The Fall semester opens this week for most colleges and universities in the United States. It is the occasion for what — in a normal year — would be a Serengeti-like migration of millions of students back to their campuses to begin the not-entirely-welcome transition from glorious summer leisure to the buckle-down of classes and schedules and, hopefully, “learning.” Covid, of course, has imposed constraints, and some students may still access the college experience online, which will reduce the size of the caravan a little – but most schools seem determined to return to the classical model of in-person education as much as possible. From what I can see, Move-In Day, Fall 2021, is as crowded and chaotic as ever.
The cost of college these days – well over $60,000 a year at my institution – has become a flashpoint for criticism. Education is now a multi-trillion dollar business, in the aggregate, and its producers (universities) have learned the key lesson for any business selling a big ticket item – you have to provide customer financing. Acquiring a college degree is a painful financial challenge for many consumers, second only to buying a home. And inflation rates in the education industry have averaged twice the overall consumer price index.
- “The average cost of attending a four-year college or university in the United States rose by 497% between the 1985-86 and 2017-18 academic years, more than twice the rate of inflation. The cost of attending a traditional four-year university has been rising more than twice as fast as inflation, and two-year community colleges a third faster.”
(It is sobering to recall that my own college education – at the University of Pennsylvania, in the 1970s – carried a price tag of only about $3000 a semester – and yet, oddly, I recall that it seemed just as quasi-unaffordable back then as current prices seem to students and parents today.)
One big difference between Then and Now has been the enormous growth of the government-backed student loan industry. Federally-backed student loans have increased by a factor of 24 times since 2000.
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What this means is that many students today graduate in debt. They start their careers in the hole, financially. Some of my students accumulate $100,000 or more in student loans over the course of their college experience. It may take them years, even decades, to work it off.
The Value of the Degree
This naturally raises the question of the “value for money” – and many colleges have begun to calculate a “return on investment” figure (ROI) for their degree programs, to help their customers (students and parents) feel better about the price tag. This is another difference between Then and Now. I don’t recall ever thinking about college as an “investment” with a “return.” Going to college was just a part of growing up. But I would say that almost all of my students today give some thought to the value proposition of their degree, which typically boils down to questions about starting salary and career prospects in general. As this mindset has taken hold, it has begun to influence the choice of what sort of degree to pursue.
STEM schools (that is, universities that focus on Science, Technology, Engineering, and Math) shine in this light. In ROI-weighted rankings, engineering-oriented schools now often out-rank even the Ivy League universities. [I track this because my university, Stevens Institute of Technology – a classic STEM institution – does well in this sort of survey. In a 2019 comparison of 4500 schools, we were rated above Penn, Yale, Columbia, Duke, and Princeton for ROI. Apologies for this brag.]
This makes sense, at least up to a point. The technologization of society – which affects almost every sector of the economy – has raised the value, and the compensation levels, for STEM degrees (engineering, computer science, quantitative finance). Yale, Princeton and the like offer a range of liberal arts degree programs, which do not fare so well in this calculation, and dilute the average ROI for those institutions. Many of these “soft” programs have suffered as the “value for money” mentality has begun to shape the decisions of students (and parents) about what sort of education to pursue, or, as they say, “invest in.”
The Liberal Arts
That said — and it is true as far as it goes – there is a problem with the conclusion that a liberal arts education is a poor investment. At least for my field – Finance – I have come to believe that it is a vital differentiator for my students, and indeed that the virtues and rewards of the liberal arts component of the curriculum are of decisive importance for any student entering the financial services industry. Let me explain.
In most industry sectors, excellence is a function of depth of knowledge of that sector. That is, if you are in the hotel business, you will find success to the extent that you really come to know the hotel business in depth – the operational details, the competition, the customer behaviors, the relevant technologies, the regulations… relevant to the hotel industry. The more you know about your business, the more likely you are to succeed. The same is true for the energy business, or the pharmaceutical business, or the restaurant business. When I was in the wireless industry earlier in my career, my success was always going to be based on how well I understood the technology, the competitive landscape, and the regulatory environment of the wireless world. I think this is true for almost every career path in every industry sector.
Except for Finance. In Finance, success depends on exactly the opposite intellectual skill: the ability to cast a broad net and to understand and stay open to events and developments in all areas of the economy. And to see and understand the interconnections.
For example, if you follow Ford Motor company F — let’s say as an investment banker or an analyst – you had better know who Monte dei Paschi di Siena is.
MPS (as we may call it) is an Italian bank. A very troubled Italian bank. It is in fact the oldest bank proper in the world, founded in 1624. And in recent years, it has been at the center of the crisis in the Italian banking industry. It has been mismanaged, often corruptly, and has needed multiple bailouts from the Italian government in the last ten years. Key executives have been convicted of criminal charges and jailed. We’ll skip the details (although as an analyst you would want to know them), and move to the next domino. The taint has impacted other Italian banks, or has exposed similar weaknesses. The Italian banking crisis is a key component of Italy’s general financial difficulties which have at times seemed to threaten to undermine the eurozone. Which has contributed to the periodic crises in the Euro itself, which has lost value versus the dollar. Ford does a big business in Europe, about 30% of its automotive revenues. If the Euro weakens, it reduces Ford’s revenue as reported in dollars, and may hurt sales in Europe (to the extent that North American-sourced content is more expensive for customers paying with Euros). Of course, the European Central Bank, which manages the Euro one might say, is in the middle of all this. It was headed until recently by the Italian Mario Draghi. But the ECB is based in Frankfurt and heavily influenced by German political and cultural attitudes towards monetary policy – which differ, we may say, from the Italian. (Right now the EU is in something of a crisis, because the German Supreme Court has declared some of Draghi’s monetary policies “unconstitutional”.)
In short, Ford Motor company does not live in a hypoallergenic bubble in Detroit. It is exposed to events and risks that arise “over there” – in Siena, in Rome, in Frankfurt, let alone Beijing or Tokyo – and propagate through a complex network of cultural, political and technological links. To play this game (i.e., to be successful in forecasting Ford’s business, hence its enterprise value), we need to know something about Italian banks, Italian politics, German history, Draghi’s mindset (he’s an Atlanticist – and hopefully we know what that implies). The ECB. The EU. The currency markets. Brexit. The Treaty of Rome. World War II. Bismarck. Italian and German unifications in 1871. Gibbon’s Decline and Fall. The Medici. Opera. Dante.
What sort of education does this call for?
You won’t find the answer in the Computer Science department. As important as programming skills may be, they are also becoming commoditized. Everyone knows some Python these days. The differentiator – is something else.
I run a STEM program in the field of Quantitative Finance at Stevens. I know and believe in the value of a strong foundation in quantitative methods, computer science, and technology in Finance today, which has become a hyper-high-tech business.
However, when I speak to the firms that hire my students, and I ask them what “skill set” (a phrase I dislike) they are looking for, at the top of their list are what they call the “soft skills” – the ability to write well and clearly (“composition”); the ability to “communicate,” to persuade (which we used to call “rhetoric”); the ability to engage in critical thinking (“philosophy, method”); and a fluency with other cultures and diverse backgrounds to facilitate trade and teamwork that almost always now stretches across global boundaries (“history, psychology, literature, languages, the arts”). Those are skills that are cultivated not by STEM, for all its virtues, but by a liberal arts education.
The Transformative Role for Liberal Arts Education
30 years ago, America was a sort of closed economy (except for a few companies that had expanded internationally, like Ford or Coca-Cola). Most businesses were domestically focused. Knowledge of other cultures, histories, literatures, was not actually a front-line requirement for doing business. Today, about 50% of the revenues of the S&P 500 companies originate outside the U.S. A liberal education makes even more sense today, probably for many industries. It is essential in Finance. It is not just about being able to carry off a successful dinner table conversation in Belgium. It is about being able to understand what is really going on out there in the global market.
Evidence for this is also to be found in the striking pattern — so baffling, even troubling to some – of states-men and -women who step from careers in Finance into leadership roles in public service – Secretaries of the Treasury, Central Bankers, Governors, government ministers, the World Bank. For fun, take a look at the list of Goldman Sachs GS alumni who have followed this path. Yes, it could be a vast conspiracy – the Vampire Squid hypothesis. Or – it could be that Finance is a business which cultivates and rewards generalists, the sort of mindset of which the formative foundation is that liberal arts education.
Integrating the liberal arts into the modern curriculum has become, unfortunately, rather difficult due to the importance of technology skills, which must be accommodated (they are now seen as the baseline), and worries about ROI. But liberal arts disciplines have an advantage. Technology is always changing, and today’s tech skill set is not going to be a permanent career asset. I would predict with high certainty that in another decade or so, the current Python fixation will have passed. And in any case, the folks who start out writing code today will not be doing that in ten years time. They will be trying to manage a business, and make good decisions, in a complex global market, working with customers, employees and counterparties who come from very different backgrounds, speak different languages, and embody different cultures. Python isn’t the answer.
Critical thinking, on the other hand, is a permanent asset. A knowledge of history is a permanent asset. Skill in a language is a permanent asset. The liberal arts are the edge that students are looking for, the best foundation for a successful career in the finance industry.