Defending rich bankers

I can't believe I'm writing this post, but I have to defend investment bankers. Matt Yglesias wrote a rather unnuanced post (quoted at TPM) about the people who got us into this financial mess with this line:

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 immediately equivocates - a little - by noting that others did not agree with him. So he explains why he thinks these people are bad:

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.

I must protest. One of my great pet peeves is intellectually sloppy social criticism, particularly from liberals, and this is a prime example. Dear God what an awful generalization. He's dismissing hundreds of thousands of people with a single judgment. And an extraordinarily simplistic one, at that. Yglesias is a good writer, but his ability to turn a phrase fails to mask a seriously underdeveloped argument:

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. In the spirit of decency, of course, we recognize that none of us are without sin. It would be crazy to try to condemn everyone who’s ever done anything greedy to the gallows. But the fact still remains that greedy behavior is not admirable behavior and that, as Krugman says, it’s very unlikely that the “best” young people were going into finance. And to say that they’re not necessarily good people need not entail that they’re criminals. Simply the fact that the best people are people who aren’t primarily driven by greed. (emphasis in original)

I agree that a shift in our culture's attitude away from worshipping the markets would be a most welcome and healthy change. But let's throw out a couple of counterexamples: Bill Gates and Warren Buffett. Both of them are wealthy beyond belief. Each of them could have stopped accumulating money decades ago and still been billionaires. Both of them have made the decision, as Yglesias thinks they should, to give away the bulk of their fortunes. Gates has dedicated his life to it, and is putting his prodigious talents into his foundation, rather than Microsoft. Before each of them made the decision to give away their money, they could have easily been characterized as insanely greedy for hoarding tens of billions of dollars. But now that they are giving it away, they are models of good citizenry. What has changed? Nothing except time.

What if Bill Gates had stopped accumulating money when he was worth $100 million? Would we think better of him? If he had not made his fortune, he would not have it to give away. If he hadn't made it, that money would be in the hands of others, who presumably would not have had the same incentive to give it away. If one person has $30 billion, he can easily give away $29 billion and still have lots left over. He could give away $29.5 billion and still have lots left over. But if 3,000 people each have an average of $10 million, they will not be giving away $29 billion of that. So, in a perverse way, it's actually better for Bill Gates to make tons of money and give it away. Not that I want to use this argument to justify the extreme accumulation of wealth; there are a fair number of people who don't give away their money and waste it on expensive wines and fast cars.

What I object to here is the ridiculously broad generalization that "greedy behavior is not admirable behavior." Well, yeah, but that's not exactly an original insight. I believe that was outlined in the Ten Commandments. Every society struggles with finding the balance between meeting the needs of the society and allowing individuals to maximize their own self-interest. And every society is in constant danger of losing that balance. And every society occasionally does lose that balance, and either individual initiative is suppressed, or greed is unleashed. We are currently going through a period of reevaluation of that balance, because we lost it. Agreed.

But we are not going to redress this imbalance with these kind of pronouncements that an entire class of employees is "bad." There are dramatic policy changes that we have to debate and enact. I am a big fan of raising top income tax rates and the capital gains tax.

I am also a big fan of changing our culture away from excess greed. I am a big fan of bringing some good old humiliation down on the heads of people who went too crazy on Wall Street. Some of that is going to come in the form of people wielding bludgeons, financial, legal, moral, political, and cultural.

But the best moral arguments require a degree of distinction and discipline largely missing from this post. Yglesias' last line is particularly unhelpful:

the best people are people who aren’t primarily driven by greed.

I worked for an investment bank in New York, Babcock & Brown. This isn't a great time for B&B; its stock was listed in Australia, and has entered "voluntary administration," i.e. bankruptcy. It was hit hard by 9/11 (airlines were big customers). It was very much an investment bank that made money by moving around pieces of paper. I have no idea how much good it did for society by doing so. I do know that they found investment banking intellectually stimulating.

But working for B&B was one of the best experiences of my life. I liked just about everybody there, and they were basically good people. They treated me, a secretary, very well. I would have walked across hot coals for my boss, Joni, who was one of the best managers that I have ever worked for. One of the other best managers I have ever worked for was her boss, Jim. I think I learned more about management there than I would have if I had gone to Harvard Business School. It was, in some respects, a better experience for me than earning my degree in philosophy at the very progressive college I went to, Swarthmore.

So I find the argument that the "best" people do not work in finance particularly unhelpful. Are there "better" people than investment bankers? If our criteria is service to others, then, yes, I would put priests, nuns, and missionary doctors on a higher plane than investment bankers. But we need bankers, and we need good people in finance. And priests, nuns, and missionary doctors need financial professionals (full disclosure: my father is a stockbroker, and some of his clients are missionary doctors). Are there bad people in finance? Obviously. But they are not all bad, and to describe them that way is intellectually and morally sloppy.

I don't like intellectually sloppy social criticism for the same reason that I don't like intellectually sloppy investment banking. Bad ideas can infect dialogue and influence behavior, and whether they are bad ideas on a progressive blog, or bad ideas on a Citibank spreadsheet, they are still bad ideas. Bad investment banking decisions are made by people who let an unhealthy emotion, greed, influence their analysis. Bad political decisions are made by people who let an unhealthy emotion, anger, influence their analysis.

Greed and anger have some things in common; they can both be very effective in the short-term, but highly destructive in the long term. Most importantly, they can both be addictive. Venting righteous indignation can provide an adrenaline rush, just like making millions of dollars can provide an adrenaline rush. This is what Yglesias is doing, and where the danger lies in his argument. He's giving himself permission to pass judgment, with very little nuance or distinction, on hundreds of thousands, if not millions, of people. I don't think he has the right to make that judgment. I know I certainly don't have that right. But he has an incentive to make an intellectually sloppy argument, because by doing so he gives himself permission to vent some righteous anger, and thereby make himself feel good. Focus, Matt, focus. Keep your eyes on the long-term. I think it's perfectly fine to criticize investment bankers as greedy. They are greedy. But no person can be reduced to a single adjective. Calling them bad people, as a class, crosses the line. At least for me. And it crosses the line for both moral and intellectual reasons.

I also dislike sloppy blanket judgments like this because I think they are politically unwise. If your political opponents can take apart your arguments, you lose credibility. This is why I don't like Michael Moore, the documentary filmmaker. I don't think he has much credibility because he is so intellectually sloppy.

There's one detail about investment banking that Yglesias completely fails to mention: most people leave it fairly quickly. I knew several people who worked for JPMorgan or McKinsey or some other high-pressure professional services corporation for a year or two or three right out of college, made a chunk of money, and then went off to do what they really wanted to do with their lives. If you're 23, you can work 80-hour weeks, and someone is willing to pay you enough for you to pay off your student loans really fast, why not? You may be able to do the world a lot more good than if you went straight from college to teaching underprivileged children, but found yourself broke at 35, whereupon you have to take a job that pays you a lot of money. There are many people who work for investment banks, and they do so for a very wide variety of reasons. If your parents are poor immigrants, and you want to be able to provide for them when they are elderly, you have strong incentive to make lots of money quickly. If one or both of your parents are gone, you may need to provide yourself with a safety net. This is a problem with Yglesias' blanket judgment; he's making judgments where none may be justified. Which is ultimately self-emasculating. If you pass judgment on someone who clearly does not deserve it, you may very well end up embarrassed, which is the antithesis of empowering.

There are great policy debates ahead of us. Liberals have a great deal going for us at the moment. Some great leaders, many smart people, momentum, many opportunities to prove ourselves and our ideas. This is a time of crisis, and, as Rahm says, "never waste a good crisis." Resolving these crises will require exceptional intellectual discipline. There are many, many ideas out there about what went wrong and how it can be fixed. We have to careful as we evaluate policy options. We can't overreact. We absolutely must be prepared to admit that we are wrong, because we will be. To be so prepared, we must remember that we are human, and that we are fallible. And we must remember that the same is true of the people with whom we disagree. Investment bankers are human beings, and we must understand them, and treat them, as such. They are not inherently "bad."