Elite students with few marketable skills are perfect forms for financial firms to mold.
It's reasonable to fret that Wall Street is vacuuming up all the best talent from our top colleges. But why? Ezra Klein argues in the Washington Post that investment banking recruiters are filling a psychic void left by liberal education itself. His column is welcome, though it's running a bit late. The proportion of employed new Harvard graduates in finance, for example, dropped from 28 percent to 17 percent between 2008 and 2011. But the number may yet bounce back, so the interesting question is why it was ever so high.
It's not the salaries or peer encouragement. It's that
. . . Wall Street -- like law, management consulting and Teach for America -- is taking advantage of the weakness in liberal arts education.
For many kids, college represents an end goal. Once you get into a good college, you've made it, and everyone stops worrying about you. You're encouraged to take classes in subjects like English literature and history and political science, all of which are fine and interesting, but none of which leave you with marketable skills. After a few years of study, you suddenly find it's late in your junior year, or early in your senior year, and you have no skills pointing to the obvious next step.
What Wall Street figured out is that colleges are producing a large number of very smart, completely confused graduates. Kids who have ample mental horsepower, an incredible work ethic and no idea what to do next. So the finance industry takes advantage of that confusion, attracting students who never intended to work in finance but don't have any better ideas about where to go.
The real problem, Mr. Klein argues, is that colleges don't teach useful skills, leaving a vacuum that is filled on both sides of the financial divide, by investment banks and low-wage public service programs like Teach for America.
Yet 'twasn't ever thus. In the early 1960s, when the Ivy League curriculum was even more purely academic than it is now, and Wall Street Journal headlines were longer, one of them (November 10, 1964, available through library databases) read:
Scorning Business: More College Students Shun Corporate Jobs, Choose Other Fields Teaching, Peace Corps Lure Harvard Grads; Company Hiring Quotas Go Unfilled Martinis, Ulcers and Profits
The counterculture was still negligible in the Ivies. Instead, government and education were still expanding. The stagflation of the 1970s ended all that. While government actually grew during the Reagan years, the prospect for young bureaucrats seemed far less encouraging. The declining proportion of alumni of Princeton's Woodrow Wilson School of Public Affairs (of which I am a research affiliate) entering public service declined enough to be the subject of a well-publicized lawsuit by a major donor's family in 2002, settled in 2008. Jobs in environmental organizations and other nonprofits have taken up some of the slack, but the sector has also been hit by the economy.
The focus on Wall Street is thus partly an understandable response to a changed environment. But is it just mindless credential-seeking? Another explanation is possible. Ivy League students are used to abundant resources -- faculty time (there is high quality elsewhere), libraries (far better funded), arts programs, athletic fields. Investment banks don't just replicate the Ivies' competitive spirit. They also have the best analytical tools and are working on big and complex issues. At the other extreme is the thrill and risk of start-ups with the likelihood of failure but the possibility of huge gains. Both extremes are rational choices.
Mr. Klein's picture of undergraduate streaming sheep-like into Wall Street firms because they haven't been taught practical knowledge misses the point. First, Ivies do teach skills. Penn's undergraduate Wharton School program is renowned. Harvard recently elevated its engineering division to a school. (Norman Mailer studied aeronautical engineering there.) Even theoretically-oriented Princeton offers one of the world's greatest accounting courses. Second, say what you want about finance, Wall Street is willing to look beyond vocational credentials and do a lot of its own training. Just as many Ivy students from the "business is for the birds" era have made fortunes and helped endow their alma maters, I suspect that when everything is sorted out, a stint in finance will not spoil the current generation for other pursuits.