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Pulling Out All the Stops

Pulling Out All the Stops


Actually, it was the best job ever because I was something of a piano prodigy as a child. Around age 12, my parents and I had to make a conscious decision about whether I was going to pursue a career in music. I decided not to, which has greatly reduced the amount of Ramen noodles I have eaten over the years.

At age 13, I decided I wanted to play the organ. I took lessons from the organist in the big Catholic church downtown. What an incredible instrument!

Playing the organ is a lot harder than it looks. In case you hadn’t noticed, there is a whole keyboard at your feet—yes, you play with both your hands and your feet. And since you can’t possibly learn all the hymns, you have to be really good at sight-reading three lines of music at once. It takes a great deal of coordination. Plus, you have two or more “manuals” (keyboards) and dozens of stops, which activate the different sounds in the organ. This is where the phrase “pulling out all the stops” comes from.

So I got a job as the organist at the Unitarian church down the street. For the first and only time of my life, I was a member of a union—the American Guild of Organists. I received my union-protected minimum wage of $50 per service, which is a great deal of money if you’re 16 years old in 1990.

$50 a week definitely put gas in my car. And there was a girl in the congregation that I dated a couple of times.

I felt sorry for my poor schlep classmates who were bagging groceries for $4/hour. They had to work 12 hours to make what I made in one.

I felt pretty smug.  The high point was when I transcribed the theme from “A Clockwork Orange” and played it as the prelude for one of the church services. You can see where the subversive streak comes from.

I Got Skills

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So why did I make more than 12 times what my high school classmates made?

Because my skills were worth 12 times as much.

Bagging groceries is kind of the definition of unskilled labor. Literally anyone can bag groceries. The supply of labor that has those skills is limitless.

Church organists are in slightly higher demand.

But not by much! I think a church organist these days—if you are hired by the church to play every week, plus run all the choir and music programs, probably pays about $35,000 to $50,000 a year, depending on the church. So not a lot!

It’s a decent living if you like playing the organ, but you also have to deal with church politics. The wages of an organist not only depend on the supply of labor but the demand for labor as well. And church construction has gone way down in recent years. Not to mention the fact that the latest fad in religious services is “contemporary music.”

However, the fact that church organists make more money than grocery baggers does reflect the level of skill the occupation requires. Before I became a church organist, I had been playing either the piano or organ for six years. Six years of practicing 30 minutes to an hour a day, every day.

Nobody practices bagging groceries for 30 minutes a day, every day.

I don’t particularly like manual labor (though I have done it on occasion). That’s why I do my best to acquire skills that are rare and marketable so I don’t have to do things like chip paint.

In this country (and others), we have this unhealthy obsession with manual labor. Politicians talk about “working Americans” all the time. We say things like “putting in a hard day’s work.” The most popular car is the Ford F-150.

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Who wants to put in a hard day’s work? Not me!

Instead, I will put in a hard day’s thinking.

Hate and Discontent

A lot of people spend too much time thinking about what other people make. It’s unproductive.

Everyone thinks Wall Street guys are overpaid, for example.

Okay, so let’s take your average ETF option trader at a bank. Say he makes $500,000 a year (which might even be generous these days). Let’s examine one trade of many that he is confronted with on a daily basis.

A sales trader stands up and yells to him, “20,000 XLE Jan 75 calls, how?”

What’s happening here is that a client is asking for a two-sided market on the January 75 call options in XLE, which is the Energy Select Sector SPDR ETF, 20,000 times, which means options on 2,000,000 shares, or about $140,000,000. It’s a big trade, definitely, but there are bigger ones.

So let’s think of all the things the option trader needs to know.

He needs to know what an option is, starting from scratch.

He needs to know what XLE is, that it’s an energy ETF, and he should have a good idea of what stocks are in the portfolio. He might have a cursory knowledge about factors affecting supply and demand for crude oil.

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In order to come up with a price for these options, he has to have an idea of what implied volatility should be and what realized volatility might be going forward.

This requires a knowledge of an option pricing model like Black-Scholes and many, many years of college mathematics, including probability theory and differential equations.

He needs to know how he is going to hedge this option. Will he hedge the delta all in the stock? Will he hedge with other options? How will he dynamically hedge the trade until maturity? Will he lay off some of the risk in other strikes? Will he buy single-stock options on some of the names in the index, like XOM, CVX, or COP, to effect a dispersion trade?

This means he has to know what a dispersion trade is. More math.

He also needs to understand liquidity. What will be his execution impact by trying to sell 800,000 shares of XLE? This affects how wide he makes his market.

And best of all, he needs to think about all of these things in a split-second, without hesitation.

If he is off by even a penny—he loses money on the trade.

I would characterize that as “skilled labor.” And we haven’t even talked about the emotional fortitude it takes to take that kind of risk.

$500,000 a year seems low.

CEOs

People get the most upset about executive pay. Here you have some dillweed CEO who is the direct beneficiary of the agency problem. If company XYZ does well, he gets paid millions. If it does poorly, he gets fired and loses nothing, personally. We say that he has no skin in the game.

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Well, do you have what it takes to run one of the 500 largest companies in the world?

Pretend we’re talking about McDonald’s. Many people think McDonald’s is doing a terrible job. There’s a lot of evidence that they are. They’re losing market share to Chipotle and lots of other “fast casual” restaurants.

But running a company is hard enough. You have 50,000-odd restaurants, you have to manage supply and distribution for this massive network, you have to do all the managerial science behind what is on the menu and how much it costs, you have to directly negotiate, and I mean meet with leaders of foreign governments, you need to go on CNBC from time to time and not be a mutant, and above all, you need to lead inspirationally.

Not many people can do all that. I can’t. Maybe I’m smart enough, but I don’t have the emotional maturity or even the desire for that kind of responsibility.

Everyone wants to be the boss, but nobody really wants to be the boss.

If you think you are underpaid—maybe you are. The labor market is not perfectly efficient. Anomalies can persist.

Take a look at people who you think are overpaid. What are they doing that you aren’t? Maybe you just aren’t willing to do those things (like kiss lots of ass).

The responsibility is yours and yours alone. And that, my friends, is something nobody wants to hear.

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Discussion

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0 comments

donsoards@gmail.com
Nov. 7, 2015, 9:34 p.m.

Jared, how did you get into the union?  Getting the job is frequently the hardest part and all to often has little to do the quality of the applicant.  Suggesting that those in lesser positions are not qualified is inaccurate.

Tom Brennan
Nov. 5, 2015, 7:09 p.m.

My wife belongs to the AGO. Fortunately, playing the organ is an avocation and love for her, not a vocation or her regular job. I see positions advertised around here for church music directors paying in the mid-teens (though I suspect the better positions do pay somewhat more) so you would have to have another job to pay the bills.

It does take a tremendous amount of practice to play well, especially with the pedals. (With my feeble piano skills, I liken the organ to “playing with 3 left hands”.) She says that playing for weddings is the most nerve-wracking - there are no do-overs or mulligans if you screw up the once-in-a-lifetime special day of some bride.

But I think the ability to play the organ well has been de-valued some since you did it - fewer churches open, declining attendance at the mainline churces with nice organs, less interest in classical sacred music, fewer people getting married in churches (if at all). That said, things are going well at least for the Catholic church here in the Southeast; we are still building newer and bigger churches.

EUGENE BARTH
Nov. 5, 2015, 9:58 a.m.

Jared, thanks for penning a fun essay on real economic justice.  Justice is an under rated virtue.  Its a really hard thing to be objective about one’s own life, behavior, and choices.  When you manage to do it, it sure is liberating.

joe zurawski
Nov. 5, 2015, 9:41 a.m.

I LOVE this one!

michael@ivpcapital.com
Nov. 5, 2015, 9:15 a.m.

When we have income disparity approaching that of Louis 16th France, then I’d say that what CEO’s are paid has less to do with merit, risk-taking, responsibility and natural laws of supply and demand and more to do with who one knows and how well one plays court (ie boardroom and capital markets) politics.

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