Opinion

Edward Hadas

The overvaluing of overwork

Edward Hadas
Aug 29, 2013 16:12 UTC

Moritz Erhardt has become a tragic symbol. The 21-year-old summer intern at Bank of America Merrill Lynch was found dead on Aug. 15 at his rented London apartment. There is no official report of what happened, but coworkers blogged that Erhardt died after working three consecutive 20-hour days. Whether or not that is true, the tragedy has prompted a worthwhile debate about the work culture in banking and other high-pressure professions.

Erhardt’s schedule was not extraordinary for the ambitious young people who are trying to advance on the fast track at investment banks, law firms, consultancies and other practitioners of long working hours. The normal career starts with a period of white-collar slavery: 80 or more hours a week of drudgery in air-conditioned offices, with occasional breaks for take-away meals. The tasks eventually become more interesting, but the years of mega-hours drag on. Later, workers often have lives of privileged desperation: lots of money, luxuriant houses and holidays, and a trail of damage.

Deaths from overwork are rare. But exhaustion, family breakdowns and substance abuse are common in high-stress jobs with ultra-long days. The extent of the gradual degradation of character – intelligent and interesting people reduced to narrow-minded careerists – is a matter of ongoing debate.

Long hours were once traditional in factories. That changed. So too it could change in the office, and more easily, since shorter workdays have less effect on output there. These professions don’t need or even obviously benefit from this cult.

So who is responsible for its perpetuation?

Employers deserve some blame. Human Resources departments could brief managers on the extensive psychological research about the damage of overwork. The excuse that mega-hours are somehow good for shareholders is both mistaken and feeble: workers should not suffer unduly just to keep profit up, and profit would not suffer if workers had a chance for a good night’s sleep.

A dangerous lie about debt

Edward Hadas
Aug 21, 2013 09:41 UTC

I have spent much of the last five years searching for financial villains. The 2008 crisis and the extremely slow subsequent economic recovery have exposed a deeply flawed system, and some people, groups or ideas must be responsible.

There are many obvious culprits: greedy bankers, undercapitalised banks, lax monetary policymakers, reckless governments, weak international institutions and imprudent lenders and borrowers. They’re all guilty, but some of the worst offenders are intellectual – the dangerous ideas that encouraged overconfidence during the credit bubble and ineffective policy in the aftermath. Financial theory is a big problem. In particular, I accuse the risk-free rate of return of being the devil’s work.

Some aspects of the theory have already received a great deal of criticism, but the complaints are mostly quite technical. Beta, or market return, is too often dressed up as alpha, the extra return attributed to an investor’s skill (or luck) picking particular investments. And the distribution of daily returns is actually not mathematically normal, as much of the theory assumes. But I think the problem starts right at the beginning, with the assumption that there is a readily available, perfectly safe investment. The theory basically compares the range of likely returns on every other investment to the certain gain from the risk-free alternative. Additional returns are expected to compensate for additional risk.

UK’s economic woes are basically social

Edward Hadas
Aug 14, 2013 09:23 UTC

Four decades ago, everyone knew that the UK had a social problem. Class divisions stunted the development of a substantial, well-educated middle class, leaving the economy in a strangely Victorian state – divided between a gruff working class, which was prone to strikes and obstruction; and the incompetent elite, which seemed unable to adjust to the end of Empire.

Times have certainly changed. Britain is now prosperous and predominantly middle class. Union strangleholds have given way to flexible labour markets. The country is a magnet for global talent, drawn by a cosmopolitan culture, not to mention the use of the leading global language. High value-added international services are its speciality.

But something is still wrong. A country with so many advantages should be doing better. Think Switzerland – another country of social peace, high skills and a post-industrial economy. The Swiss run a hefty trade surplus. The country has a very low unemployment rate, low inflation and a fiscal surplus. The nation’s biggest monetary challenge is to keep the currency from rising.

Imagine a world without debt

Edward Hadas
Aug 7, 2013 09:32 UTC

I have a dream: a world without debt, and with much more equity. It’s not just that summer holidays are a good time for fantasising. The fifth anniversary of Lehman Brothers’ bankruptcy is a month away, and regulators have recently forced both Deutsche Bank and Barclays to issue more shares.

Some regulators’ beach thoughts may drift to the magic numbers of bank capital ratios. My approach is less technical and more philosophical. I wonder why the financial system relies so much on debt. Loans and bonds are poorly designed for their primary economic purpose – investment.

This observation may sound shocking. Interest-bearing debt is considered totally normal. Financial theory unquestioningly treats risk-free debt as the standard instrument. Savers usually compare all investments to a similar standard: safe bank accounts which pay a steady interest rate.

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