By Arnold Kling
A student who regularly reads and comments on this blog asks me for career advice, from a social point of view:
How does someone like Warren Buffett contribute to the economy? It seems investing in old line industrial businesses is more of a rent-seeking activity. I take it that people on Wall Street are in some sense parasitical … yes? Do you still think it makes sense for me to go to work on Wall Street and be, say, an investment manager at a hedge fund? Can one improve an economy’s productivity gains by working on Wall street?
Mankiw gently tries to correct the student. I would have sent the student to read The Mind and the Market, by Jerry Muller. I would hope that after doing so, the student could recognize that his view of financiers as parasites is in a long tradition (think Jesus on money-changers in the temple, for example).
One of the duties of economists is to try to explain that people who are involved in production are no more deserving of the living they earn than others. As Douglass North points out, our economy becomes more productive as a result of the activity of all of the people (he now estimates it as a majority in the U.S.) who are doing work that facilitates trading of goods, as opposed to production.
Anyone who has taken an economics course and cannot recognize that those involved in the market to allocate capital are creating value is a poster child for our failure as teachers.