Wall Street: still insanely profitable

Wall Street: still insanely profitable

A Bloomberg story of 12 November says that Wall Street is poised to have its second most profitable year on record, despite those $45 billion in writedowns: “...New York-based Goldman Sachs Group Inc., Merrill, Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. will earn a combined $28 billion..." But it’s not those five investment banks... To get at the $45 billion, you need to include Citigroup, UBS, and many other commercial banks... The...term “Wall Street" is forced to do double duty, referring both to the banking industry globally and to the US investment-banking industry in particular.

—Felix Salmon


Engineers of jihad


There’s been a lot of speculation about the visible elective affinity between education in certain technical disciplines and propensity to join Al Qaeda and other terrorist groups, none of which has stopped some loons from claiming that the jihadists were led astray by trendy leftist post-modernist academics in the humanities and social sciences. (In a new Oxford University paper) Diego Gambetta and Steffen Hertog show... that there is a strong relationship between an engineering background and involvement in a variety of Islamic terrorist groups.

Their preferred explanation lies in the combination of a particular mindset given to simplification, monistic understandings of the world and desire that existing social arrangements be preserved, with key environmental factors (most importantly, frustrated professional aspirations due to a lack of opportunities). They suggest that the same mindset which drives engineers in the Islamic world to become terrorists, may lead to the marked tendency of US engineers to adhere to strongly conservative political views. This is the kind of topic that lends itself to the worst kind of uninformed pop-journalism academics, but as best as I can tell Gambetta and Hertog are extremely careful, and up front about the limitations of their data.

—Henry Farrel

Are foreign students good for the US economy?


A just-released study by the Institute of International Education... states: “International students contribute approximately $14.5 billion to the US economy, through their expenditure on tuition and living expenses." Apparently, two-thirds of this spending is financed by students’ families and their home governments.

As anyone with a modicum of economics training should understand, this number represents a net contribution to the US economy only in the absurd limiting case in which the opportunity cost of resources used in providing US education services to foreign students is ZERO.

I bet my Dean at Harvard—which is ranked #9 among top hosts of foreign students—can vouch that he pays me real money.

And I won’t even get into the complications raised by the presence of foreign faculty and teaching assistants providing these services...

This kind of confusion—the mercantilist fallacy that takes exports as good in and of themselves—is as common as it is infuriating. Last week, a student in my trade course told me that he was going to write a paper that analysed the impact of some free-trade agreement on the exports of his country. When I asked him why this is an interesting and important question, he replied “exports are good, as they raise income". After a whole year of economics and a half-semester of my trade course, we (economics faculty) had not managed to purge this fallacy from his mind.

Here are some of the questions an economist would ask in thinking about the net contribution of foreign students. Do they allow universities to charge higher prices for their services (as terms of trade benefit)? Do they generate knowledge spillovers for American students? Do they enable the US economy to free ride on the costs of the primary and secondary education these students receive in their home economies?

None of these questions are answered by the $14.5 billion figure.

—Dani Rodrik