Sell Your Soul to Goldman or Save the World at Google?
"When you study finance, you are studying how to make things happen, on a big scale, on a lasting scale…and that has to matter more than getting into Google and programming some little gimmick", said Robert Shiller in our debate at The Economist’s Buttonwood Gathering on October 30 in New York City. Shiller argued that financial innovation is just as important as the innovation that Silicon Valley creates and that without finance we would not have an economy—or a technology industry.
Needless to say, I didn’t agree.
When I was asked to represent the tech industry at the Economist event, I thought that this position was a no-brainer. After all, how could anyone in his right mind argue that our best and brightest should go into finance and sell their souls to none other than Goldman Sachs—which played a major role in the recent financial meltdown? But then Ferenstein said that I would be debating a newly minted Nobel Laureate—the person who has long been warning about asset bubbles and the financial industry’s ills. Robert Shiller is no shill for the finance industry; he is one of the most respected and credible economists in the world.
So I lost a lot of sleep in preparing for the event.
In the debate, I argued that collateralized debt obligations, credit-default swaps, and structured investment vehicles were the greatest innovations created by the financial industry in recent times—and that what these got us were subprime loans, the housing bubble, and the financial crisis. And, with high-frequency trading and other technology gimmicks that investment banks are increasingly using to skim money off the top of stock-trading systems, it is no wonder that investment bankers are called the modern-day robber barons.
On the other hand, look at what the technology industry—and Google—have brought us. We now have an ocean of knowledge freely available to us that we can search. We can watch videos of lectures by today’s leading thinkers; connect via e-mail and social media with anyone, anywhere; work anywhere; and crowdsource solutions to problems. With the apps on our smartphones, we can transact commerce, perform medical tests, and find directions to where we want to go to. Soon, self-driving cars such as Google’s will revolutionize transportation by allowing us to be productive while we commute; they will eliminate traffic jams and accidents; we won’t need parking spots, because these cars can drop us where we want to go to and come back when we’re ready; and we won’t need traffic signals or speed limits. Technologies such as Google Loon will provide ultra-fast Internet connectivity everywhere we go. Advances in 3D printing will revolutionize manufacturing. Sensor-based apps will help us monitor and improve our health. Water-sanitization technologies will provide the world with abundant clean water.
Shiller argued that without financial innovation, none of these breakthroughs would be possible. He claimed that Google was no different from an investment bank, because it was buying companies and bankrolling their developments. He said that we can afford to live in houses because of a financial innovation called the mortgage, and that the insurance industry—another financial innovation—softens the blow of natural disasters. "Every human activity that matters has to be financed”, he said.
Shiller’s comments about Google's being like an investment bank and programming “little gimmicks” showed me that he doesn’t fully understand what Google and the technology industry do. He also doesn’t realize the power of digital currencies such as Paypal; the impact that crowdfunding will soon make; and that the cost of creating technologies is dropping exponentially—causing venture capital and finance to play now a smaller role in innovation than ever before.
During our meeting before the debate, I got to know Shiller. I developed a deep respect and admiration for his intellect and values. Yet debate co-moderator Greg Ferenstein and I had to give Shiller a crash course in social media and show him how to use Twitter. So I don’t blame him for not getting it.
By the time we were done, Shiller did concede the importance of the tech industry. He said, “We need more engineers than we need finance people”. But then he added, “We need finance people to provide the resources for them to do these things… It’s not a choice between Google and Goldman; we need both”.
Shiller’s key argument was that that “Young graduates with a moral purpose and interest in the financial world should join Goldman”. That, he is right about. What is often missing from the finance industry is a “moral purpose”. This is what led to the asset bubbles and is why we see so much corruption on Wall Street; this is what we need to fix. So maybe a few graduates—but a few who have a moral purpose—should join Goldman.
But I don’t think that Goldman and other investment banks should continue to get yet another free ride on the backs of taxpayers and society. They should pay a tax for the subsidies that go into public education—perhaps $200,000 for every engineering or science graduate they hire from American colleges. With the billions they skim from our financial system, they can surely afford that.
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Domains | Finance | Management | Investments | Taxation | Technology
11yThis is a critical issue. Figuring this one out will impact people and places far beyond Silicon Valley and Wall Street. This is probably a side note, should we be concerned about the large numbers of scientists, educated and trained at the highest levels moving into consulting and financial engineering jobs? I would expect consulting as the profession you would pick after a decade or two of hands-on working experience.
B2B Product, Marketing & Digitalization | VP of Digital and Marketing at Informa Markets
11ythis is hilarious "... he is right about. What is often missing from the finance industry is a “moral purpose”." Sadly all top talents in HK chose a finance career because of the yield. Yes finance industry needs to pay a fee for getting the best people in the world, which I am sure in the end will bring down the salary gap to get a better talent distribution.
eTrading Oversight Manager, NatWest Markets
11yAs a fresh grad, I've been to many networking events in my university. Financial services organizations rarely position themselves as a place to fulfill your moral purpose. It is only tech firms that talk about social impact of their work. However, the financial firms are much more popular among business students (and gain popularity among engineers) because they provide a very clear direction to becoming rich. Most of them say that you'll be running your own business (your own client book, standardized products, schedule, etc). On the contrary, tech companies offer new grads to become "a part" of something meaningful, which says nothing about how fast they can get rich. I think this is totally fair - it may take years before a new technology takes off so, attracting students who get energized by the idea of building a better world is critical to success of high-tech. Likewise, financial services firms have to drive sales right now so students who dream of becoming reach fast are better fit for them.
CTO of Dr. Lisa AI. & CTO of a new company started by Dr Lisa Palmer
11yI agree that Shiller does not understand our industry if he truly believes what he said in the debate about Google being "just like an investment bank". He implies that Google creates economic value by buying and financing other companies. It also creates value by inventing things, like the PageRank algorithm, that *did not* require investment bank / VC funding and *did* change the world significantly for the better. Shiller should google that to educate himself on the topic.
CPA/Financial Services Professional
11yAren't the techies getting a little moralistic when they say that working for Goldman Sachs is selling your soul? Our financial decisions ever taken lightly? Don't we want our best and brightest to provide their analysis and weigh in on decisions when we are preparing for the long term or extremely large amounts of money are involved? What is immoral about providing financing to buy a home? Don't we want more people to own homes? I would like to argue that we did not have the best and the brightest approving people for subprime mortgage loans and technology made it easier for these people to get into the business. People should also know what they are investing in and that goes for institutional investors as well. If you don't then you are the greedy immoral one. This financial crisis was not solely the fault of Goldman Sachs and Google is in it for the money.