Opportunity costs

People respond to incentives and over time their very view of the world is moulded by them. I teach at a British university. Most of the undergraduates I encounter (in math-heavy subjects) want to go into finance. I talked recently to a final year student who was worried about the job market (in finance). I put it to him that it'll probably be pretty bad for a while. His response? To apply for an Masters in financial mathematics and see if it's better next year.

The bloated compensation in finance isn't just unfair in some social-democratic sense. It's also inefficient. An entire generation of mathematically gifted kids can scarcely imagine doing anything else, even though we need solutions to all sorts of problems which require efforts from people like them. This is one of the opportunity costs of what's happened: we have missed out on all the cool stuff that would have got done if these bright people had been doing something other than devising elaborate scams in the City and on Wall Street.

Will this scarce human capital now get allocated more efficiently? The answer to this depends on what our governments now do.