Zachary Bell | Morgan ‘Central Planner’ Stanley
Those working in finance have more political pull than they realize
May 26, 2011, 2:52 am · Updated May 26, 2011, 12:00 am·
I am a Penn student studying abroad in Prague and taking an “Economics of Transition” course, which is essentially a comparative economics course. In general, economics is taught with a full dose of political and historical economic theory in countries other than the United States. Without the obligation to salute Uncle Sam’s capitalist triumphalism, schools teach Hegel and Marx alongside Smith and Keynes.
Since capitalism is seen as just one option for an economic system and not as the only option, economics students can ask much deeper questions about the pros and cons of different economic systems and about what our national values are that determine the goals of the system we choose. Rather than the brightest students learning how to game the system (e.g. “How much should I invest to maximize my return?”), students learn about the system (e.g. “Should I be allowed to invest as an individual? Should I want to maximize my return?”). This course has helped me to understand the flaws of communism’s central planning — its inequalities and inefficiencies — but it has also elucidated ways in which the seemingly opposing economic system of American capitalism may be dangerously mimicking some of communism’s biggest mistakes.
There’s one example that I think is most relevant to Penn students: finance. In one of my classes, my professor claimed that financial markets play a similar role to central planning in shaping the future of the economy by deciding where the money goes.
Let me give some background — central planners were Communist Party members in the Soviet Union who would come up with one- to five-year plans with quotas for industrial production, amount of payment for work and amount of investment in each industry. These planners forgot to account for individual motivation, the role of free prices in providing information and the importance of symmetry of incentives with local supervisors. They were so career-focused that they sacrificed honest data and solution-seeking for job security. These issues were at the root of the economic collapse of the USSR and its satellites.
What my professor said is that the disastrous inequalities of capitalism may be due to a similar issue — a small group of isolated individuals controlling all of the country’s capital resources and having the power to decide where it gets invested: finance.
We are all taught that financers are just playing the part of money organizer and are politically unmotivated, only seeking to maximize profits and meet regulations — meaning they only favor guns or solar power based on their economic returns. Still, we know this is not entirely true. We hear about ties between government and finance all the time: “I’ll fund your campaign, you protect me” (still no major executives responsible for the economic crisis have been charged) and “I’ll invest in energy, you make sure we stay at war.”
So when you fist pump for landing that dope internship with a company like Credit Suisse, understand the role you are playing and the responsibility that entails. You may start being given orders, as all underlings in the Party do, but eventually you may find yourself discussing fiscal policy over wine with a Congressman, with some autonomy in shaping the landscape of the future economy of your country. Think about what you want your country to look like.
I’m not saying that you should feel guilty about working for Bank of America or a similar company. I’m saying that you should feel responsible. I know you are reading and responding to markets, but there really is more to it than that, and you should be aware of it — it’s a big job. After all, the reason Russian isn’t the international language today is because we had better central planners than the USSR. But being better than the USSR isn’t exactly a gold standard — and it’s not good enough anymore. Don’t feel guilty. Make sure it gets better. Zachary Bell is a rising College senior from Woodbridge, Conn. His email address is email@example.com.