Friday, August 24, 2007
I found the brief piece by Tom Wolfe that Professor Rappaport links to below both highly amusing and quite thought provoking. The remarkable behavior, some of it bad, of the very rich is a favorite topic of Wolfe's. I'm tempted to adumbrate on Wolfe's view of human vanity and the question of what is a life well lived, but I should probably just refer the reader to his novel A Man in Full, where Wolfe makes his most admirable character a stoic, in the classical sense, an ethical viewpoint I admire myself. If you pressed Wolfe on what he really admired, instead of what he was happy to make fun of, I bet he would say he was some sort of stoic.
But Wolfe on the antics of hedge fund heroes made me ask, well, what are we to make of all this utterly over-the-top, conspicuous consumption? The truth I keep coming back to, trite though it may be, is Adam Smith's observation that from private vice can come public virtue. I do think there is something wrong with a man who would spend $6000 on a pair of shoes. (Probably with a woman too, but I don't pretend to understand a woman and her shoes.) Please note I am not saying the state should prohibit people from making or buying $6000 shoes. I am just saying buying or wearing them reveals a flaw in character. And quite the contrary, when some hedge fund hero does lay down six large for his odd looking shoes, he helps keep employed some highly skilled craftsmen in London somewhere.
More indirectly, even the grotesque consumption in Greenwich which Wolfe lampoons serves an important social purpose. Hedge funds make money in several ways, but three prominent ones are by investing in underperforming public companies and then forcing management to manage better; by arbitraging among various securities that are incorrectly priced; and by taking on risk other investors do not want to take on. So hedge funds promote more efficient management of companies, increase the efficiency of capital markets, and make credit easier to get. You may have read about the problems in international credit markets due to illiquidity of sub-prime mortgage assets -- well, if hedge funds had not been willing to invest in sub-prime mortgages, a lot of people with poor credit would not have been able to buy their own homes. Some of them probably should not have bought their own homes, but others who will make their payments now own their own homes instead of renting because some jerk in Greenwich decided go long in the sub-prime mortgage market.
So there is a very concrete connection between the burning desire of some guy whom the girls despised in high school to have his own golf course, because Stevie has one, and the ability of two hard-working people, say a teacher and mechanic, to buy their 1700 square foot fixer-upper. Are hedge fund heroes fueled by greed and a perverse desire to display their wealth and market chops? Well, duh. But they are doing exactly what they should do. Thank goodness there are people who want to work 80 hours a week obsessing over market oddities in order to accumulate wealth they lack the imagination to spend on something a bit more creative than golf and art they probably neither like nor understand. They make our credit card rates lower and our plywood cheaper.
Tom Wolfe has his fictional Upper East Side lady with old money ask, "what is it that makes these [newly and extremely rich] people so angry and so nasty?" But in truth, that is not our problem. And in fact, at the heights of any profession or occupation you will find people whose private virtues are crowded out by other things they want to achieve. I bet many NFL linebackers are really not very nice. I have it on good authority that the Navy SEALs contain a number of stone-cold killers, who when sitting in a swamp in the Philippines, waiting for a shot that will blow off some terrorist's head, would think, there is nothing I would rather be doing, and I'm glad I have a job where I get to kill people. Many excellent surgeons have notoriously unpleasant personalities, perfectionism being a common vice. You should not want to be any of these people if happiness is your goal (maybe) or at least not moral goodness. But their vices are our gains.
At the same time, I think Tom Wolfe does a public service making fun of the gigantic egos to be found among the super-rich. Of course, some of the criticism of the newly super-rich is just older and lesser money trying to erect barriers to entry into their exclusive world. This is partly the merest hypocrisy, pretending that some money is better than other. But it is not completely that. It makes perfect sense that rich people should want to form associations with other people who are both rich and nice. The rich part means that they can talk about common interests, such as where to find intelligent yet docile servants or whatever, and the nice part means they will know better than to boast loudly about their new solid-gold pooper-scooper. Social norms don't go away just because the group has a lot of money, though obviously some people seem to think this is the case, but then you would expect no less of people who don't know how to behave. I found it interesting that Wolfe claims that some exclusive buildings in Manhattan are now excluding people who have too much money (and too much in this context must be a lot), using a net worth in perhaps the high hundreds of millions or billions as a proxy for having the sort of personality you don't want to be around. But then, some of us have probably been excluded from groups because we were too clean, had too few tattoos, or spoke too grammatically.
But Wolfe is more than just an enforcer of social norms among the very rich, though he is partly that. He is more morally serious in that if you read more of his work, you can see what he really despises are morally trivial people. He works hard to undercut the bad example that such people set when they have a lot of money or celebrity. Obnoxious hedge fund heroes offset, though probably mostly locally, the public goods they produce by setting a bad moral example by being selfish, greedy assholes (not to put too fine a point on it). By making fun of them, Wolfe advises us not to follow their moral example.