Sendhil Mullainathan has had a blessed academic career. As a young child, he left a village in India to immigrate to the U.S. His hard work and intelligence earned him admission to Cornell University where he graduated magna cum laude which a degree in computer science, math, and economics. Sendhil then went straight to Harvard University for his PhD in economics, taught at MIT for six years, and finally returned to Harvard University as a tenured economics professor.
He’s co-authored a book, boasts his own Wikipedia page, has a TED talk, and is a frequent contributor to The New York Times. In short, as a Harvard economist with some provocative views (among other things he says that CEOs are largely paid not for performance but for luck), he has achieved an enviable and elitist perch from which to observe the world in all its injustices and inequality.
‘MANY STUDENTS ARE BECOMING TRADERS, BROKERS & BANKERS’
Yet, these days, Sendhil apparently is troubled by the path that many Harvard seniors are taking as they get ready to graduate and leave the campus behind.
“While their enthusiasm is infectious, some of their choices give me pause,” he writes in an essay recently published in The New York Times. “Many of the best students are not going to research cancer, teach and inspire the next generation, or embark on careers in public service.
“Instead, large numbers are becoming traders, brokers and bankers. At Harvard in 2014, nearly one in five students who took a job went to finance. For economics majors, the number was closer to one in two. I can’t help wondering: Is this the best use of talent?
‘IS THIS A GOOD DECISION FOR SOCIETY AS A WHOLE?’
“If a favorite student of mine comes up to me and says, “I just got an offer at this investment bank and I’m going to take it,” I want to know how should I feel about it,” the economist adds. “I will be happy for her individually, but still I wonder: Is this a good decision for society as a whole?”
Clearly, Sendhil doesn’t think so—and he is as wrong as most economists were in failing to predict the Great Recession of 2008-2009. Sure, it’s easy to vilify Wall Street and the nosebleed compensation many pocket in the world of finance. Indeed, it’s nearly as easy to bash highly-paid Ivy League professors who hold cushy, tenure-protected jobs and barely teach in the classroom anymore—one very big reason why so many students graduate with massive loads of student debt. Indeed, a core motivation for why so many of our best and brightest venture into finance is to rid themselves of the burden of that debt.
That fact was not lost on some readers of his essay. One of them scolded Sendhil for his glib demonization of the industry: “It’s easy to disparage people for trying to make money while they can, when you are a tenured professor, getting paid every year for life, no matter what you do.”
FEW ENTER FINANCE TO ENSURE THAT THE RICH GROW RICHER AT OTHERS EXPENSE
I can assure the professor that few of these students—either at the undergraduate level or at the MBA level—are entering the field to ensure that the rich grow richer at the expense of others. They go into finance for very much the same reasons Sendhil pursue an elite education to work for an elite university: To live a better, more productive life, to have an impact on the world, and to achieve compensation to allow them to do just that.
Financial capitalism works well, but it is not perfect. Indeed, most of those imperfections produce the changes that make for dynamic economies, new opportunities and significant social good. Finance is what allows parents to invest income and borrow the money necessary to send their students to Sendhil’s lectures. Finance is what has given Harvard University the largest endowment of any university in the world, an endowment that helps to pay Sendhil’s rich salary.
As Yale University economist Robert Shiller has pointed out, the availability of well-administered and creatively designed financial services makes a huge difference to the prosperity of a society. In the aftermath of the economic meltdown, Shiller, hardly a PR agent for Wall Street, felt compelled to write a defense of finance in a 2012 book entitled “Finance and the Good Society.” The Nobel Prize winner convincingly makes the case that a good society must have a well-functioning financial sector.