In the New York Times, Harvard’s president laments the lure of Wall Street to its undergraduates. Several students seem to share her perspective:
“I don’t think a lot of people at Harvard know what a hedge fund or a consulting firm is when they start,” he said. But then, he explained, juniors and seniors being recruited come back from expensive dinners out and “start throwing salaries around,” and students begin to understand that “there’s already a kind of prestige attached to working for those people.”
Even the economics PhDs are trashing the system.
As Adam M. Guren, a new Harvard graduate who will be pursuing his doctorate in economics, put it, “A lot of students have been asking the question: ‘We came to Harvard as freshmen to change the world, and we’re leaving to become investment bankers — why is this?’”
The Economist‘s libertarian leaning Free Exchange blog finds the lamentation lamentable.
Students pursuing these high paid jobs get classified as sell-outs. It also seems students at elite schools are told they posses extra-ordinary talents and thus have a moral obligation to enter public service. It explains why us poor saps at state schools were merely told if we got a well paid job we found interesting we should feel grateful, rather than morally conflicted.
This seems unnecessarily cynical. I went to a state school in Canada and was given the “leaders of the future” line. I bought it, and believe it.
There’s a good argument that the expectation of lifetime utility is higher in public service. Who ever said, “As happy as an investment banker”? It’s right up there with, “As beautiful as an airport”. But of course, I’m an empiricist. With all the happiness economics going on, it would be interesting to see if there’s data on the question.
Personally, I also wonder whether the diversion to investment banking is a national economic drain. Is greasing the great financial wheel of the U.S. really the ideal pursuit for the nation’s brightest? What’s the marginal gain to market efficiency of the umpteenth undergrad (from Harvard or not) trading commodity shares? Pretty low, I bet–and undoubtedly well below the social opportunity cost.
Thoughts from readers?
9 Responses
As a former I-banker (and current Econ Grad Student), I agree whole heartedly that the marginal gain from an additional ivy league graduate over a state school graduate is very little
The only qualities you need to be a decent analyst are an average intellect, the ability to follow exact orders as given and a high threshold for pain.
Unfortunately, I can see this trend continuing, with the main reason being competition and prestige. Most ivy league students are extremely competitive and place great value in the prestige of the institution they are working for or attending (otherwise, how could you justify spending 50k+/year for a curriculum that isn’t vastly different from the curriculum of an honor’s program at a state school).
Therefore, the lure of a high-paying wall street job is undeniable, considering how these institutions rank on the pay-scale upon graduation and the prestige factor.
Fortunately, most banks only offer a 2-3 year window of opportunity for newly minted graduates, forcing them to either enroll in an MBA program or pursue another career. Many choose not to return to banking and simply use their experiences to launch a career in something else.
Therefore, I don’t necessarily place the social opportunity cost too high (unless of course, you take into account the number of d-bags that work there and the negative externality they project onto everyone else).
@Balttman
Finance, as we learn in Econ 101, is a fundamental part of economic growth, the link between saving and investment, the past, the present and the future.
In good measure, thanks to fast financial innovation, in part driven by I-bankers, that the world is where it is today (give or take a financial bubble).
That is an assessment of absolute value. At the margin an extra IB may not add much, but then again, burn-out is so high – I guess 80% who enter IB leave it after 2-4 years – you need a constant new crop of spreadsheet slaves.
But those who stay, do so because they love it, and have wonderful fun-filled careers.
That said, I do agree with you that young grads ought to be more imaginative in terms of career choice. However, I would not make public service the default, rather I’d say they look at people like Mohamed Yunnus and start some imaginative enterprise.
Public service often fail to leverage people’s talents and offers little reward for risk taking and innovation. That is the nature of a bureaucracy.
I enjoy your blog quite a bit. Just like Marginal Revolution it always has some interesting posts which are not in the usual economics domain.
I think this phenomenon is catching up bigtime in India as well. Everyone is just interested in doing an MBA (doctors,engineers,dentists etc you just name it) and getting into financial services. Earlier the preference used to be for consulting but now it has shifted bigtime to financial services and within financial services to investment banking. You goto any B-school and all people want to do is i-banking. They do not even know what it is and are clearly driven by the high incentives.
Unlike US, most prestigious colleges are actually funded by the State and this leads to number of problems. What we need is a well-balanced education system with people venturing out in other fields and leading to economic development. And that is the purpose of setting up this system.
However, this is becoming more difficult by the day. With best talent moving in financial services, the other sectors keep facing a resource crunch. You train as a Civil engineer (on tax-funded education) but end up designing exotics.
People should be free to choose their profession but clearly there are excesses now.
The value-added component may not come through additional market efficiency, but certainly will through spending. Another rich banker will end up paying perhaps half of his income in taxes, which goes to many socially useful goods. His consumption finances the careers of many people, some of them poor. His savings go into productive investment, and he might even contribute a little to charity. That’s a lot of social value, and could finance the careers of several social workers.
If you think that social services lack money more than they lack talent (because money can buy talent) then you should in fact encourage people to make as much money as possible and then incentivize value-added products through spending.
I am certainly not an economist. But I enjoy your blog very much. My outsider perspective is that economics like law is primarily a profession which promotes and perpetuates privilege and power over others.
Attorneys and even law professors, it seems, always enjoy quoting Anatole France: “The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” This is always repeated with a chuckle denoting the absurdity of the pretense that law has anything to do with fairness and justice.
The legal profession honors its champions of fairness and justice. Those practitioners are “useful idiots.” Economists seem much less inclined towards a positive view of those in the profession who imagine that economics might have any relevance to the well-being of humanity. In general the profession seems to regard them with derision.
There are many reasons for the different attitudes towards idealistic practitioners of law and economics. Economics is closely tied to the Western Liberal tradition and its focus on individualism. Economists also tend to imagine the discipline as a science which leads to presumptions that social arrangements are some sort of manifestation of laws of physics.
I am fond of that tiny minority who attempt to use their legal training in the cause of the 99.9991% percent of us, just as I’m fond of economists who follow that parallel track. The gleeful hypocrisy of the legal profession in tendering respect for the idealists seems preferable to the dogmatism of economics that the priviledge of a few is a result of natural law.
I’ll endorse starting a business, or inventing a new product, as a promising and important enterprise for graduates. It’s quite likely that they make as much (or more) of a contribution as someone in the public service. This is even more true in developing countries.
I’ll still draw the line at investment banking. My hunch (it is only a hunch) is that this is an oversubscribed exercise with little added social value by the marginal new entrant. I also think it can be soul-stripping. This is not merely an academic perspective. I spent a few years in that world myself.
Whatever happened to comparative advantage?
Maybe you are a professor because you would make a terrible investment banker.
In any case, I find it typical liberal-mined patronizing to say that investment banking is boring – it might be boring to you.
The best way to help this country – where the biggest marginal product is – is by setting up a successful fast growing business. Surely GOOGLE has created more welfare increases than Larry Summers at the Treasury (which is not to say Sergei should be running the Treasury).
A different story might apply in a developed nation, however.
a correction: the first quote you post is from a student, not from Harvard’s President (who is a woman)
My first thought when reading the source article was an Easterly-esque “Thank God.”
As Megan McArdle’s recent post on graduate egoism suggests, I don’t know if there is anything more dangerous than a newly minted Harvard man.
The problem isn’t that too few Ivy League graduates are in politics or policy. The problem MIGHT be that it’s the wrong ones. The problem MIGHT be that there are some that go into business who could do bigger and better things in a job that aims at externalities rather than profits (that sounds reasonable).
(A bit) more seriously, I think it’s a good thing that the best and brightest aren’t going into public service. I’m glad Bill Gates wasn’t a comptroller and I wish Robert McNamara stayed out of government.
Sure, I want smart government, but I don’t want smart people to be confined by the government – or perhaps more precisely – I know that *I* don’t want to be confined by the government.
But back to the big point: Is America’s problem really that we don’t have enough Harvard grads trying to run the country?