Hugh Nibley once shared with the BYU student body a quote from Arthur C. Clarke: “No nation can afford to divert its ablest men into such essentially non-creative, and occasionally parasitic, occupations as law, advertising, and banking.” What did Nibley and Clarke mean?
Our nation’s ability to produce talented engineers, economists, and scientists is inextricably linked with our national security and general welfare. Competitiveness in a globalizing world depends on the innovation of our citizens. National defense depends upon innovation. Reliable sources of alternative energy will depend upon innovation. Economic growth and stability depend upon innovation.
Nibley and Clarke were concerned about the fact that many of our brightest minds choose occupations which contribute only to the individual and do little of substance to further the progress of society. The financial incentives available to bright minds who wish to pursue the financial career, however, are just too lucrative to ignore. Due to these incentives, in recent years the financial world has become a lucrative haven not only for brilliant financiers but also for mathematicians, physicists, and other quantitatively gifted individuals with the ability to model markets using techniques that a simple business school graduate could never develop. But, in a small way, that may be changing.
In a recent Washington Post article, Harvard economist Kenneth Rogoff discussed the current crisis on Wall Street. “During the epic boom of the past 20 years, the financial services sector became badly bloated. At its peak, it accounted for over one-third of corporate profits in the United States, not to mention the staggering billions of dollars in bonuses that Goldman Sachs ($12.1 billion in 2007) and others paid their employees. Now, in the wake of the subprime mortgage debacle, investment banks are seeing some of their most profitable lines of business evaporate.” It all sounds like something from Michael Lewis’ Liar’s Poker. Rather than using their talents for innovation to help society, “some of America’s best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system,” says Columbia economist Joseph Stiglitz.
This has made normally laissez-faire-minded businesspeople beg the government for handouts and rescue packages – but we’re told that these will not continue indefinitely. What are the consequences? Says Rogoff,”As profits come down to more earthly levels, the U.S. financial system is going to shrink. In all likelihood, at least 15 percent of financial employees — including at the high end — are going to lose their jobs.” Said Wall Street historian Charles Geisst, “The kind of bonuses you saw on Wall Street over the last five years are not something you are likely to ever see again, not in our lifetime.”
This combination of firms losing their ability to pay astronomical bonuses and salaries and the market for financial sector jobs being flooded with newly unemployed analysts, traders, and bankers might just have a silver lining.
The government currently provides some incentives for students to study math, science, and engineering. SMART grants help such students pay for school. But the incentives for financial sector jobs have, up to now, been too great. Many of the minds choosing Wall Street careers may not be doing so just for money – most peoples’ utility functions include more than just money. As such, the combination of the downward pressure on financial sector payoffs and the unrelated but inevitable rising demand for things like alternative energy research and development may make careers in math, science, and engineering sufficiently relatively lucrative to draw more intelligent students and workers.
Entering freshman, aware of the turmoil in the financial markets, may choose the more stable option of engineering degrees. Sophomores and juniors studying economics may leave behind dreams of Wall Street and instead choose to pursue graduate work in economics, thus increasing the pool of minds trying to solve our nation’s economic problems. Students studying subjects like math and physics will no longer be so easily drawn away from the more substantive fields of engineering and the sciences to use their quantitative skills to play the markets. While the effect won’t be dramatic, it may be significant.
Those individuals at the margin trying to make a decision about what to do with their lives may be pushed into the fields that give them more personal satisfaction. It is this group of individuals, those whose utility is sufficiently affected by pursuing a career that interests them, which will lead America to a new level of competitiveness. America will no longer be known only as a financial behemoth as it has come to be seen by the world in the last twenty years, but it will also retake its role as a powerhouse of research and development, using its own citizens to generate the technologies of tomorrow.
Our increased capacity for innovation would make us more competitive economically and it may contribute to desperately needed energy solutions, but most importantly, unlike the financial market bubbles that are vacuous, short-lived, and pad the pockets of a few, the positive economic effects of this increase in American research and development will be substantive, permanent, and shared by all. For years, economists have theorized that the growth of the American economy, and all other developed economies, can mostly be explained by improvements in technology. The time has come for us to revert to that strategy that has proven time and time again to provide the best kind of economic growth, one that is steady and sustainable.
Ryan and Tim are majoring in Economics and Political Science. Ryan enjoys blogging at pendulumpolitics.blogspot.com. Tim enjoys going to Radiohead concerts in Ireland.