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Not coincidentally, Americans are less economically mobile than people in other developed countries. There is a 42 percent chance that the son of an American man in the bottom fifth of the income distribution will be stuck in the same economic slot. The equivalent odds for a British man are 30 percent, and 25 percent for a Swede.

Just as technology gave pop stars a bigger fan base that could buy their CDs, download their singles and snap up their concert tickets, the combination of information technology and deregulation gave bankers an unprecedented opportunity to reap huge rewards. Investors piled into the top-rated funds that generated the highest returns. Rewards flowed in abundance to the most “productive” financiers, those that took the bigger risks and generated the biggest profits. Finance wasn’t always so richly paid. Financiers had a great time in the early decades of the 20th century: from 1909 to the mid-1930s, they typically made about 50 percent to 60 percent more than workers in other industries. But the stock market collapse of 1929 and the Great Depression changed all that. In 1934, corporate profits in the financial sector shrank to $236 million, one-eighth what they were five years earlier. Wages followed. From 1950 through about 1980, bankers and insurers made only 10 percent more than workers outside of finance, on average.

Then, in the 1980s, the Reagan administration unleashed a surge of deregulation. By 1999, the Glass-Steagall Act lay repealed. Banks could commingle with insurance companies at will. Ceilings on interest rates vanished. Banks could open branches anywhere. Unsurprisingly, the most highly educated returned to banking and finance. By 2005, the share of workers in the finance industry with a college education exceeded that of other industries by nearly 20 percentage points. By 2006, pay in the financial sector was again 70 percent higher than wages elsewhere in the private sector. A third of the 2009 Princeton graduates who got jobs after graduation went into finance; 6.3 percent took jobs in government.

Then the financial industry blew up, taking out a good chunk of the world economy. Finance will not be tamed by tweaking the way bankers are paid. But bankers’ pay could be structured to discourage wanton risk taking

CAPITALISM relies on inequality. Like differences in other prices, pay disparities steer resources — in this case, people — to where they would be most productively employed.

In poor economies, fast economic growth increases inequality as some workers profit from new opportunities and others do not. The share of national income accruing to the top 1 percent of the Chinese population more than doubled from 1986 to 2003.