Does the world need engineers on Wall Street?

Teschler on Topic
Leland Teschler • Executive Editor
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There once was a lot of hand-wringing in the U.S. technical community about the number of engineering students who never practice engineering once they graduate. Much of this angst was directed at engineers who went into Wall Street finance jobs where the bigger paychecks were.

An observation about the pay issue came from Columbia University Professor Emanuel Derman. Though his PhD is in particle physics, Derman now teaches financial engineering. Several years ago, he said that most students in the Columbia Master’s financial engineering program had engineering undergraduate majors. His graduates also commanded first-year salaries about 40% higher than the median wage of entry level Master’s graduates who focused on traditional engineering disciplines.

Since then, the salary differential between finance and engineering disciplines seems to have narrowed somewhat. And financial engineers took a lot of heat for their role in dreaming up the derivative instruments that led to the 2008 financial crisis. So you might think the allure of finance had faded for engineering majors.

But that’s not the impression you’d get from Prof. Peter Adriaens, director of the University of Michigan Center for Smart Infrastructure Finance. Writing in a publication of the American Society for Engineering Education, Adriaens points out that almost 30% of new brokerage house employees have engineering or data science degrees.

But rather than expressing alarm about graduates leaving the engineering field, it sounds as though educators have decided to get in on the trend. This helps explain why last year the University of Michigan launched a Master of Engineering in Smart Infrastructure Finance program. Adriaens says students in the program learn how data and digital financing inform design specifications and business models for infrastructure systems. For example, an environmental finance course shows how climate-change data influences factors such as project finances, insurance, and blockchain financing.

Adriaens partly justifies the new Masters program by explaining that graduating engineers who expect to make an impact in a digital economy will need an understanding of finance. But those of us with a more cynical view might see a hidden agenda behind this rationale: Engineering schools looked at the number of engineers getting finance jobs and wanted a piece of the action now going to finance schools such as Columbia.

Adriaens further rationalizes the need for U of M’s new Master’s program saying finance “has become ‘a technology,’ driven by algorithms and insights gleaned from data. At the same time, the role of engineering has grown beyond a narrow technical focus. Engineers are increasingly expected to manage change, and place their skills and inventions in a socioeconomic context.”

Cynics, and especially cynics with industrial experience, might say the last comment is exactly backwards. It is typically the people engineers report to, not the engineers doing the work, who fret over intertwining social and economic factors.

Thus if engineers holding U of M’s new Master’s degree think their financial background will help bring “a more equitable and sustainable future,” as Adriaens writes in his ASEE piece, they are likely to be disappointed. They more probably will find themselves in the same situation as the financial engineers who experienced the 2008 financial meltdown first hand. Says Colombia’s Derman, “The (financial) models that quantitative types came up with were used to justify what people wanted to do, not to tell them what they should do.”

To a cynic, that sounds about right. DW