Here’s how Finance scholars developed theories that nearly ruined the Global Economy


by Dr Boyce Watkins

I was watching a film on Netflix last night called “Money for nothing.” The film was all about the 2008 economic crisis, but took it back to the beginning of the creation of the Federal Reserve. It compared the chairs of the fed and how they responded to economic problems, as well as the way the role of the fed has changed over time.

Watching this film led me to reflect on the many years I spent in the 1990s as a PhD student of Finance, surrounded by white males, some of them racist and incredibly arrogant. When I think about this culture, it is no surprise to me that these individuals were responsible for concocting some of the economic theories that led to near death of the entire global economy.

In fact, the film helped me to understand why I rejected academic finance for so many years. Much of what I was learning just seemed stupid and inaccurate. Don’t get me wrong, mastering higher levels of mathematics and statistical analysis were valuable tools that have served me to this day. However, some of the theories that were force fed to us by misguided scholars just didn’t make any sense.

One example was a theory called “The Efficient Markets Hypothesis.” Basically, this theory claimed that stock market investors, together, are so smart, so informed, so rational that the stock market can never be over-valued. Former Fed Chairman Alan Greenspan believed in this model for many years, leading him to make huge mistakes that ultimately caused the housing bubble and 2008 economic crisis.

Another weird theory was something called “Rational Expectations.” In layman’s terms, this theory argues that because investors are so intelligent and rational (i.e. not emotional), whatever they expect will happen in the economy is going to happen. So, they are the perfect fortune tellers and always choose the correct price for stocks in the market. If any one person gets it wrong, someone else is going to correct them, so everything is going to “A-okay.”

Any idiot with common sense could see that these theories were just weird. While we might hope for the creation of more efficient markets, we also know that these markets are composed of human beings who are often vulnerable to fads, fear or misinformation. The problem was that challenging your professor on these theories often ran into a least a few major obstacles:

  • This person might be in charge of deciding whether or not you’re going to graduate – pissing off a powerful faculty member was usually the fastest way to find your ass on the street in a PhD program

  • Many of the elite scholars at The University of Chicago and other places had built their entire careers on these theories – when an old guy won a Nobel Prize based on a lie, it takes a lot of courage for him to admit that he was wrong. Unfortunately, these were also the people who served as gate keepers for the most prestigious journals in our profession, meaning that work submitted by those who disagreed with these long-held (ultimately false) notions of how the economy runs were going to be rejected.

So, given that these journals are the ones you in which you needed to publish in order to get promotions, tenure and the best jobs, those who disagreed with the lie were often the first ones to be kicked out of their departments. In other words, academic finance was a lot like a religion that burned people at the stake for saying that the world wasn’t flat.

  • A person had to know an insane amount of mathematics just to challenge the theories, meaning that most people couldn’t even have the debate over whether these theories are wrong. For some reason, finance PhDs from 60 years ago decided that everything needed to be stated with math. This wasn’t simple math. This is the kind of math that a college math major learns AFTER they’ve finished their bachelors degree. I eventually learned enough math to challenge some of these ideas, but by that time, I just didn’t care. The way academic finance conducts itself (at its worst) reminds me of religious scholars from a thousand years ago who expected every meaningful thought to be written in Latin. Given that most people didn’t know Latin, they weren’t even invited to be a part of the conversation.

So, this documentary (“Money for Nothing”) really took me back and led me to reflect on all the ways that people in my profession have allowed their self-interest, herd mentality, arrogance and poor decision-making to undermine the trust they receive from the American people. In some ways, we were the most intelligent idiots in the room.

Dr Boyce Watkins is a Finance PhD and founder of The Black Business School and The Black Wealth Bootcamp. Dr Watkins has taught at Indiana University, The University of Kentucky, The Ohio State University, The University of Rochester and Syracuse University. He is also the author of the book, “Black American Money.” You can contact Dr Watkins my emailing him at


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