There has been a lot of hand-wringing recently about the hypertrophy of the American financial sector. Financial salaries, and salaries that are arguably linked to the growth of the financial sector (such as stock options), are one of the most noticeable drivers of rising inequality over the last thirty years. (Although I should note that this doesn't mean they are the largest driver; I went looking for evidence of this thesis back when I was writing about financial sector pay, and couldn't find any. Salaries at the top of almost every profession, from consulting to professional sports, have also been inflating wildly).
I am in broad sympathy with this hand-wringing. The large part of investment banking that essentially performs regulatory and tax arbitrage seems to me to be an enormous waste of social resources--though my solution to this problem would mostly be simpler taxes and less regulation. Many of the other bits seem, even to this extremely market-friendly critic, to be of dubious value. And while I know that much of my concern is in some sense merely aesthetic--I can't find any particularly good economic or philosophical justification for the belief that investment banking activity is less "real" than eating ice cream--that is not the only problem. The growth of the financial sector has created an enormous well of social and political power that is now very clearly being expended on lobbying for market rules that let insiders cement their position and game that spot for maximum value.
But one thing that I do not worry about is that investment banks are "skimming the cream" of our nation's elite institutions . . . as if it were some unspeakable tragedy to deprive our nation's Midwestern manufactures of the ineffable blessing of Harvard graduates. There's a lot of cream in the American youth supply, and even after you've poured a large portion of it into the 100,000 or so spots at elite universities, there is plenty left over for Cargill and Exxon. Which is why American manufacturing and agricultural productivity are at all-time highs. (Employment is at all-time lows, but that's good news--it means most of us aren't tightening bolts or staring at the back end of a mule ten hours a day.)
Nor do I find it particularly likely that it is investment banking salaries that are diverting bright students from teaching in our nation's primary and secondary schools--rather than the fact that the work is relatively low-paid, relatively low-status, and offers relatively few opportunities for advancement. The problem with the nation's teacher supply isn't that too few of them come from the Ivy League, because Goldman Sachs hoovered up all the talent. The problem is that too few of them come from the top of their classes in any institution. Programs like Teach for America are changing that . . . but only in a grindingly slow sort of way.
Academia? Overcrowded with bright young minds as it is; most of them don't get tenure-track jobs and leave academia embittered and impoverished--or worse, stick around for years, killing their career prospects outside in order to cling to the wan hope of an assistant professorship somewhere. Non-profits? People do leave banking to work for non-profits, but there's not a lot of overlap in the personality type that enjoys working in those environments--and I've worked at both, and enjoyed neither.
I'm not arguing that people at the Ivy League aren't smart; they obviously are very smart, and motivated, and well educated, and these are all good and useful things. But it's also a proxy for class and geography, neither of which are particularly necessary to to a good job at the many thousands of different skilled employment categories that America needs filled. Don't worry about poor America, having to struggle along without its Ivy League talent. Worry about what that Ivy League talent just did to our banking system.
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