JONATHAN CHAIT JANUARY 14, 2010
He also downplayed concerns that talent would flee the industry.
"I don't know where people would go for comparable salaries," Frank said. "I guess perhaps they could star in major motion pictures."
But National Review's Veronique de Rugy sees it as an "anti-capitalist and anti-wealth mentality [that] is scary and very anti-American."
Hey, you know what else is anti-American? Being named "Veronique de Rugy."
I digress. Anyway, de Rugy offers this riposte to Frank:
if Mister Frank really believes that chasing well-paid employees to go elsewhere is a winning strategy and won't have any impact on the industry, then I suggest that next time he is sick he goes to a hospital where doctors are poorly paid and see how he feels about that.
Of course, Frank didn't say that reduced pay would have no deleterious effect on the quality of any profession, he said it about the finance profession. It's telling that de Rugy changed the subject from finance to medicine. Exactly what horrors does she think would occur if we had less brilliant people flocking to the finance industry? We'd wind up with a bunch of hacks who, I don't know, crashed the world economy because they never considered the possibility that historically sky-high housing prices might drop?
In any case, as Robert Solow suggests, reducing the incentive for talented people to enter finance might be a feature, not a bug. One of the problems of an economy where the finance industry earns 45% of all corporate profits is that it exerts a massive brain drain away from productive pursuits into inventing "ways to spot and carry out favorable transactions minutes or even seconds before the next most clever competitor can make a move."
So you can see why de Rugy changed the subject from finance to medicine. But let's stay on medicine for a moment. What if we did pay doctors less? Would it be a disaster? Well, France pays doctors a lot less, and its quality of care is so good that even hard-core libertarians go nuts for it when they actually come into close contact with its system. It wouldn't necessarily be easy to impose that system here -- among other things, you'd need to reduce malpractice fees and the cost of medical school, as France does. But it does show that de Rugy's simple free market model doesn't work as clearly as conservatives want to believe.