Weekend Reading – The Seeds of the Next Boom?

Posted on September 18, 2009

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Today’s Wall Street Journal has a great article that discusses one of the positive impacts of the implosion of Wall Street and the so-called Great Recession – the redirection of talented minds into new fields and ventures.

As the article’s author Lisa Bannon writes:

Over the past 20 years, finance grew faster than almost any other sector of the U.S. economy, offering rich pay and luring a growing share of bright minds to trade securities, make loans, manage portfolios, engineer mergers and turn mortgages into complex derivatives. Now the finance bubble has deflated, forcing hundreds of thousands of employees to search for other work and sending new graduates looking elsewhere for careers.

So what new careers are people pursuing? Well, of course, there are many stories of people who once worked on Wall Street, or students who had intended to work on Wall Street, opt instead for careers in teaching, or social work, or the like. But what’s arguably more significant from an economic perspective is the fact that many smart people with backgrounds in engineering, physics and other similar fields now see their future not in creating complex derivative securities but, rather, in industry. As a result, there will be more bright minds working in areas that may turn out to be huge growth engines in the coming years.

So if the next economic boom that we experience is driven by new technologies and industries – as opposed to finance and real estate – we may look back at this period, painful as it has been, as an important turning point. Economists often like to throw around the term “creative destruction” and it’s quite possible that this is the process we are going through today. If we’re lucky, we might just find that the shrinking of the financial sector is just what we needed in order to create the conditions for a sustainable economic expansion in the future.