Should engineers become financiers?  Engineers sometimes lament the fact people with engineering and mathematical ability choose to go into finance rather than engineering.  Although the finance industry has gotten a bad reputation following the recent financial crisis, finance itself did not cause the financial crisis.  Rather, poor estimation of risk, i.e. poor design of financial products, caused the crisis.  Given that, the insertion of engineers into finance seems like a good idea.

 

We need engineering minds on Wall Street.  The typical engineer is eager to innovate but aware that a system that meets specifications under most but not all use conditions is unacceptable.  “Making the best use of the Earth’s wealth” is even mentioned in the Obligation of the Engineer oath.

 

My personal experience with engineers has reinforced the idea of engineers being good with money.  My local chapter of an engineering society began an effort to spend down some of its excess money a few years ago.  Some on the board resisted the effort, arguing that building wealth is never a bad thing.  Others argued that it is indeed a bad thing for a professional society to build wealth because its members are contributing money to further engineering, not to build wealth.  This argument has apparently occurred before because the national organization had a document explaining to financially-cautious engineers that it is okay to spend money on programs rather than building wealth.

 

My wife, as an estate planning attorney, routinely sees engineers with higher net worths than people in most other professions.  She says they have a better handle on the numbers.  She suspects engineers’ prudence and mathematical abilities gives us an edge than allows us to build wealth faster than average.

 

The purpose of finance is to allocate capital to worthwhile projects.  Economic growth depends on having smart people designing the systems to quantify the merits and level of risk of a project and to allocate capital accordingly.  This way money we save in a mutual fund gets spent on things to be used for production until we are ready to redeem our shares.

 

Critics will very rightly point out that financial institutions promote using debt to finance consumption, not just production.  Consumer debt is completely different from debt and equity instruments used to fund production.  I completely agree with critics of consumer debt and question whether consumer debt is ever a good thing.  Again, the problem is not with the concept of finance but rather what we finance and how well we calculate risk.

 

Some of the people calculating that risk and developing and manging financial products should be engineers, so long as they continue to operate as engineers: Cautious, Innovative, and Logical.