Talent Diversion

A couple years ago, a friend of mine complained that the finance industry was sucking up way too much of our top talent. Instead of a lonely, diligent life as a productive engineer, the average American math genius was deciding to live the high-flying, flashy, sexy life of a Wall Street financier. I responded by saying that it was quite possible that those financial engineers were creating something of equal value to what they'd create as actual engineers.

In my defense, it was before I'd read anything about the subject.

In any case, it turned out that a lot of those financiers were getting paid to destroy value instead of to create value. It's as if engineers were paid to design cars that blew up and killed their passengers. We literally had poor product testing on the financial technologies invented by our bes and brightest. Wall Streeters were smart, but not smart enough.

And so we now know that my friend was probably completely right. Finance really did drain our top talent from useful jobs and divert them into jobs that were wore than useless. Which means that the crash of the American finance industry may do us a lot of good in the medium-run.

Fareed Zakaria agrees:

The financial industry itself is likely to shrink, and that’s not a bad thing, either. It has ballooned dramatically in size. Curry points out that “30 percent of S&P 500 profits last year were earned by financial firms, and U.S. consumers were spending $800 billion more than they earned every year. As a result, most of our top math Ph.D.s were being pulled into nonproductive financial engineering instead of biotech research and fuel technology. Capital expenditures went into retail construction instead of critical infrastructure.” The crisis will stop the misallocation of human and financial resources and redirect them in more-productive ways. If some of the smart people now on Wall Street end up building better models of energy usage and efficiency, that would be a net gain for the economy.

And Matt Yglesias agrees:

[I]n principle taking a large proportion of quantitatively skilled people and having them apply their technical chops to the financial markets could be a good thing if doing so ushered in an exciting new era of genuinely superior financial wizardry. But [they were just getting paid to gamble]. Meanwhile, smart scientists and engineers are still producing useful stuff.

And I find myself wondering why I was too dumb to agree two years ago.