what he can buy with the $$) more than the Van Gogh’s provenance. This discrepancy is what makes the economy possible.

To confound your example, there was a recent piece by Errol Morris on aa great art forger (of Rembrandt). Something which is both highly valued (an highly priced) will collapse in both price and “value” when it is found to be a forgery (unless the forgery becomes notorious….). But it is the same object.

This is beside the point. The price of an item might be “too high” or “too low” due to various factors including market imperfection. But to say that there is a “true price” or “underlying value” of an item is to put the cart before the horse- the true value of something is what someone is willing to pay for it. If, for example, DeBeers stopped advertising, and people no longer kept diamonds as family heirlooms (bigger secondary market) and substituted other precious stones for engagement rings (as they used to before advertising), then the price would go down. I could say that the price of diamonds (outside some limited industrial uses) is way “too high” compared to their value.

Saying that, and bringing two months salary, can buy an engagement ring. :)

ChrisTS: In that event, I would not have attorneys.

Exactly.