So let me get this straight – real engineers, guys that are actually responsible for building those little things we rarely use like bridges, roads, buildings, water systems, etc. They don’t make as much as the guys that play with numbers and don’t actually add anything of real value to our economy? At what point do we realize that this stuff has gone too far. Listen, I’m as much of a free market advocate as you’re going to find, but the bottom line is that these compensation levels we are seeing for financial engineers and people in the financial industry are not the result of natural supply-and-demand, but rather the result of intense and obvious connections between lobbyist dollars, campaign funding and the government. I’m not ordinarily a conspiracy person, but think about what these two raw numbers mean:
Civil Engineer Salary Range: 59K-130K
Financial Engineer Salary Range: 100K – ∞ (once bonuses are calculated in there appears to be no ceiling)
The civil engineer numbers were the result of a quick Google scan and you can get the financial engineer salary range here. You can also search company directors to find a few financial engineers to see if they are in a public company. If they are, their salary might be be made visible to the public as well.
Now this is not a good message to be sending to our best and brightest folks. I don’t know about you, but if I’m a math whiz, what is the pull to go make sure our crumbling infrastructure stays afloat when I can go to Wall Street and jump on the testosterone-fuelled money-making machine known as the financial industry? Clearly we have to change some incentives here because this has obviously not been working and it will continue to do substantial damage going forward.
To realize the full scope about why this is so bad, it’s important to look at what financial engineers actually do. Essentially they are responsible for creating new products to manipulate the financial world in some fashion. This can mean developing a high-frequency trading model, creating derivatives, or various other combinations of shuffling money around. None of these services really add anything to the economy. In fact, they often distort the whole idea of simple supply-and-demand and do a great deal of damage to the economy, in addition to the fact that they are soaking up many of the best and brightest young math talent on the planet.
You can’t blame young people, they are just going where the money is. “Greed is good,” as Gordon Gekko says right? There is little doubt in my mind that this brain drain is affecting other industries. It’s a good thing we’ve been cutting NASA’s funding anyway because they can’t compete. High school teachers or university professors – riiiiiiight. I’m going to say this is not a good thing. Others might disagree and I’ve heard some arguments about financial engineers presenting value to society, but for the life of me I can’t really see what they do other than manipulate markets for the benefit of the select few that have access to these services.
If we eventually come to agree with the whole idea that it is ridiculous that the smart guys who build things for a living should earn a 10th of what smart guys that pass money around for a living earn, then the question becomes how do we fix this? I have no be-all, or end-all answer. I hate the idea of meddling in the free market (after all, couldn’t the same justification be used to say athletes and singers shouldn’t make as much as they do – although, I guess one could argue they actually present society with a pretty great service). I think we should seriously look at how much banks are allowed to pay out as bonuses. One interesting proposal I’ve seen is to limit bonuses as a percentage of profits (a very small one obviously). This should force investment branches to look at their long-term decisions more carefully in relation to their short term ones (hello, mortgage derivatives anyone?). Maybe the answer lies in paying civil engineers a little more as well, I’m not totally sure how the policy wonks inside the beltway figure this one out, but I sure hope they’re looking at it hard (doubtful). Because if there are two things I know, it’s that my crumbling bridge on the way to work can’t be fixed with derivatives and we don’t want subways built by the bottom tenth of an engineering class!