Posted on FT Alphaville by Gwen Robinson:
Author Calvin Trillin has really set something off with “Wall Street Smarts”, a brief and whimsical take on the downfall of Wall Street, published earlier this week in the New York Times.
In brief, he argues that the smart guys caused the financial crisis, after flooding into Wall Street in the late 1980s/early 1990s. Up to then, the smart guys were drawn to “respectable” professions such as law, academia, or anywhere but finance.
And Wall Street was doing just fine, staffed and run by average guys who just wanted a “nice house in Greenwich and maybe a sailboat” — the kind of guys Trillin calls “the lower third-of the-class guys”. But the rewards being offered in finance became “just mind-blowing”, even as college tuition became so expensive that the smart guys — even those from reasonably prosperous families — were graduating with huge debts.
The rest, as we know, is history.
… Or perhaps we don’t know, judging by the overwhelming response from the blogosphere.
Even Paul Krugman — regarded (well, at least by some) as one of the smartest guys around — was moved to share with us his own “more specialised” memories from grad school. “Did the influx of smart people bring on disaster?”, he asks, concluding:
That’s a longer story. But the change in who went where is utterly real.
Krugman’s NYT colleague Floyd Norris goes further, praising Trillin (”he explains it a lot better than I do”) and noting:
I see a germ of hope in the analysis. Eventually, the smart guys will be promoted and we will have bosses who understand derivatives and all the other financial alchemy of this era. Maybe we will even have regulators who share that understanding.
Noam Scheiber writing on Stash at the The New Republic says that a disposition towards boundary-pushing is a good thing in almost every aspect of life, “it’s become clear that it can have enormous social costs in the financial sector”. He draws a two-fold moral from Trillin’s story:
1.) The government obviously needs to get better at this policing business.
2.) We need to realize that, while there were real advantages to having creative, entrepreneurial people descend on Wall Street, there’s a lot to be said for laziness and self-satisfaction in this particular sector (especially in overgrown banks).
Meanwhile, Baseline Scenario’s James Kwak — who says Trillin’s piece is “a cute story” but with “an element of truth to it” — resurrects a fascinating paper by Thomas Philippon and Ariell Reshef which measures the relative wage and relative educational levels of workers in the financial sector over the last century - and more or less bears out Trillin’s “lower third of the class” theory.
And John Gruber, on Daring Fireball, focuses on Trillin’s point that the world of big tech also faces the “smart guy” problem, noting:
That’s precisely what I meant about Trillin’s piece’s applicability to the difference between the old Microsoft under Gates (programmer), and the new Microsoft under Ballmer (sales guy). Ballmer is running a company whose products he doesn’t really understand.
All this hoo-hah over “smart guys” however leaves us somewhat bemused.