Is Wall Street’s Hiring Of The Smartest Minds Hurting Our Society As A Whole?
I doubt it would surprise many if I said that Wall Street jobs boast some of the highest salaries in the US. How much though are they really making? Well according to a New York Comptroller study, in 2014 including bonuses, the average pay for the securities industry on Wall Street was around $400,000 while other private sector jobs in NYC averaged around $75,000. It is no wonder why every year some of the smartest minds in United States and even the world are attracted to this industry, when their talents could be put to much better use elsewhere. So I raise the question, is Wall Street’s intelligence brain drain, stifling innovation in other fields?
Recruitment into a field with little production value
The biggest problem I see with Wall Street and the securities industry in general is they provide little production benefit to our country as a whole. Sure they do have products that add some benefit, but for the most part they play the role of middlemen, not creating anything or producing anything beneficial. Instead, like leeches, they take their cuts for jobs that are only available because of heavy regulation on the industry as a whole by the government. For example, if I own a company and want to go public and issue an IPO, I am forced to do business with one of the Wall Street banks. If I decided to do it on my own I would be breaking the law.
Despite providing little value, the huge salaries attract the eyes of fledgling intellectuals because a job in research and development, although much more beneficial to our society, pays merely a fraction of the salary. Students notice this as well , which is why such a vast amount of people go into finance fields. When they have $100,000 loans they will take the level headed approach and train themselves for a job that pays well so they can live comfortably. The wages are so high because like anyone in the private sector, Wall Street firms want the smartest people and due to incredibly high salaries they end up getting them. However the salaries are high due to lack of competition and the mathematicians, economist and intellectuals they are recruiting are wasted on remedial jobs. They push money around, or sit in a room and predict the market, they aren’t used to their fullest abilities. They provide little benefit to society but reap the largest rewards.
Little innovation for such a big industry
The next problem we see with Wall Street is the lack of innovation to their business models until they are either forced to change by law, or by outside competition. Despite the industry globally being valued somewhere around 13 trillion dollars, the industry as a whole has no competition so there is little innovation on the grand scheme of things. In fact for the most part, innovation is frowned upon unless it can make the firms more money. There is no reason to shorten transfers to a day or to destroy clearing houses, because they all work together in a system that in mutually beneficial to all of them. If there wasn’t pressure by the government or by new fintech solutions, Wall Street banks and firms wouldn’t even attempt to change.
The brilliant minds that are brought in to work for the firms on Wall Street aren’t there for research and development to create a better system, but rather to uphold a flawed one that already exists. We in the US are still running on 1970s/80s banking technology and only now is there a push to make the system more efficient. While most other industries need to reinvent themselves every few years and keep up on new and emerging trends, Wall Street has had a cushy existence just doing just enough to get by, and when they mess up we are forced to bail them out. Why does one of the least innovative industries need the brightest and smartest minds when they aren’t even being used?
The loss of potential beneficial contributions in other industries
The consequence of Wall Street institutions recruiting the brightest minds is that we are losing out on potential innovation and advancement as a society elsewhere. If the smart minds entering Wall Street decided to pursue innovation and research in other fields we as a civilization would be better off for it. The problem is that research and development salaries run by the government or by universities pay little, despite much of the time, having the greatest impact. Government funding by the US to universities for research and development has stagnated in recent years and in a few even gone down. Instead of sending a trillion dollars to the military for money they didn’t even ask for, that one trillion dollars would be nearly 8x more than what the entire research grant contributions by the government are yearly. The government time after time is valuing sectors that provide little benefit to society over ones that have the potential to benefit everyone in the long term.
The point of this article is really just to make you think about the potential we are wasting as a society that could be better harnessed elsewhere. We are a capitalist society, so the highest salary jobs or always going to attract many of the smartest minds, but the government can take action to help combat this. The private sector alone can’t be the only one who is providing research and development because many times if they create something that won’t make them money, but is needed then they won’t pursue it. The government has to pay out more grant money to universities and scholarly institutions to help attract and retain some of the great minds they create.
-Calaber24p
I try not to generalize, but there are some serious issues with Wall St. as a whole. There are certainly good actors within Wall St though they probably are in the minority.
Take Jack Bogle and his company Vanguard for example. They became huge and successful by slashing fees on their products which absolutely helps the little guy trying to invest, and they are still a low cost leader in the industry. Bogle himself wrote several books attempting to help the public with investing.
As far as the high salaries, one thing ot consider is that Wall St. currently attracts the young, aggressive, type-a personalities which means even though they can be making well into the six figures soon out of college, roughly half goes to taxes, and the rest is often spent on booze, coke, and strippers. Plus to be fair, entry level jobs on Wall St. require 90-hour work weeks, which means dedicating your entire life basically to the job.
As far as whether most of these people really add value, I'd have to take it on a case by case basis. Plenty of bad apples for sure, but there is legitimate wealth creation and capital allocation going on in spite of all the cronyism(bailouts), central banking intervention, heavy regulations, and heavy taxation.
I actually love Vanguard, I never knew about Jack Bogle, I just think that they have some of the best ETF and mutual funds around. The problem with type-a personalities running Wall Street is they are the exact type of people who are likely to screw people over without any hesitation. For example over leveraging themselves in a high risk situation, tanking the entire system, getting bailed out and still having the arrogance to throw bonuses to high level employees. I have no problem with vanilla banking, but the smartest people arent going there. The smartest people are getting paid to push bank incomes by 2% at the expense of higher and higher risk. Eventually like in 08 this system eventually fails.
Agreed. It is a vast waste of talent and energy.
At this point the only realistic change is going to be brought about by FinTech innovation. The creation of a great decentralized set of app/tools, near free to use and allows fast adoption will curtail elitism and mercantilism in the next leap into digital currency. This could happen as an alternative route during this transitory period we're about to enter.
2017-2020 will decide a lot of things in terms of the global economy.
After I graduate I want to specifically enter the Fintech industry because it forces innovation on the side of the banks and adds competition to their cushy positions. Competition is good for everyone.
I think you may be on to something, but the state is monopoly and giving a monopoly increased authority has its consequences even in cases when they are impossible to calculate exactly.
This is why such (involountary state) governments correcting what the majority deem to be a certain issue might improve things for some time (if the majority is not dead wrong that is), but is never the best long term solution --- as opposed to a volountary cooperative without any threatening monopoly powers, choosing to go a certain direction but still leaving the door open for other cooperatives and other ideas.
That cooperative could solve a problem locally, but it would also fully allow a person or group born/moved into a society either to accept these rules for their own benefit or instead to reject them and do things in a way that they consider better without intruding on the contract still in place between those choosing to remain members of the cooperative.
In the long term this utilization of market principles in the are of "government" would encourage the developement of better technologies and rules, for the benefit of individuals over time increasingly being able to obtain better and better such volountary "government" itself in a state of full Anarcho-Capitalism.
Interesting post @calaber24p. I agree we should think about giving better incentives to fields that have a better chance of yielding greater benefits for our society.
I agree, I think this is one of the few places that government can come in handy by providing grants and other monetary incentives.
But then how is it fair for certain industries to receive grants instead of others? And how could a government(or anyone) really know which industries would be better off with subsidies?
Hi @calaber24p
I agree with you 100%
I am in South Africa and we have a similar problem, but perhaps on a different level. We are a country rich in all types of minerals, with a big mining sector, but we have a very small manufacturing sector. (This is also due to most people wanting to study for university degrees, in other fields that manufacturing and engineering. We now export raw products and then import manufactured items at a cost, where the country could have benefited by a manufacturing sector, creating jobs and creating income for the country.
Im not that familiar with South Africa's economy, I must admit, but I think the problem you are explaining comes down to whether or not it is more beneficial to specialize in raw materials and just import the manufactured goods. For example in the US it makes much more sense to just import the manufactured goods from China because if we made them here they would be more expensive because of wages/exchange rates ect. If the labor force is there and in need of jobs then your government need to incentivize corporations to stay and manufacture in your country vs China, Indonesia, India ect. through tax breaks.
Yes.
We only have to look at the ~$16 trillion 'lost' (some say 22 trillion, but honestly, with numbers so high, what's the difference) in 2008 as an indicator to the 'socialized' spread of 'hurt' being dealt by these thieving bastards.
My theory is the vast majority of people are capable of much higher level thinking than they are currently doing. For one, many people are concerned about affections, more than intellect. Additionally, those people are having most of the children unfortunately. Intelligent people have less kids, is a fact I have heard, maybe I am wrong? Then there are the people who may have done poorly in school who think they are unintelligent because they have been put through an education system which presents itself more as a means to "weed people out," than to encourage learning beyond "hard," memorization. Typically, we also live in a society that values "appearance," more than logic or reasoning. Which is something I heard in speech class. Fairly certain it is true, thus money and wealth will directly lead you to more regard than actual intelligence. Moreover, we have become more and more programmed that these are indicators of success via dress codes, uniforms, television, etc.
Allocating funds is a very difficult, important and productive job. This is the main purpose of wall street. If you allocate funds to an unproductive projects all is lost. Smart minds are needed to allocate funds to make the most of them. That is why they get great returns.
The problem is government regulation that is preventing innovation and competition in the space.
@calaber24p
No. Since wall street stands there it means that it creates value for society. If it didn't it wouldn't exist. Your statement is a logical fallacy "begging the question"
You assume that a system can be perfect. All systems have room for improvement. Strawman fallacy
You don't know that. You can't know that. The assumption that education brings wealth is erroneous. Rather the opposite exists. Wealthy nations invest in education. Education does not create wealth. The best example is Switzerland. Their education level is very low but they are the most prosperous nation on earth.
I am not saying I agree with Wallstreet, or wars or the idea of the state but the way you constructed your article is erroneous and filled with logical fallacies from head to toe.
upvoted for your good will intention.
Lehman brothers also stood there in summer '08, yet it had no value. Visionary thinkers can see the writing on the wall. In 20 years, Wall Street will be a ghost town.
Thank you for the interesting article @calaber24p :).
I think helping kids get learning earlier on the STEM areas (Science, Technology, Engineering & Math) would be a great help as well so both guys and girls aren't so hesistant about learning and majoring in those areas later on.
Interesting perspective. I agree in general about the lack of innovation in Wall Street and many services add marginal value to society if any. There was a shakeout in the industry during the financial crisis in '08.
Some things to think about:
-Do M&A, investment banking, business consulting for billion dollar Fortune 500 companies require talent?
-Does managing and allocating billions of capital with hedge funds require talent?
-How does the industry compare with Big Pharma/Doctors in the Medical industry?
-Monsanto/Big Agra/Fast Food and the Food Industry?
-Are government grants efficient or a sink hole? What is the incentive for grants to produce practical business value?
-What percent of grants are productive compared to venture capital and angel investments?
-How does government pay compare to private sector pay? Especially when you include pension benefits?
I've always pondered how many great minds are wasted doing jobs that wouldn't exist in a free society.
Great article, thanks for sharing!
I completely agree with you @calaber24p. This crushing of innovation shows the control that certain entities have ("the 1% I guess") that have a desire to stifle any changes that would transfer that control out of there hands.
Monetary currencies also create this effect (as you are describing above) of stifling innovation. This happen because since money is the main goal, once that goal is completed there is no reason to do or create anything else. Usually what happens is people feel the have reached the plateau, then they see that there is higher one and a higher one. This cycle continues forever, endlessly trying to catch up with those who have more money than them.
luckily, there are those who get rich (some reaching this by being innovative) and then they fund innovations with there time and money. One example of a person like this is Luis von Ahn who created reCAPTCHA and then was bought by google. After he became a millionaire hes started teaching computer science at a university. Then went on to create duolingo. True inspiration, I wish more people (like him) could see there vision with innovation as a stronger cause than money.
P.S. I usually don't like to use the term "the 1%" cause i feel it is a crude representation of what is really trying to be explained when that phrase is said.
You have basically reflected my thoughts back to me. I've never thought Wall Street or any other financial industry contributes anything of worth except being a middleman-conduit for large amounts of funds. If we invest this brilliance elsewhere into education, industry, technology - then where would we be?
I studied electrical engineering and and promptly took a job in finance after graduation. I've made some decent money, but every time I get a linkedin cold message from a senior at my alma mater asking for advice on breaking into finance, I tell them to do something more useful with their degree ;-)
It depends on what your view of "smart is"... I think the smartest minds wouldn't choose that career path at all. Profiting off the avails of others isn't smart in my mind. Creating something yourself, is truly smart.
There should be a law.
Sadly the people behind the scenes of the financial advisers are the ones who do so much work and don't get the compensation they deserve. The big Wall Street guys pay themselves over the top bonuses that they don't deserve and the day to day employees of these firms get shafted too many times. I know because I have lived it for many years. It's terribly sad to see the selfishness and greed that goes in daily. They get paid too much to make educated guesses about a market that is unpredictable. A very eye opening article, thank you. It was a great read.
nice post... ^^