I was saying that whatever one thought should be done with large financial institutions as a policy matter, surely we could agree that the executives at these institutions are primarily bad people.He continues:
It turns out we couldn't agree on that. But my argument is pretty simple. These are people primarily motivated in life by greed. Not just by a desire to make some scratch, mind you. [...] They're multi-millionaires who want to earn millions more. It's possible, of course, that Vikram Pandit really does find being a bank executive to be intrinsically interesting. But a good person, who's primary passion was the life of a bank executive, would be donating the bulk of his massive compensation package to charity. But that's not what Pandit's doing. Rather he, like virtually all executives at major firms, is living a life that's primarily oriented around an ethic of greed.
Now there's a decent argument out there, familiar from Adam Smith and the whole tradition of economics, that a world full of greedy people isn't necessarily quite the disaster that pre-modern ethical thinkers would have thought. This is all well and good. True even. But it's a sign, I think, of a kind of sickness running through American society that we've lost the willingness to just say clearly that ceteris paribus greedy behavior is not virtuous behavior. [...]
A couple of points about this. First, I think there's a false equivalence in Matt's post between behavior that is "not virtuous" and behavior that is "bad." I'm willing to agree that greed -- or simply "self interest" in Adam Smith's words -- deserves no special prize for virtue. I don't think anyone really has much trouble saying that greed is not the same thing as virtue. But that's not the same as saying a self-interested person is a bad person.
Indeed, if you buy Smith's argument (as I take it Matt does) it becomes hard to identify what's so bad about self interest. Smith's point on this subject (as I remember The Wealth of Nations) is twofold. First, self-interest is a part of human nature. And, second, markets have a funny way of transforming that private self-interest into social benefits. That's the oft-cited line about how it's "not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest." These are observations, not prescriptions: Smith is just describing how he sees the world work. What else should we expect?
Second, there are lots of ways to satisfy self interest. You can, like Vikram Pandit, make piles of money. Money is nice because it can be exchanged to useful good and services and can serve as a nice signalling mechanism for things like talent and power. But you can also run for office to bask in the glory of public life. Or you can try to become a famous blogger. But it's not obvious that one path is necessarily less self-interested than the others, or that the abstract notion of self interest is anything but morally neutral.
I think you're missing Matt's point. You're still evaluating greed in the context of whether it's good or bad for society. Matt's point was that rational self-interest may be good for the society but an excess of it is bad for the person themselves.
I make a 6-figure salary and lead an upper middle class lifestyle. I don't feel guilty about the lifestyle I lead, but I do feel grateful. And I acknowledge that I would be a *better* person, a more moral person, if I were to live in a smaller house, eat out less, go on fewer trips, buy cheaper clothes/cars/furniture/etc. and use the money I'd save to give to those less fortunate than me. I admire people, such as priests or social workers or even teachers, who choose professions that help others but preclude them from living lives of material excess. And I admire people who make lots of money and give most of it away.
And shouldn't we all? Shouldn't we admire people who are able to make the choice to actually live frugally and give more to charity? Shouldn't we yearn to be like them, even if most of us know we'll fall short? The pull of the bigger house, the nicer car, the granite countertop, the Bohemian crystal hand-blown decanter for our $90 bottle of wine is powerful. If we rationalize away the morals that pull us in the opposite direction, and ignore the voice that says, "C'mon, you don't need that, use your money for something more important", how is that good?
Troy, I don't disagree with the spirit of your last two paragraphs. (Although I think if you have the choice between being a social worker and earning a seven figure salary, you could earn the seven figure salary and give enough of it away to hire five social workers. And at any rate, the question of what consumption choices make society better off is an open empirical question. Does Microsoft or the Gates Foundation do more good for the world?) But I don't see why praising the generous requires damning the self-interested. Why carry the principle in both directions?
To your first point: I do buy Smith's argument that, broadly speaking, letting individuals pursue their own vision of self-interest will make society better off. (assuming there are no negative externalities -- ie your conception of the good life can't be pillaging like a viking.) And I think Matt would agree. But if Smith's argument is true, why criticize the choice to accumulate wealth? Why shouldn't we concern ourselves with what's good for society as a whole?
Using a utility based system that judges actions on the basis of outcomes, can't we allow for differences in relative morality? For example, as Tyler Cowen astutely pointed out to Peter Singer, it would be more moral to become a millionaire bringing more cell phones to sub-saharan Africa than to earn a small income and donate 15% to charity. Therefore, isn't it accurate to say that investment bankers are not immoral, but perhaps less moral than some others?
"And I acknowledge that I would be a *better* person, a more moral person, if I were to live in a smaller house, eat out less, go on fewer trips, buy cheaper clothes/cars/furniture/etc. and use the money I'd save to give to those less fortunate than me."
Do you think the people whose livelihoods depend on you eating out more and buying more expensive clothes/cars/furniture etc. would think you were a "better" or "more moral" person if you spent less money on those things? That's the problem with demonizing consumption. Other people's livelihoods (often good livelihoods at that) depend on your consumption.
Conor, I agree with your point about the Gates Foundation. In fact, that was in part who I was thinking of when I said, "And I admire people who make lots of money and give most of it away".
As for the moral argument, I want to be careful with this, because I don't mean to demonize consumption. Societal benefits accrue to consumption, as all three of us have pointed out, and consequently I think of even excessive consumption as more of a venial than a mortal sin. I certainly don't think of people who indulge deeply in consumption as evil -- just flawed and immoral, as we all are. And I admire people who have the discipline to avoid consumption, and strive to be like them, even though I often fail.
And I still argue that that impulse is a positive one, both for the person and for the society. Dave, I understand your argument about the benefits my consumption (and yours) has for the people whose livelihoods depend on it. But, morally speaking, not all consumption is created equal. Food production, healthcare, energy production, and the other industries that lead to broad social improvements are better uses for our money than luxury goods. The luxury yacht industry has lots of hard-working, low-wage people that depend on it who would suffer if the wealthy instead used their yacht money to form a foundation. But research scientists (say) and the workers who support the research lab would benefit. And my point is that, for the wealthy individual, I think investment in the research lab is the more moral choice.
To sum up: yes, we make a mistake if we demonize consumption, but we also make a mistake if we rationalize away all impulses to think hard about the moral choices inherent in our consumption.
@Troy:
Some people see those living in a nice house and say, "Think of the poor. That greedy SOB should give his money away and live more frugally." Others see those living in a nice house and say, "Think of the poor. I can't wait until they're wealthy enough to live in that sort of house too."
I'm in the latter group. No, I don't admire people who "live frugally" in the sense you appear to mean it. ("Live frugally" in the sense of not spending beyond one's means, yes, but that's not what you're talking about.) I don't see any virtue per se in not consuming, though obviously if one prefers frugality, that's fine too. I don't think you'd be a better person, more moral person if you decided to stop consuming so much, no.
He's discussing self-interest in the abstract to mask the fact that he is supporting concrete greed, the kind that is eviscerating our economy. And since "markets have a funny way of transforming that private self-interest into social benefits," it's all okay. Because nobody ever harmed anyone else out of greed.
You know, Max Weber wrote a whole book about this... It was kind of a big deal... (I swear, sometimes I think we need to lock all the economists in a room with all the sociologists. The mutual ignorance between the two is ridiculous. But anyway...)
Once upon a time, greed was one of the seven deadly sins. Now setting aside the Christian doctrine of the separability of the sin and the sinner, and hence greed not making one a "bad person," just a sinner in need of repentance, let's look at some of the other sins. Clearly, declaring gluttony a sin didn't imply that no one should eat, nor declaring sloth a sin implying no one should rest, nor declaring lust a sin, well, you get the point. In the case of greed, according to more orthodox Christian mores, self-interest turns to greed when it stretches beyond the bounds of social norms. The Christian roots of western culture hence point towards a line between greed and self-interest, but don't clearly define it.
According to this moral code, which I don't demand that everyone accept but seems a pretty good guide to me in this case, there is some line where action driven by economic self-interest is to be expected (and encouraged!), but there is some line somewhere that says it's gone too far. We can argue about where that line is, but pace Yglesias, we should be able to agree that the worst of the financial executives were way, way across that line.
Umm, OK, so a self-aggrandizing blogger such as Yglesias is as self-interested as Pandit and ergo he is as bad as Pandit?
Not so much.
Let's look at the externalities of Pandit's self-interest: he has lost shareholders hundreds of billions in equity and cost taxpayers, who never even chose to invest with Citi, billions more.
Now let's look at the negative externalities caused by a self-interested blogger: maybe besieging the world with boring and poorly reasoned blog posts that they can ignore as they please?
Moreover, a blogger like Yglesias might (despite his self-interest) succeed in prodding society to move in a better direction by derogating from the prestige of bankers. People like Yglesias might succeed in prodding more of our best and brightest to become research scientists, engineers, etc. - the people who create the wealth that their less-intelligent banker friends then manipulate. The self-interest of people like Pandit leads some of our best and brightest to forsake those career paths to become millionaire junior i-bankers.
The desire to make (lots of) money, which one can perhaps describe as greed, is as several have pointed out, not necessarily anti-social as long as a reasonable part of this money is recycled to help keep the economy well-oiled. What I do believe is undesirable is the strong anti-tax bias often associated with those with both high incomes and the power to influence political decisions. Taxes on such incomes do help spread some of this wealth around and contribute to the welfare of society in general.
While the very rich may feel they do not need many public services as they can use their wealth to buy them on the open market, fighting to keep taxes in general artificially low so that these services are starved of resources is in the end a destructive impulse, and can well be considered greed.
These are observations, not prescriptions: Smith is just describing how he sees the world work. What else should we expect?
I think is the key point here.
What Matt's pointing out isn't so much that there's something wrong with self-interest per se but rather the problem is that there are people who not only act out of self-interest, but declare it both prescriptive and ethnically preferrable to acting altruistically.
That is, rather than self-interest being a rational part of how the process works, certain people (and certain industries or job positions) take self-interest to be a prescriptive end result which needs to be maximized.
materialism: its threat to family values and to the individual. Recent research shows that social inequality kills. Inequality also slows economic growth.
Conor: "Does Microsoft or the Gates Foundation do more good for the world?"
Troy: "Conor, I agree with your point about the Gates Foundation. In fact, that was in part who I was thinking of when I said, 'And I admire people who make lots of money and give most of it away'."
Troy, I'm not sure that you didn't almost entirely misunderstand what Conor was getting at. I don't think he was making a point, I think he was genuinely asking a question. Does Microsoft or the Gates Foundation do more good for the world? The Gates Foundation helps a few million people (tens of millions?) here and there whereas Microsoft supplies the software that runs computers used by hundreds of millions, if not billions, of people. I am using one right now. Millions of other people use them in critical situations - in hospitals, to control power plants, in public safety, to make factories and farms more productive (thereby feeding and clothing more people), etc., etc. Not to mention keeping far flung people in touch, which can't be monetarily quantified but is a social good in itself. Millions of people use phones (for myriad good purposes) that run Microsoft software, including people who are rescued from remote locations who in years past would have died. So I think (but don't presume) that the question Conor was asking was really a question.
You could easily make the point that in marginal terms good created, Microsoft does a lot less good than the Gates foundation, in that if Microsoft never existed, it is highly likely high-quality software would be made by someone else with only a tiny marginal loss in worldwide productivity, but absent the creation of the Gates Foundation, the amount of public health charity might well decrease by a more appreciable degree.
Now, I am happy to have both Microsoft and the Gates Foundation doing what they do. My suggestion would be that My is not making what I presume to be his point very well - which is to say that clearly the leaders that got us into this mess clearly put their own self-interest above their moral and ethical duties to a point that self-interest became Greed as Mr. Bacon put it above, of the Deadly Sin variety, and that is NOT something we should admire. These leaders drove their companies into insolvency because they wanted to add as many millions to their compensation that they ignored the risk to billions, if not trillions, of dollars of other people's money. Surely, we can agree that is Greed, no?
Plinko -- The implicit narrative you ascribe to these Wall Street leaders is widespread through the commentariat and fatally flawed.
They did not ignore risk to other people's (shareholders, taxpayers, etc.) money. Rather, they did not understand it.
Like most commenters from outside the finance industry, you seem to fail to understand that a very, very large portion of the compensation which senior Wall Street executives pulled down during the boom years was composed of restricted stock and options in their own company's stock. When the un- or misperceived risk came back to bite their companies in the derriere, these executives lost vast quantities of paper wealth in the process. This is not the outcome one would expect were one to believe that their primary motivation was skimming millions of compensation purely to satisfy their greed. It does not compute, as the saying goes.
Perhaps this narrative, which is far closer to the truth than the torch and pitchfork set would like, does not gain traction--despite repeated pointers to it by people who do know the truth--because vast, society-wide wealth destruction due to a toxic combination of shortsightedness, hubris, and wishful thinking is far less satisfying than believing there were a finite number of incredibly powerful industry leaders rubbing their hands together with prideful glee in smoke-filled rooms. Nevertheless, that is what happened.
No, not all of us can agreed that it was greed (or even "Greed") which brought us to this pass.
If you would like an informed perspective from inside the industry, you could do much worse than to start here: http://epicureandealmaker.blogspot.com/search/label/filthy%20lucre
Isn't the problem more about failure than greed? People admire business leaders who make a great deal of money with a good business model, thereby creating lots of jobs and providing goods or services that people actually want to buy.
What we hate is anyone who seems to have made a fortune by some kind of trick. We hate Madoff for his Ponzi scheme, not just because he made money.
The bursting of the real estate bubble exposed much of the financial services industry as having shifted towards the Madoff end of things rather than towards the admirable innovator end. THAT'S the problem.
Complaining about consumption is a red herring too. My consumption is your job. It might even be your vocation, calling, or art. Producers can't survive without consumers, and we all know that producers are admirable. It follows that consumers are too, provided that they also produce something of value to exchange for what they consume.
If they consume without doing their bit on the production side, however, see above. And this applies to the small-town real estate speculator who helped drive the bubble as well as to the big boys on Wall Street.
In summary, look at the production side rather than the consumption side. If the production side is extremely questionable, then people shouldn't even being earning a modest living (much less a lavish one) from it.
Cripes, this is a dumb set of posts by the author and his pals. In the first place, Bill Gates's personal wealth (which I see as being as deserved as such things can be) has almost nothing to do with the existence of a product like Windows. Most of the original work was done by Xerox --many of whose employees Gates hired. A better OS is made by Apple, and probably Linux. Admittedly, Microsoft did a good job of making itself the lingua franca --particularly with its low cost developers kits in the early days.
But --in fact -- it was a time of Operating Systems and OS's would inevitably have been developed, in the same way the steam boat was independently developed in multiple places within a 10 year period.
Gates was canny enought to cash in on the time. Good for him, I guess.
But the idea that no generally used OS would exist without Gates and Microsoft is retarded. There is no basis for thinking that --if Bill Gates had been drowned at birth --we would lack for an Operating System. Since, on the whole, Windows is a crappy one --whose only virtue is its widespread use (anyone who has ever remodelled a couple of bathrooms knows that practices can be both widespread and inept), there is no reason to think that Gates existence has made a big difference.
I say this without refernce to Gates's personal merits. He is a product of his time.
A big part of Windows crappiness is that it spends far more time introducing new "buggy" features than it does fixing its old "buggy" features. This is because Microsoft thinks it will make more money this way.
In my opinion they are wrong. If they don't make something reliable within the next 20 years, someone else will.
I think you're getting lost in the details, tc125231. The point and the question doesn't change if it was someone besides Bill Gates and/or Microsoft at the center. Let's all beam ourselves to an alternate universe where Steve Jobs took the world by storm and 95% of the computers run Apple software and it's the best software ever made. It's so good we all get wobbly in the legs just thinking about it. And let's say that Steve Jobs is a multi-billionaire as a result and donates lots of money to charity. The question remains: Does Apple computer "do more" for the world or does the Super-Amazing Steve Jobs Charitable Foundation do more?
I think that Conor's point was that the answer is not a given, and so if we take Bill Gates and Microsoft out of the equation, it's still an open question. I appreciate your passion in ranting about Microsoft and the quality of their software but whether they make something reliable within the next 20 years is irrelevant in addressing the fundamental point at issue.