Will the Wall Street Storm Have a Giant Silver Lining?

There are surely a lot of ways to answer “yes” to the question posed in the headline. The people who hate the financial industry, for instance, must be happy to see the bloodletting on Wall Street, as must those who simply enjoy a dose of schadenfreude now and again.

But I am thinking of a different kind of silver lining, one that may reach far and wide and have lasting positive effects.

First, let’s step back for a minute and look at a different kind of labor shakeup that happened more than 50 years ago. At the time, about 55 percent of all white female college graduates worked as schoolteachers. Why? Because teaching was one of the few professions that educated women had good access to.

But as other job opportunities opened up, many of the best and brightest women who would have become teachers instead became doctors, lawyers, bankers, and so on. All those jobs paid much better than teaching (whose wages had long been held down because it was considered a women’s profession) and held higher status as well.

This was great news for the bright women. But a variety of studies have shown that the ensuing brain drain that hit the schoolteacher corps directly translated into significantly poorer classroom instruction. Not only did children’s test scores fall, but some scholars have argued that our national productivity took a serious hit — all from the decline in teacher skill brought about by new opportunities afforded educated women.

You may have guessed by now what all this has to do with Wall Street. Like them or not, the men and women who’ve gone into finance in the past 10 or 20 years have certainly been among our best and brightest. They are super-well-educated and work incredibly hard, with intense focus. In economic terms, these people represent a huge stockpile of human capital — and now, some 200,000 or so of them are losing their jobs. Perhaps even more noteworthy, however, are the hundreds of thousands, perhaps millions, of college undergrads and graduate students who had planned to work in finance.

Now where are they going to go? What are they going to do?

I’ve seen articles on the migration of New York finance employees to smaller, healthier U.S. markets … or to expanding Asian markets … or stories about the stray banker who is opening a string of barber shops or teaching kids how to bake cupcakes

But I think there’s a much broader and possibly hugely beneficial shift taking place. The other day I was interviewing someone who runs a company that does some very unusual work — let’s call it “inventing” for now — and he noted that one research group he was putting together was suddenly able to hire a bunch of recently unemployed Wall Street “quants” who are more qualified than his typical applicant.

I can’t say anything specific about this company (we’ll be writing about it in depth later), but suffice it to say that many of its products could have broad and deep social benefits.

I can think of a lot of other fields that stand to benefit from all the human capital that is currently sloshing out of finance and into other realms: technology in general, energy in particular, and alternative energy in super-particular; health care; research science; and, yes, education. Wouldn’t that be ironic?

I can also see a small subset of this human capital gravitating toward government work over the next few years, not only because of the decline in finance jobs but also because President-elect Obama seems interested in building an administration of best-and-brightest types who, in recent years, haven’t exactly been flocking to (or welcome in?) Washington.

Not long ago, we asked readers of this blog who were planning on investment-banking careers if they’d altered their plans. A few people said they were thinking about becoming financial regulators of some sort. Not very sexy, and surely not as high-paying as i-banking, but yes, it’s probably a growth industry in the short term, for better or worse.

Twenty years from now, when cancer has been eradicated, when the threat from global warming is a distant memory, when poverty is a hoary old cliche, I’d love to think that we could thank the Great ’08 Meltdown for providing the human capital that helped solve these problems.

[NOTE: I discussed this subject on The Takeaway.]


Diversity

Nice point about the apparent correlation between other careers opening to educated women and the decline of educational standards. But a correlation may or may not have anything to do with causation. I would guess tha a raft of other factors were more important - but I am just guessing too.

As for the possible future transfer of talent into teaching and other public services, don't count on it. I read articles looking forward to it in each of the last two recessions.

griff

An interesting set of ideas... interesting to see where people will move to...

However as far as those who will graduate and look for jobs in 2008 & 2009 is concerned, the reality is that they've missed the boat: far from going into some other area of business, they just won't get jobs and/or careers at all. It will be people graduating after the recession eases that get jobs in different areas. (Do you know of a firm hiring this year?)

And here in the UK a lot of graduates with no jobs will go into teaching, as teaching training is usually a fourth year after completing a degree - i.e. no job over the summer, sign up as a teacher.

A few years down the line, rather than being a positive influence these 'pressed men' will leave teaching, disillusioned.

Henry

I was very pleased to hear you on WNYC this morning. It reminded me of my experience of being fired as speechwriter from a very international bank in lower Manhattan (merged but still alive). The department head who had NOT given me the bad news took me to lunch and wondered out loud how they could find better PR people in Japan. I blew my stack. You're asking me NOW? So I told him the truth. They could underwrite a campaign to demean the status of teaching school. The bright young things who were guiding the next generation of young Japanese would leave the profession and take better-paid, more glamorous and stupider jobs--like PR.

let them eat brains

"brain drain.."

yup. it's called "churn". but i don't expect many of the bean counters and sales schmucks to take up productive activities such as teaching, plumbing, engineering, nursing, etc. too many usans have been permanently programmed by the gordon gekko culture. IMO, ppl with sh11teiy morals are *not* the "best and brightest", except in the world of stalin or goebbels.

"People can do better for themselves in jobs that involve moving money around than in ones that involve actually creating or improving tangible goods and services."

yup, though Kashkari may have been a weak engineer.

"We have been living in a world with a severely stunted and narrow definition of intelligence- and it has directly rolled over into our stunted a narrow cultural values. "

exactly.

"All those people that *think* they can teach heading for the nearest school."

those who can't teach, become sales schmux

"Why have the percentage of manufacturing jobs gone down so radically? True, some went overseas. Most were eliminated by more efficient manufacturing processes, coincidentally capable of making better products."

in china... so yes, that's where many of the engineering also went.

"Do we really want people who have bought into the whole “greed is good” attitude teaching our children?"

pallin/quaylee in 2013! evirithing rush saiys is rite!

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Andrew

To Quasihumanist,

An interesting argument about bankruptcy, but I'm not sure I agree for two reasons:

1. Your argument seems to assume that creditors are equally willing to provide money (or services on credit) to A and B, which seems unlikely. Intelligent creditors are quite concerned with bankruptcy risk, in my experience.

2. I'm not sure how the result would differ in the absence of bankruptcy. If A could not enter bankruptcy, it would simply be insolvent. I think you may actually be arguing against the limited liability of the shareholders of A (that is, the fact that shareholders of A are not generally liable for A's debts).

Doug Wolkon at Pluranomics.com

Are these the same "best and brightest" that managed AIG, Lehman Brothers and Bear Stearns. They may be "well-educated", but in what we must question.

And government, they are the largest employer in the U.S. with the ugliest balance sheet in the world. I can't imagine they are going to be able to go on a hiring spree.

In any case, the real education that they don't teach in schools is about to begin. And that will be the true silver lining.

In general, the economic crisis will lead to a healthy economic awareness, including an appreciation for where our food and clothing is produced and how it is distributed.

Bob Benish

So we take the starry-eyed dreamers who participated in this nonsense which caused the credit collapse and ask them to teach our children for 36 K a year? By definition of the result they brought, these folks are hardly "the best and brightest." At best they blindly followed in an industry that made massive bets with borrowed money. At worst, they actually believed in a free lunch forever.

Good, creative people may emerge from the carnage. But I'm not ready to shout to the heavens about the overall caliber of the minds now entering the job market.

Ari

I'd love to see some of those "best and brightest" move from the industry to the regulatory side. However, much like schools, the government has long considered working for the US as a perk which can make up for a 75%+ salary reduction. If any of these well-qualified quants decide to slum it in DC on $50-$60k salary, rest assured it will only last as long as the current financial duress.

Joe Smith

"However, we have yet to see how Islamic financial system could be an alternative in the current world competitive and economic scenario"

We do know how Islamic law and finance work in comparison to Western practises. We can see the Islamic world wallowing in poverty and backwardness and kept afloat only by selling Allah's gift of oil to the decadent West.

Maurits

If we concude that thee teachers of 50 years ago did such a good job relative to the present generation of teachers, and that it's costly to the US, wouldn't it be a good idea to pay teachers more? (not necessarily for the present stock of teachers - that's a different issue - but for the better qualified teachers to be attracted to the class rooms)

What Were You Thinking?

Your premise is flawed....these are NOT the best and brightest. What's the criteria you are using for these words?

J

I'll second Joe - if all these Wall Street people are the best and brightest, why is Wall Street in the shape it's in?

Nevertheless, I hope you're right, especially if it moves people with specialized, applicable knowledge into more productive fields.

quasihumanist

Andrew #31 responding to me #13:

1) Financial derivatives are ideal (since no one understands them) for hiding bankruptcy risk from potential creditors.

2) Yes I did intend to point towards an argument for making shareholders liable for a company's debts. Of course there are also arguments for why that is a bad idea.

Chuck

Well established that in my field of medicine, applications for med school go up when the econ crumps. And the CW says the quality of the candidates improves in inverse correlation to the DOW.

We docs have been complaining for the last 10 years that our payments haven't kept up with inflation and higher malpractice costs, with the underlying, unsaid thought being that we no longer could afford to live in the same towns as the bankers and traders. Maybe another side effect of the meltdown is that, in addition to better doctors, we'll get happier ones (paid the same, but better off in their relatively recession-proof jobs while making the same salary as before).

ceolaf

This is a question of what kinds of rewards attract these people, right?

Some people prefer stability. Some people prefer a low stress environment. Some people prefer high guarunteed salaries. Some people prefer potentially high salaries. Etc..

And then there is the exchange rate between these different kinds of rewards. How much guarunteed salary would a particular person trade for a potenially larger bonus? How much stability for how much salary? Etc..

The kinds of people who would have gone Wall St, where might they go, now? What is the best available package of rewards, in THEIR eyes.

As many have said, it likely is not education. The kinds of rewards that Wall St provides simply are so different than the kinds that education provides that it is silly to think that many who would prefer Wall St would go is such a different direction if Wall St was unavailable to them. Education is simply not the next best package, by their preferences.

But Dubner didn't suggest that they ARE going into education. He's talking about something else.

However, he DOES suggest that they might go into government. I am skeptical of that. But I do allow for the fact that there were many who WANTED to go into governmet, but that the Bush administration was not interetested in them. That is, I do not think that the forthcoming brain-filling to government will be a result of more supply of brains, but rather a greater demand by the employer.

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MikeM

Maybe, but the distance from Wall St. to the classroom is a long way for human capital to trickle down.

Ted Chan

One silver lining with a huge impact down the line will be on the student loans. Specifically, for Perkins Loan thhey've already increased the limit by $1,000. The Perkins Loan is a federal, subsidized loan at 5%. But this means every student in America who is on financial aid will probably take this loan! Stafford and Pell grants are also going up. What does this mean? Well, due to the financial meltdown, we may finally get what a lot of liberals have been calling for - the government facilitating greater access to higher education. Well, except that no one can afford to quit a decent job and cover living expenses to do anything other than part-time communiy college or an online degree. I'm scared to calculate this number. It has to be in the tens of billions.

MN

I heard Paul Vallas, now head of the Recovery School District in New Orleans, speak last spring about a paradigm shift in education. Having four or five years from the best and brightest new college grads before they go on to be masters of the universe (or whatever) will work really well, now that there is what we in the field call "managed instruction." These days, the lesson plans are done by the textbook publishers.

This brings up the question, what are those teacher training programs doing, anyway? New teachers come out with a secondary emphasis in their subject area, and the ability to create a lesson plan. But they don't need to know how to do this anymore. What we need is people with the subject area expertise.

Vallas claims that these new teachers are up and running in no time at all with good managed-instruction materials.

No Bama

Great... so the government hires everyone and Obama gets his socialist dream come true. He is indeed implementing the failed economic strategies of Hoover and Roosevelt. Re-distributing your hard earned wealth as quickly as possible! The next 4 years will be a disaster.

Johnny E

>Now where are they going to go? What are they going to do?

Perhaps now they'll have some time off to read Galbraith's book about the Depression. They probably skipped that class in college. Krugman's "Conscience of a Liberal" would be good too.

They can live off the interest from their bonus money and start doing volunteer work for all the non-profits trying to help their victims.

They might have been smart enough to get a Wall Street job but I hope they get some Common Sense and sense of history before they get a chance to teach our children their standards of greed and ethics in business.