Wall Street Brain Drain

In 2008, Bill Saporito of Time sardonically hailed the dawn of the “United States of France”—the petit pinko-fying of the United States. Washington had purchased ownership of Wall Street and injected what would be trillions of dollars to stave off a depression, while academics and talking heads proffered eulogies to that segment of the economy.

Naive twenty-somethings like myself, conditioned by the progressive movement’s narrative, speculated how quickly national investments would once again return to bread and butter projects like infrastructure and manufacturing development. Many of my friends rejoiced, with reason, that the spurned blue collar class would dye their folds green and awaken the slumbering factories of the rust belt, inner cities, and other swaths of land that were blighted by post-industrial forces.

Pardon moi as I choke on humble pie. The green revolution is taking off like a patch of redwoods (read: very slowly), the jobs with social value for incoming graduates are few and far between, and Wall Street is living high off the hog as jobs are added too slowly and state governors propose slashing unemployment benefits.

The relationship between graduates who go on to do great and socially innovative things and Wall Street is a direct and souring one. Vivek Wadhwa at TechCrunch commented on two studies that show as Wall Street grows as a share of US GDP, job growth stalls, and that the industry is syphoning off the best and brightest in engineering. Other reports show finance recruiters are plucking students from physics and mathematics. The consequence, Wadhwa explains is thus:

An analysis of MIT’s graduate-employment data shows that the financial sector increased its hiring from 18 percent of its graduates in 2003 to 25 percent in 2006. So not only are the investment banks siphoning off hundreds of billions of dollars from our economy with financial gimmicks like CDOs; they are using our best engineering graduates to help them do it. This is the talent that our country has invested so much resource in producing.

The finance sector expands when new advances in technology fuel the need for greater investments and credit lines to see these vulnerable products become secure commodities on the consumer market. Economist Thomas Phillipon explained that every new industrial phenomenon, be it lighter metals or the tech boom, was accompanied by a surge in financial sector growth. But since 2002, no major industrial trend has accompanied Wall Street’s rise. As Phillipon puts it, “From 2002 to 2006, I am not quite sure what the financiers were doing. Or rather, I am not sure that the services provided by insane trading volumes and real estate derivatives were worth the price tag.”

The consequence of Wall Street’s speculative instruments is that they require employees who have an ability to process complex financial instruments with dizzying calculus. That leads to a brain drain of would-be future bridge builders and green tech innovators, plied with exorbitant wages engineering firms cannot match.

Wadhwa summarizes the conclusion of one the reports, saying, “a shrinking finance sector will likely lead to a higher entrepreneurship rate and the creation of companies with greater social value, and still provide the financial intermediation services that are most important to young companies.”

Not only is Wall Street using its pecuniary muscle to artificially increase the value of goods and products that most people rely on, it’s making bastions of creativity and innovation like Bell Labs or PARC a relic of when the best and the brightest practiced what they studied. And with The New Yorker’s November article that concluded much of what Wall Street makes money off of and sells is socially worthless, it’s time to wonder how this country is going to continue being a world leader in innovation without the best trained leading the charge. The warning signs are visible: The Royal Society, England’s national academy of science, has determined China will outpace the US in scientific research within two years.

As a manufacturer of words and meaning, I always worried what would happen if doctors and scientists took the money and ran. The reality seems eerie, and unless more is done to rein in Wall Street’s financial gimmicks that are a zero-sum game, we’ll have an intellect debt that will be far more inimical than any national debt. 

Mikhail Zinshteyn is a staff writer for Campus Progress. You can e-mail him at mzinshteyn@googlemail.com.

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