Public Interest – Private Virtue

You probably don’t know who Greg Smith is, but he just resigned from Goldman Sachs as its executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.

The issue? Morality.

His accusation? Goldman is no longer an investment firm that has much integrity.

His public statement on March 14, 2012, in the New York Times, scathing as it was, will likely be ignored, even though he intended it a “wake-up call to the board of directors.” But it underscores what I and others have been saying for a long time. The country doesn’t need smarter people who know how derivatives work, or who understand debt swaps, repos, and a hundred other murky financial tricks to keep the world economy going. It doesn’t need people who willingly comply with the firm’s demand that they make as much money as possible for the firm (and themselves) as the expense of the client’s best interests.

What it needs are legions of young people with character filling their job slots. Mr. Smith couldn’t have given more blunt advice: “Weed out the morally bankrupt people, no matter how much money they make for the firm.”

Mr. Smith’s resignation coincides very nearly with the death of James Q. Wilson (d. March 2, 2012). You might not know his name either, but he was a sociologist who pioneered thinking about crime and advanced the “broken window” theory back in 1982. You’ll remember this theory which stated that monitoring and maintaining urban environments in a well-ordered condition may stop further vandalism and escalation into more serious crime. (It is not to be confused with the “broken window” economic theory, which suggested that vandalism is good for the economy because it provides jobs). Although he has mainstream pedigree – Ph.D. University of Chicago and was the Shattuck Professor of Government at Harvard – he is often cast as a conservative for his conclusions on social theory.

And just what is the legacy of his thought? Very simply: character matters. Wilson maintained that the complex problems facing American society today require relatively simple, straightforward solutions, the foundation of which involves the cultivation of civic virtue or character in the citizenry. Policy solutions from government and other institutions have for decades studiously avoided strengthening the institutions that form character – the family, the church, and schools. In fact, too often public policy has studiously attempted to undermine these very institutions.

Wilson appreciated the fact the Republic was founded on principles of limited government, and realized that it worked with a self-governing, virtuous populace. “Not only is such conduct desirable in its own right, it appears now to be necessary if large improvements are to be made in those matters we consider problems: schooling, welfare, crime, and public finance…In the long run, the public interest depends on private virtue.”