Saturday, February 18, 2012

The Standard Model

Each building block has its place. Without one, the entire structure would fall.
No, no, no, no, no.

Now poor Ezra Klein has fallen into the instrumentalist trap of higher education. In an opinion piece on Bloomberg, Klein accuses Harvard and other elite institutions of higher education of failing their liberal arts students. He claims they neglect to provide their charges with sufficient opportunities to develop real-world, “marketable” skills. Accordingly, Harvard and its ilk
are producing a large number of very smart, completely confused graduates. Kids who have ample mental horsepower, incredible work ethics and no idea what to do next. So the finance industry takes advantage of that confusion, attracting students who never intended to work in finance but don’t have any better ideas about where to go.

Ay, and there’s the rub. For you see, Ezra is upset that so many poor, confused graduating seniors from Harvard, Princeton, and Yale are taking jobs in the big, bad finance industry, which we all know to be a seething cesspit of moral turpitude. Harvard paints a big, fat “EAT ME” on the backs of its innocent, unsuspecting seniors, and the Wall Street Wolf is only too happy to oblige.

It’s a neat, compelling story, perfectly in tune with the bankster-hating zeitgeist of our times: Evil financial Svengalis corrupting the (almost) virginal sons and daughters of the hardworking parents whose homes they repossessed, all with the tacit complicity of the selfsame institutions we entrusted to educate the flower of our youth.

Too bad it’s full of holes.

* * *

First, however, I must acknowledge that Mr. Klein accurately describes the approach which Wall Street and management consulting—the other major predator1 raiding the Career Services office of your average Ivy League university; one which typically takes the second largest share of graduates—employ to woo and win their prey:

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. There are a handful of firms you really care about, they all have formal application processes that they walk you through, there’s a season when it all happens, all of them come to you and interview you where you live. Harvard students are really good at formal processes like that, and they’re less good at going on Monster or Craigslist and sorting through thousands of job listings from thousands of companies whose reputations they don’t know. Wall Street and consulting (and Teach for America, too) turn applying to jobs into applying to college, more or less.”

Yet that’s only half of it. A bigger draw, explained a recent Harvard graduate who majored in social science and worked at Goldman Sachs for two years, is how Wall Street sells itself to potential applicants: As a low-risk, high-return opportunity that they can try for a few years and, whether they like it or hate it, use to acquire real skills to build careers.

This is true: I admit it. We dastardly bankers and our evil management consulting cousins make it easy for students at elite colleges to apply for entry level positions. It’s almost like we want to compete for the brightest, most accomplished, hardest-working, most ambitious new entrants to the work force.2 Many of us having gone to such institutions ourselves, it can be no surprise that investment bankers and consultants have structured our recruiting efforts to ensnare as many likely candidates as possible from our alma maters. It’s also no surprise our sales pitch resonates with the little bleeders. Wall Street has built its business model to rely upon a steady stream of hard-working, ambitious, intelligent cannon fodder to do the heavy lifting. Is it any wonder we have pitched semi-permanent recruiting tents under the leafy groves of academe? Wall Street and the Ivy League are symbiotic.3

* * *

Having conceded Mr. Klein’s point that bankers are successful at luring many of our best and brightest to perdition, however, it is worth enumerating the reasons why the rest of us should not take the vapors over this enormity. First, hiring anywhere from 17 to 36% of top universities’ graduates into “finance” becomes far less alarming when one realizes we are talking about hundreds of benighted souls, not thousands or tens of thousands.4 Furthermore, the proportion of new hires to my industry coming from the highest-ranked schools (HYP, the Ivy League, Oxbridge, or wherever you personally wish to draw the line) is much higher than from the college graduate population in general. We do not hire a third of all college graduates. We just don’t have that many jobs. I suppose, in order to maintain an appropriate level of outrage after acknowledging this arithmetic fact, you must believe this small handful of elite schools has a monopoly or near monopoly on all the most intelligent, ambitious, hard-working, and potentially valuable young contributors to society. Having attended one of these outfits, and having interviewed and hired dozens if not hundreds of their students as well as students from “non-elite” schools over the years, I must strenuously disagree with you. I’ve said it before: Wall Street hires a type from among the best and brightest, but nowhere near all of them.

Second, the investment banking sales pitch is not snake oil: the financial analyst program which we hire new graduates into does indeed last for two years, and two years only. After that, most of the participants leave. In order to stay, you must want to stay, and we must want you to do so. This does not happen very often. Most analysts go off to graduate school, get jobs outside finance, or disappear from our radar entirely. Their indentured servitude is short, and we encourage the vast majority of them to reenter society, where they have every opportunity to serve their fellow man as they see fit. Given the kind of meat grinder we put them through, it is somewhat of a surprise to me that as many try to return after business school as do. The ones who do return must scrabble for a place on the slippery pyramid of Analyst, Associate, Vice President, Director, and Managing Director. Very few of us make it to the top or, once there, stay for long. It is an unadvertised fact about my vocation that few who enter investment banking enjoy what normal people would consider a full career. I have no facts at hand, but I would guess the average tenure in my business for professional positions is less than five years. If we do impress your babies into our despicable crime syndicate, mommies, we won’t hold them for long.

Third, and perhaps most interesting to me, I see fewer of the sort of befuddled, directionless soon-to-be-graduates coming from Ivy League or indeed any universities nowadays than Mr. Klein implies exist. Given what I know about the maturity of twenty-two year olds, and the relatively common realization among college seniors that the all-consuming goal toward which they have been slaving for three-quarters of their young lives—a sheepskin from HarYaleOxCambTon—is nigh upon them, I am surprised so few show up for interviews in a catatonic state. Rather, I see a level of professionalism, independent study, preparation, and sheer careerism among investment bank interviewees that is downright frightening. Even the Brown senior who majored in Medieval French Poetry and minored in Latin American Political Dance comes to the first interview having taken DCF modeling, Corporate Finance accounting, and Advanced Powerpoint Presentation classes from independent training firms who prep candidates for this very purpose. She had better, because the hard-core i-banker wannabes, who majored in Economics, have idolized Warren Buffett since grade school, and sleep in khaki pants and buttondown shirts are so numerous nowadays we just don’t need to hire the well-rounded, intelligent dilettantes. Those days are gone. Sure, some do get in—I wish we got more—but investment banking is no longer one of the leading candidates to hire them.5

So, even if we agree that Harvard and its peers are failing to shield liberal arts graduates from the evil banksters of Wall Street, I think we can acquit them of inflicting massive damage to society by it.

* * *

But more to the point, really, I disagree wholeheartedly with Mr. Klein’s premise. Why should a liberal arts education give marketable skills to its graduates? What is the point? There is a very good argument that a liberal arts education is a luxury consumption good in its own right. After striving for years to get into the “right” college, why shouldn’t a young person have the opportunity to explore learning and knowledge for its own sake, without thought for its future marketability? Plenty of college students nowadays—perhaps too many, in this old man’s opinion—spend all their time and energy in college acquiring what they believe to be marketable skills, without considering for a minute whether the employment to which they aspire is right for them, will exist in a meaningful form in the future, or even will hold their interest for more than a few years. How much better that some youngsters have the opportunity to reason undistractedly about history, art, philosophy, politics, and literature for a few, brief years before they have to worry about paying the rent.

From this Writer’s perspective, it’s a downright shame that investment banking cannot employ more liberal arts graduates than it does. Given that no-one else in society seems to be subsidizing this activity, I must admit a little pride that my colleagues and I can do as much as we do. It’s not like we are covering ourselves in glory elsewhere.

The rent will always be due. Jobs, firms, and professions will come and go. Markets, political systems, societies, and nations will flower, bloom, and sink into the sea.

Somebody, somewhere, should be thinking about bigger things.

Related reading:
Ezra Klein, Harvard’s Liberal-Arts Failure Is Wall Street’s Gain (Bloomberg, February 15, 2012)
Catherine Rampell, Out of Harvard, and Into Finance (The New York Times, December 21, 2011)
In the Nation’s Service (December 29, 2011)
Sovereign Triviality (November 19, 2011)

1 Management consulting? I ask you.
2 As measured and preselected for us by the vast social machinery leading up to, surrounding, and including elite undergraduate education at very little expense to us. Of course, bright, accomplished, hard-working, ambitious young people are not limited to soi-disant elite universities, by any means. But collecting so many of them in one place does make our search for new employees so much more efficient, wouldn’t you agree? Plus, investment bankers are not above exploiting the signaling value of an Ivy League education for ourselves, our competitors, and our clients. A lot of us went there, after all. We’ve drunk that Kool-Aid from birth, along with many (most?) of the rest of you.
3 Interestingly enough, however, it is often unclear which of us is the parasite and which the host.
4 Dastardly buggers that they are, the top schools do not break down what professions they actually include under the rubric “finance.” Given, however, that it normally includes commercial banking, insurance, buy-side investing, and real estate, you may assume that a much smaller portion of the advertised percentage actually gets to eat baby seal with the rest of us in investment bank cafeterias after graduation. Non-investment bank finance employers are welcome to defend themselves on their own dime, as I have no interest in doing so.
5 This is not to even mention the vast number of college graduates—even in the Ivy League—who school themselves in engineering, hard sciences and mathematics, computer science, journalism, business, and other fields with what I presume Mr. Klein would consider hard, marketable skills. Many of these apply for jobs in investment banking and consulting, too, and many get them.

© 2012 The Epicurean Dealmaker. All rights reserved.