Yesterday NAS released this intriguing piece by Peter Wood — “B School Postmodernism: A Gambler’s Education.”
In the piece, Peter riffs on the recent, much-circulated article observing that most of the people whose financial institutions have crumbled like termite-eaten timber were educated at top business schools where the business-world equivalents of postmodern theory in the humanities held sway. Is there a connection? Perhaps so.
There is a very important point in all this that Peter misses, though. He says that banks loaded up with what are now seen as bad investments, but would or at least might not have done so if it hadn’t been for the repeal of the Glass-Steagall Act in 1999. I readily admit that the anarcho-capitalist in me is strongly inclined to applaud the repeal of almost any law, and that I am therefore hesitant to criticize the repeal of G-S on philosophical grounds. But in any event, the elephant in the room is the fact that trillions in dubious mortgage-backed securities were issued by Fannie Mae and Freddie Mac. As “government-sponsored enterprises,” their paper was presumed to be good by people and institutions that would have taken a much closer look if the securities had been issued by a non-governmental entity. I think that’s the fatal flaw. With or without Gass-Steagall, those securities would have found purchasers.
Governmental involvement blinded most people to the dangers in the housing market. Only a few people schooled in the Austrian approach to economics, such as Peter Schiff and Rep. Ron Paul, foresaw the collapse of housing prices.
As for the business schools, they have some severe critics, including Jeff Sandefer, who runs the Acton MBA program. (I wrote about Acton here.) It would not surprise me if the curriculum at many of them revolved largely around the politicized business atmosphere that now prevails in the U.S. When B-schools put top minds to work on figuring out exotic financial instruments rather than efficiently creating goods and services consumers want, that’s indicative of what has been happening to the nation as a whole. We’ve lost sight of the basics and become mesmerized by flashy get-rich-quick schemes.