Vice and The Motive of Wealth

This argument from Matt Yglesias seems very poor, especially since Matt is a pretty basic utilitarian (unless he has changed his mind since we last talked about ethical theory) who therefore has no business handwringing about motives. Rehearsing an argument he’d been having on an email list, Matt writes:

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.

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. These aren’t immigrants who walked through the desert from Mexico in order to earn more money by washing dishes in a San Diego hotel. They’re not 24 year-olds looking for a hefty salary in order to pay off student loans. 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. In the spirit of decency, of course, we recognize that none of us are without sin.

I assume the motivations of the executives of financial firms are many and varied. Some executives are surely complete bastards and some of them are surely upstanding women and men of virtue. Matt’s willingness to commit himself the the idea that these are bad people simply because of their occupation seems unhinged. I understand finance is unpopular now, but finance is only one of many ways to make money. If people motivated primarily by greed are bad people, and Matt cannot imagine another primary motive for financial executives, can he imagine other motives for any executive? How about small entrepreneurs animated by the prospect of hitting it big? Are movie stars, who do not donate the bulk of their massive compensation to charity, off the hook because they are also motivated by fame and self-love? 

Anyway, if Matt thinks the Adam Smith argument — that people moved by impulses other than benevolence or charity may nevertheless serve the general good — is “true even,” then what’s the problem? Especially given Matt’s utilitarian sympathies? Whether a person is “bad,” in the utilitarian framework, has little to do with motivation, and everything to do with results. As Tyler Cowen kept urging on Peter Singer, the consistent utilitarian should simply admit that an entrepreneur who creates a great deal of utility on the way to making and keeping huge sums of money is a much better person (a better utility engine) than someone who creates a much smaller amount of utility by giving away all but 10 percent of a relatively small income earned in a job that produces a relatively small amount of utility. One can be a folk moralist or a utilitarian moralist, but not both. If the pursuit of wealth produces more utility than charity — which it often will given the right institutions — then we might wish to reconsider what we are going to count as virtues and vices. Again, maybe Matt has given up on his utilitarianism, in which case he stands some chance of making sense relative to his own ethical assumptions. But I suspect he’s catering to certain popular folk assumptions about the vice of greed to impugn the character of an entire class of people for reasons that are obscure to me. Maybe he can clarify what he’s doing here. 

Now, I am willing to say that, ceteris paribus, a certain kind of grasping, unprincipled pecuniary self-interest is a destructive quality. If that’s greed, then I’m against it. But I’m not willing to say the same thing about the pursuit of wealth generally.

I think we have recently punctured some dangerous misconception about the real value of certain kinds of “financial innovation,” and so we should reconsider how much those who have become wealthy in these fields have actually enhanced general welfare. I think a lot of execs basically failed to do their primary job: to manage their firms’ assets responsibly on behalf of the owners of those assets: the shareholders and creditors. This makes them justifiable targets of outrage. We’ve learned a lot of lessons. I think we’ve been given reason to think much harder about the principal-agent problem — the mismatch of incentives between owners and managers — at the heart of corporate organization. I think we’ve learned just how “socially responsible” maximizing long-term value really is, and how anything that distracts from focus on long-term value creation (whether it be myopic bonus systems or irrelevant-to-the-business “corporate social responsibility” initiatives) is a potentially hazardous nuisance. The Smithian congruence between self-interest and the general welfare is not a natural fact of the world, but is mediated by social norms and the structure of institutions. We need to make sure the desire for wealth takes the right shape, and that the institutions within which people pursue wealth tend to actually work to convert “low” aspirations into real social benefits. But we’ve been given no special reason to second-guess the general utility of the desire to become wealthy. It is a crucial and necessary resource. And it remains a much more likely engine of utility than the desire for political power — a truly dangerous motive Matt tends to ignore.

None of this is to say that I think Vikram Pandit is a prince. For all I know he’s a complete cad. And none of this is to say the man’s a great force for the enhancement of human well-being. As far as I know, he’s done more harm than good. But I don’t know enough about him to say for sure, and I suspect Matt’s in the same position. Anyway, I don’t think we’re likely to do much good if we reduce our view of the world to a children’s cast of villians and heroes, and I’m relieved to hear that Matt’s email list interlocutors won’t agree to his cartoon assumptions.

[Update: See Conor Clarke, who replied in a very similar spirit, but much more concisely.]

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30 thoughts on “Vice and The Motive of Wealth

  1. We’ve learned a lot of lessons. I think we’ve been given reason to think much harder about the principal-agent problem — the mismatch of incentives between owners and managers — at the heart of corporate organization. I think we’ve learned just how “socially responsible” maximizing long-term value really is, and how anything that distracts from focus on long-term value creation (whether it be myopic bonus systems or irrelevant-to-the-business “corporate social responsibility” initiatives) is a potentially hazardous nuisance. The Smithian congruence between self-interest and the general welfare is not a natural fact of the world, but is mediated by social norms and the structure of institutions. We need to make sure the desire for wealth takes the right shape, and that the institutions within which people pursue wealth tend to actually work to convert “low” aspirations into real social benefits.It is not impossible to square this paragraph with your earlier contention that we micromanage our institutions at our own peril. But I think the two are in an obvious tension.The correct takeaway may be that we should do the best we can to oversee (but maybe not micromanage) the development of good institutions, but we won't do it perfectly and whenever we screw up, it could be a big shitstorm, but we can't really avoid that.But we’ve been given no special reason to second-guess the general utility of the desire to become wealthy.Maybe, maybe not. There are many shades of gray here. If you talk to people in the finance industry, many of them simply knew what they were doing was not useful to society, was merely a sort of legal Ponzi scheme. What about the others who didn't “know” that? Are we sure it really matters? Perhaps they “knew” it in their heart of hearts.Have you ever worked for a company? It involves a weird sort of double-think. Certain lines of thought are simply deemed not productive and so they are not pursued.In finance, an example of an “unproductive line of thought” would be: “oh crap, this is just a legalized Ponzi scheme, we can't keep grabbing money like this forever, eventually the whole system will crash and it will cause enormous pain and hardship to millions of people.” Does it matter if I am actively thinking this all the time, or if I just have this thought on occasion and always try to put it out of my mind?What's my point? My point is, the pursuit of wealth encourages exactly the sort of corporate double-think which perpetuates (eventually worsens) a bubble/confidence scam. Is it too much to ask of people in finance or anywhere else that they cultivate a common-sense, non-self-interested moral perspective, so that they can see and feel morally obligated to fix these problems before they get worse?That is the gray area between your position and Matt's. In short, shouldn't we strive for more enlightened moral actors? Isn't the articulation and cultivation of desirable moral traits potentially just as important a “reform” as the institutional changes you rightly mention?

  2. “What's my point? My point is, the pursuit of wealth encourages exactly the sort of corporate double-think which perpetuates (eventually worsens) a bubble/confidence scam. “and sometimes it doesn't.

  3. In general I think liberals like the idea of spending money, and are really just as greedy or more than most people. They just don't always have the brains or drive to legitimately acquire that wealth. They see government as a way to spend money that isn't theirs under the guise of helping their fellow man.I'm not a particularly wealthy person, but in general I think how I spend money not only benefits myself, but those who are employed in making things I buy. In some sense, I am my own government spending on programs which have some value to the whole and especially to me. I don't claim everyone thinks this, but I'm willing to bet in the back of Warren Buffets mind he thinks he can utilize 60 billion dollars a lot more effectively than the government, and in his own way is helping the rest of us by not throwing his hands up and pissing that money away on ponzi schemes and other failed investments. There is a certain value to people with money knowing how to properly utilize that money for the largest increase in value.Many of his recent investments bear this out. The act of Buffet investing in Municipal bonds implies he sees enough strength in the American dollar (albeit at 10% returns) and in turn gives more stability to the system. Recent investments in Chinese battery companies must also draw pause for those who would denigrate him for being a greedy evil man.

  4. Is it too much to ask of people in finance or anywhere else that they cultivate a common-sense, non-self-interested moral perspective, so that they can see and feel morally obligated to fix these problems before they get worse?

    I don't see how this contradicts the position in the main article. Wilkinson is simply saying that there's no sense in making automatic assumptions about a person's motivations based on his decision to go into finance. I'm certain we all agree that it's prefereable to live in a society where people apply moral analysis to their individually-motivated, legal actions before undertaking them as opposed to one where they don't. And in fact, I'm sure there ARE some barons of finance who apply exactly this kind of moral calculus to their professional decisionmaking.

  5. Matt's real problem is that he doesn't know what “greed” means. All it means to say that someone is “greedy” is that they show some level of desire beyond that which the speaker approves of. We cannot it any objective way (or even a rigorous subjective way) identify who is greedy and who is not. It is a useless concept.

  6. Websters Dictionary greed: a selfish and excessive desire for more of something (as money) than is neededself-interest: 1 : a concern for one's own advantage and well-being <acted out of self–interest and fear> 2 : one's own interest or advantage <self–interest requires that we be generous in foreign aid> so the bugaboo appears to be what constitutes “excessive”?

  7. I don't mean to contradict what Will or Matt is saying, but sort of to reinterpret Matt's moral stance from a utilitarian perspective, and see whether Will agrees.And in fact, I'm sure there ARE some barons of finance who apply exactly this kind of moral calculus to their professional decisionmaking.Rather than the yes/no question “are there some financial actors who think somewhat morally,” I mean to ask a question of degree: “at our current operating point, is it very important to push more financial actors to think more morally?” And relatedly, how important/beneficial do we think such “moral reform” is, compared to institutional reform.

  8. Matt isn't really making an argument (even though he himself uses that word). He's asserting that a non-trivial percentage of filthy-rich financiers are bad people, and that there would be a social good in introducing that into our discourse more frequently.One is either temperamentally inclined toward his view or not. I am inclined toward it, though I expect I'm on the minority among readers of this site. In any case, when Will writes:”I think a lot of execs basically failed to do their primary job: to manage their firms’ assets responsibly on behalf of the owners of those assets: the shareholders and creditors. This makes them justifiable targets of outrage.”– it strikes me as naively bloodless. Yes, I suppose these humans “failed” at the responsibilities which on paper (and in a libertarian's paradise) they had and to which we (if we're residents of paradise) are supposed to be able to rightfully hold them accountable. At the risk of putting words in Matt's mouth, though, I think it's much more accurate to say “these sociopathically avaricious men were concerned only with (i) enriching themselves as many times over as they possibly could, for as long as they could, and (ii) while doing so, they kept their companies alive as necessary conduits through which to transfer as much money from the financial markets and into their personal bank accounts as possible, and they finally wound up sucking out too much too fast, killing their hosts.”If for whatever reason a given person doesn't want to introduce “the motivation of actors” into his conversation about this debacle (and countless other throughout history — they're always caused, at root, by these avaricious sociopaths), well, then don't. Your participation won't be missed.-oss

  9. This really seems like a framing problem to me. Consequentialism writ small can be quite counter-intuitive and hard to commit to even if you are a die hard utilitarian (the moral sentiments are ever-ready to interfere). But to me, it seems like consequentialism writ large is the only coherent norm by which to construct institutions. This is, of course, nothing new. Indeed this contrast is basically what Adam Smith's intellectual career boils down to. The problem is that it's so easy to go on criticizing individual choices on non-consequential grounds without seeing the implication that such small-potatoes moralizing has on the aggregate (e.g. what norms we think institutions should follow).Basically, the moral condemnation of individual acts is too often seen as something the state needs to consider, but this appeals to the sentimental morals in individuals, not the mass-consequentialist morals, so this consideration will result in bad institutions.

  10. Corporate executives who pump up a quarterly performance (like selling off an asset/division for less than it's worth) to get a bonus could be described as greedy. Eventually the smoke and mirrors fade away and the stock goes back down.Trial lawyers (for individuals or class action) who take 40 – 60% of the winnings are not in it to help the little guy.Greed is everywhere. But so are good people.

  11. If we can agree that a certain amount of regulatory capture skews the income of investment banking executives, can't we then agree that their wealth creation is in part false? If so, from a consequences matter morality perspective, these executives are less moral than their outsided wealth and consumption would otherwise suggest. As such, isn't Yglesias being fair in his condemnation?

  12. Yes, capitalists have “many and varied motives.” But why, may I ask, should this be incompatible with commonalities–such as, say, the accumulation of capital, which is undoubtedly the goal of all financiers, bankers, etc.? It seems pretty clear that that sort of commonality is what Yglesias is pointing to, and criticizing. I suppose he's a bit of a liberal, or perhaps just too much of a striver to risk appearing to be a Marxist–but, come on, you know what he's talking about, or at least strongly hinting at.

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  14. So everyone that isn't a subsistence farmer is greedy? That would seem to include most of America's “poor”.

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  16. Here's a common sense way to look at it. The pursuit of wealth is morally neutral by itself. But if you don't also act with certain balancing moral instincts, you are acting “greedily,” “immorally,” etc. Perhaps “irresponsibility” is a better word than “greed.”Take the example of the person at the ratings agency who says in an Instant-Message “this whole system is a house of cards that will collapse one day.” That person is acting morally irresponsibly if they do not act on this realization, to try to help fix the situation.The key is not the presence of self-interest. The key is the absence of sufficiently balancing moral instincts.

  17. Yglesias better be paid in buckets of crap by his employer. How dare that greedy bastard demand to be paid with money!

  18. Sorry, you can keep trying, but this sort of construction will never sound natural:Some executives are surely complete bastards and some of them are surely upstanding women and men of virtue.There's nothing “wrong” with it, per se. But the linguistic campaign of which it's a part is not going to budge anything. The rest of the world isn't going to start talking and writing like this, and so it will always come off clunky and self-conscious when it comes out of your keyboard. (Along with “she” as a generic pronoun, etc.)

  19. Matt wrote: “we’ve lost the willingness to just say clearly that ceteris paribus greedy behavior is not virtuous behavior”.That seems to me to be an odd claim to make. He is not saying that we are no longer willing to say that greedy behavior is bad. His claim is that we are no longer willing to say that greedy behavior is not good (i.e. we are no longer willing to say that it is either ethically neutral or bad).It seems to me that the claim is probably false. How do people actually respond when asked which of these propositions they agree with: “greed is good”; “greed is bad” and “greed is not necessarily either good or bad”?

  20. I should have followed Will's link to Connor Clarke's post before posting my comment. He makes the same point – that “not good” is not necessarily the same as “bad”.

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  22. Armed robbers are greedy. We don't prosecute them for being greedy, but for the armed robbery part. I wonder how Adam Smith would describe the greed of English kings who took Scottish lands? Bill Gates is greedy, especially when acting as an agent of Microsoft. Where people took umbrage was with anti-competitive practices – against the law. This points to financial regulation. The market system cannot allow unchecked greed and theft. Madoff wasn't even that greedy, but he wasn't following the law. We weakened our laws and markets to the point that we made the obscene transfers possible, and possibly legal.As for AS & the invisible hand, there is 'make the pie bigger' greed which you might see at a tech company or in a physician, and there's 'make my piece of the pie bigger, whether the pie gets smaller or not' greed that tends more towards finance and law. It is the government's role to shift effort towards the first and away from the second.

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