Be a banker — with principles
The corollary question, with Mitt Romney’s business career under attack even by staunch Republicans, is this: Is it unethical to make millions in private equity?
My answer to both questions: no.
I’ve been sympathetic to the Occupy Wall Street movement, but, look, finance is not evil. Banking has contributed immensely to modern civilization. By allocating capital to more efficient uses, banking laid the groundwork for the industrial revolution and the information revolution.
Likewise, the attacks on private equity seem over the top. Private equity firms like Bain Capital, where Romney worked, aren’t about destroying companies and picking over the carcasses. Rather, the aim is to acquire poorly managed companies, make them more efficient (sometimes by firing people but often by rejiggering the business model) and then resell them at a profit. That’s the merciless, rugged nature of capitalism.
Liberals should also be wary of self-selecting out of certain occupations. After Vietnam and revelations of CIA abuses in the 1970s, many university students avoided the military and the intelligence agencies. So slots were filled disproportionately by ideological conservatives in a way that undermined everyone’s interests. We would have been better off if more Swarthmore idealists had become generals and CIA officers — and we may be better off if some idealists become bankers as well.
Now for my caveats.
When young people go into finance, I hope that they’ll show judgment, balance and principles instead of their elders’ penchant for greed and rigging the system. Just as Communists managed to destroy Communism, capitalists are discrediting capitalism.
A Pew Research Center poll in December found that only 50 percent of Americans reacted positively to the term “capitalism,” while 40 percent reacted negatively. Among Americans ages 18 to 29, more had a negative view of capitalism than a positive view, the survey found. Those young Americans actually viewed socialism more positively than capitalism. In other words, America’s grasping capitalists are turning young Americans into socialists.
The Financial Times recently published a series about “capitalism in crisis.” It noted that the Edelman Trust Barometer, a survey, found that only 46 percent of Americans had confidence in business to do the right thing (and only 25 percent trusted banks).
Public skepticism is warranted, in my view. Corporations have vastly overpaid CEOs, handsomely rewarding not only success but also failure. Banks that helped cause today’s financial mess lobbied successfully for bailouts for themselves; they privatized profits and socialized losses.
Meanwhile, more than 4 million families have lost their homes to foreclosure, according to Zillow.com, a real estate company. Bankers and shareholders found a safety net, but not working class families. One reason is that the campaign finance system allows financiers to buy access and special favors. If you’re a tycoon, your best investment often is a lobbying firm in Washington to create a tax loophole for you. The past few years have been a showcase not of capitalism itself, but of crony capitalism.
Romney’s average tax rate, which he says is probably about 15 percent, exemplifies the problem. The Romneys benefit because capital gains tax rates have been slashed to just 15 percent, much lower than rates paid on labor income.
Then there’s the most egregious tax loophole of all, for “carried interest.” A triumph of lobbying, it allows private equity and hedge fund managers to pretend that their labor income is a capital gain. So they sometimes pay a tax rate of just 15 percent, compared with up to 35 percent for almost everyone else.
Granted, young people haven’t been pouring into finance in recent years out of eagerness to reform this rigged system but to milk it. In 2007, on the eve of the financial crisis, 47 percent of Harvard’s graduating class headed for consulting firms and the financial sector — a huge misallocation of human capital. However well- meaning these new graduates are initially, they often end up caught up in the scramble at the trough.
In the postwar years, labor unions became greedy and rewarded themselves with featherbedding and rigid work rules — turning much of the public against them. Likewise, Wall Street featherbedding is tarnishing the public image of banks and business and undermining confidence in capitalism itself.
When financiers rig the system, they should remember the warning of John Maynard Keynes: “The businessman is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.”
So university students would be wrong to mock their classmates who choose Citigroup over CARE. Banking and private equity aren’t evil, and I would never urge college students to stay away. Maybe today’s young socialist sympathizers, along with healthy regulation and a loud public outcry, can help rescue capitalism from the crony capitalists.
NICHOLAS KRISTOFF writes for The New York Times.