Pearls for swine

The New York Times has published an interesting op-ed by Greg Smith, a soon to be former director of the investment bank Goldman Sachs. The gist of the piece is that the bank has fallen away from its historical roots to become dominated by what Smith believes is a corrupt culture, which at every turn encourages its employees to put the bank’s profit margin above the interests of its clients.

I know nothing about investment banking, let alone about changes in the institutional culture at Goldman Sachs, so I have no way of judging the extent to which Smith’s criticisms are accurate. I do know something about legal academia, and am struck by the parallels between what the writer claims has happened at his employer and what I’ve seen happen to American law schools.

For example I remember a faculty meeting at Colorado that took place around 1995 or so, at which a senior professor — someone who had been there for about 25 years — aired his concerns about rising tuition. We needed, he said, to stop taking so much “out of the hides of the students.” What he had witnessed was a rise over the previous 15 years in resident tuition from $980 to $4400 in nominal dollars ($2700 to $6300 in 2010 dollars). The other thing I remember about his remarks is that it was the last time I heard anybody in a faculty meeting, including myself, say anything even vaguely critical about tuition hikes until 15 years later, when resident tuition surpassed the $30,000 mark.

Why did the people running Harvard Law School charge $6300 in tuition in 1981 ($15,600 in 2011 dollars) when they could easily have charged two or three or indeed five times that and still filled their class with bright young people who would go on to make fine lawyers? The superficial answer is that they didn’t because Yale wasn’t doing that (this kind of explanation reminds me of the famous metaphysical joke about turtles). A more nuanced answer would include observations about having some sense of social responsibility, not to mention shame.

Over the course of the last generation, social responsibility and shame have been defenestrated in favor of profit maximization (or, in the largely “non-profit” context of higher education, revenue maximization). Harvard has tripled its tuition for the same reason Colorado has increased its price tag by 1,053% in real terms: because (a) they could; and (b) because they — we — lost pretty much all sense that one had to have a better reason than this for grabbing everything we could get our hands on that wasn’t nailed down.

In the world of investment banking this same development has a very straightforward ideological justification, which is that being a pig is good for society. Indeed Smith’s criticisms of Goldman Sachs don’t really move outside that paradigm, since they add up to the claim that being too much of a pig is bad for porcine well being: his argument seems to be that the problem with ripping off your clients is that they’ll eventually figure out you’re doing so, which of course would be bad for business. The notion that ripping people off even if you could get away with it in the long run would still be wrong is apparently too radical of a thought to be uttered within the halls of Goldman Sachs, even if one is in the act of going permanently out the door.

In the world of legal academia, the ideological justification for “revenue maximization” must naturally be somewhat more obscurantist than the uncomplicated claim that individual greed redounds to the benefit of society as a whole. Hence we hear much about how very expensive a “first-rate” legal education has become in an ever-more complex global economy, in which we must train future attorneys to structure multinational business transactions conducted simultaneously in English, German and Mandarin.

But in both cases the basic ideological function of the standard theory is the same: to convince people that flagrantly self-interested behavior is actually altruistic. On the one hand, this claim seems rather dubious on its face. On the other, for what ought to be obvious reasons it isn’t exactly hard to get those who are profiting from its acceptance to find that theory remarkably plausible.