Ezra Klein on Elite Graduates in Finance

Ezra Klein recently wrote a column on Bloomberg looking at the large numbers of students at elite schools who end up in finance and finance-related fields. Some of the points resemble what I wrote in a post back in August.

It gives me some joy to note the similarity between our thinking. In August, I wrote:

How many people enroll in Harvard University and dream of working for a hedge fund or investment bank? And in an ideal world, what should that number be? It’s certainly greater than zero, but one would think (and hope) that it ought to be pretty close to zero

Ezra writes:

No high school senior gets her acceptance letter from Harvard and begins thinking about the exciting life she will lead constructing credit derivatives. But that’s where many students end up.

He emphasizes the fact that liberal arts schools, including the most prestigious ones like Harvard, Yale and Princeton, are failing their students in teaching them skills that they need. His explanation is two parts.

First:

It begins by mimicking the application process Harvard students have already grown comfortable with. ‘It’s doing a process that you’ve done a billion times before,’ explains Dylan Matthews, a Harvard senior. ‘Everyone who goes to Harvard went hard on the college application process. Applying to Wall Street is much closer to that than applying anywhere else is.’

I can attest to observing this kind of behavior and being victim to it myself. People spend their lives in school, learning to apply to the most prestigious and reputable brands. They get there, and then they wonder what to do next. Consulting, finance, and programs like Teach for America, as Ezra Klein notes, provide this next level for young adults.

The second part is perhaps the bigger part of the explanation:

Wall Street is promising to give graduates the skills their university education didn’t [. . .] Wall Street is filling a need that our educational system should be filling.

I think there’s something to what Ezra Klein says, and I think his points about the liberal arts education are largely true in today’s economy. Colleges, even the most elite ones, are basically failing to teach proper skills to students, and failing to convey the reality of life after college in any meaningful way. College should not be seen or used as an escape from the real world, though that’s how they often feel. Liberal arts colleges should instead serve as a place to study the real world and transition into it. This is a vague prescription for change, I know. Still, there’s something to this explanation.

However, I think Ezra Klein stumbles on a few points.

First, on Teach for America, which Ezra uses to illustrate the notion that prestige and a promise to teach skills are what matter for elite students. While I don’t have raw numbers, I can say that significant numbers of those who go into Teach for America tend to use it as a stepping stone into other fields, often finance and consulting-related. At the very least, we can say that many do not stay in teaching. Teach for America looks great on a resume, and as Ezra says, it teaches skills that college does not. Many take part in the program before medical school, law school, or going into a prestigious investment house. I do not mean this as a critique of Teach for America, nor do I mean it as a critique of those who leave. Even for those people that leave for finance or consulting, they still did incredible work and showed remarkable commitment to the youth by choosing to teach, if only for a few years. It’s more than could ever be said for me.

I only bring this up to again reiterate the fact that even those that go into Teach for America often end up in other fields, and often it’s finance. These are smart people who could either stay in teaching or go into a large number of other lucrative fields, and they often decide to leave. Maybe some of it is because they are genuinely interested in different fields. But some of it has to do with compensation. I think this is further evidence that the financial incentives offered by Wall Street and the financial disincentives of fields like teaching cannot be ignored in this kind of analysis.

I have a second point that might further drive this point home, and that is that it’s not just elite students at liberal arts schools that are being sucked into Wall Street. If you’ve paid attention over the past decade, one of the most disconcerting trends is the large number of STEM (science, technology, engineering and math) graduates who end up in these fields. The education for these individuals is decidedly more focused and pre-professional in some sense. There is a direct need for an electrical engineering graduate, for instance, versus a political science major, and we could say that the former probably has a better idea of where his skills are leading him.

And yet the evidence also points to large swaths of these people also being lured into Wall Street. A few data points: a full 27.2% of MIT’s working undergraduate class of 2008 went into Finance, and an additional 12.9% went into consulting. The University of Pennsylvania’s Engineering School’s working class of 2008 sent a full 33% towards financial services, and an additional 22% into consulting. I don’t believe we can say these schools are also failing their students, at least not to an extent that would explain these kinds of numbers. These are in-demand skills and degrees, and yet an overwhelming number of these students are going into finance. Ezra’s hypothesis no longer seems to hold true when we start looking at these individuals.

We cannot have a discussion about finance’s disproportionate role in this economy without acknowledging that financial incentives matter. Ezra Klein makes important points about problems with liberal arts’ failures, and I applaud him for pointing them out in his column which has a wide audience. We should take them to heart, but we cannot hope to fix finance’s allure through this lens alone. In the end, money talks.

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