The View from the Top

One of our longtime readers recommended “The Death of Kings,” Nick Paumgarten’s “notes from a meltdown” in The New Yorker (subscription required, or $5 for this issue alone) a few weeks back. The article is mainly color rather than analysis; it’s a series of portraits of people on “Wall Street,” ranging from the merely rich to the astoundingly rich, and what they think of the crisis. Paumgarten paints a picture of people who know that we are all screwed but regard the phenomenon with a mix of intellectual superiority, self-righteousness, and resignation. The vignettes are certainly not representative; I’m sure most bankers and traders, though perhaps not working quite as hard as in 2005, are still scrambling to make the next killing. But they are still a window into a world most of us will never see.

There are two passages in the article I thought were particularly . . . “insightful” isn’t the quite word . . . maybe “poetic” is better. The first is a quotation from Colin Negrych, a successful money manager and the article’s Voice of Wisdom:

“What constituency is there for pessimism? People believe optimism is necessary, an American right. The presumption of optimism is the problem. That’s what creates the debt we have now.” 

A few years ago I wrote an essay for a Vanity Fair contest about the American spirit (I think they were offering a lot of money, and it was just a few pages, so . . .), in which I discussed the societal compulsion to be optimistic. I guess you can see why I didn’t win. I’m not as dark as Negrych, who seems to think that a complete financial implosion is the natural order of things. But as a generally pessimistic person, I’ve always been confused by this idea that optimism is inherently good. 

This is the second passage:

“It can be startling to discover how many offices in Manhattan have spectacular views. The first time you gain admission to an aerie in the G.M. Building or some other blue-chip tower and look out across Central Park, SoHo, New Jersey, or Queens, you think that this particular office must be the finest in town, the seat of secret power, the heart of the plot. But the city is full of them. It’s one of the things about tall buildings: you can see a lot, such as other office towers of different vintages, commenced in past booms. The takeoffs and landings at the airports, the shipping lanes, the humans below reduced to units: it is easy to begin to think abstractly about the armature of empire. Sitting up there and talking for hours about pools of securitized debt, and seeing them depicted on dryboards or PowerPoint slides as rectangular blocks, divided into tranches, you can find yourself viewing the buildings out the window as manifestations of that debt – the conversion of financial cunning into steel, brick, and glass. You also happen to be looking at the collateral.”

Why do I like this passage? When I worked in McKinsey’s San Francisco office, I shared an office on the 48th floor of the Bank of America building. I can’t remember my exact view, but from some offices you could see the sailboats on the Bay, and the hills of Marin, and the Golden Gate Bridge, and the fog rolling in in the evening. It made me feel like I was on top of the world; if I had an office with a view like that, I must have been important. The view alone doesn’t do the trick (McKinsey’s New York office was generally shabby and had no views to speak of), but it illustrates the seductiveness of the world of the self-appointed corporate elite. Towering above the common people, whether in San Franciso or in Midtown Manhattan, it’s not hard to think that they simply don’t understand the way the world works; we know that many people on Wall Street think that way about the politicians in Washington, for instance. (By contrast, Silicon Valley startups – some of them, at least – take pride in having the cheapest, most unremarkable offices possible, since every dollar saved is one dollar less you have to raise from investors.) 

I think that temptation to arrogance is part of the reason why some people in the financial sector thought they could do no wrong, and that the markets could never turn against them. So blame it on the view. 

By James Kwak

47 responses to “The View from the Top

  1. This is an insightful observation that harkens back to the ‘Master’s of the Universe’ in Tom Wolfe’s Bonfire of the Vanities….preceded by Liar’s Poker…preceded by…endless historical examples of the same. Human nature is consistent and ultimately drives conduct more than economic models predict.

  2. Hubris.

    what more needs to be said.

  3. Towering above the common people, whether in San Franciso or in Midtown Manhattan, it’s not hard to think that they simply don’t understand the way the world works

    Yes, especially the second quote above gives a sense of unreality and pre-deluge escapism.

    Although for the time being it’s clear that the people as a whole have even less of a sense of reality, that they unbelievably still tolerate not only the existence of this predatory gang, but an administration whose #1 priority is heling that gang further loot and entrench.

    The FIRE sector produces zero value, innovates nothing, and is predicated on the unsustainable debt model of pseudo-civilization. Nothing in all of history has been more delusionally escapist, more of a flight from reality, than the financialization of the American “economy” over the last 35-40 years.

    And yet even as it has completely destroyed their future, the people still implicitly believe in it, still want it, still indenture themselves to it.

    I guess, as the first guy said, this kind of “optimism” is simply an endemic mental illness.

    A few years ago I wrote an essay for a Vanity Fair contest about the American spirit (I think they were offering a lot of money, and it was just a few pages, so . . .), in which I discussed the societal compulsion to be optimistic. I guess you can see why I didn’t win.

    I didn’t know they still had prize essay contests. That takes me back to the 18th century.

    Hmm, James lost because he was skeptical regarding socioeconomic optimism? Yes, it’s a tough argument to get across around here. And yet Rousseau’s break-out was his prize essay in response to the question, “Have advances in the arts and sciences improved social morals?” Since this was the heyday of the Enlightenment, the obvious answer to everyone, and I imagine the answer the magazine expected from everyone, was “Yes!” Yet the winning essay, which made Rousseau famous (essay contests were a much bigger deal back then), was his contrarian “No”. (It was this essay where R commenced with his anti-Enlightenment “noble savage” argument.)

  4. If what you leave behind is a wake of destruction, but
    that only makes you important in the sense that a
    sociopath is important.

  5. …to capture, and put behind bars.

  6. Wall St ABS Guy

    Thank you for this link; I missed the original article and look forward to reading it.

    The comment about the “right to optimism” reminded me of an interesting book from a couple years back: Karen Cerulo’s “Never Saw It Coming: Cultural Challenges to Envisioning the Worst”. It’s a [somewhat] academic analysis of the different strands of American culture that over the past decades has changed the “hope for the best, prepare for the worst” to the “hope for the best, prepare for the best” ethos.

    Personally, I believe that to a large extent it’s a self-taught phenomenom. That is, the human brain is structured to learn from patterns, to assume patterns will continue indefinitely. Thus, the longer our political/economic society postpones problems, the more our society teaches itself that “problems don’t happen to us” or “problems are never as serious as initially made out”.

    That’s why my personal belief is that the response to the credit crunch–essentially to return to a levered world, with the govt “temporarily” providing the leverage–is worse than letting things fail, because it reinforces the societal assumptions that things should *always* go well; what goes up, must continue to go up; etc.

  7. This makes a lot of sense to me too.

  8. I get the impression that no one here ever borrowed money, or lent it.

    Recently I entertained an urbanite friend of mine in a little Colorado town, a former mining and railroad boom town. Now it’s just a collection of left and right wing nuts, starving artists, hard-core amateur athletes, and a few working stiffs who are lucky enough to have jobs, but not health insurance. The sort of place where people “work to live” or at least profess to do so, not being able to “live to work.” Anyway, walking down the finest street amid a decaying/gentrifying late-19th century housing stock, my friend remarked, “it’s amazing that people live like this.” She was clueless. This is how people in this country live everywhere except the urban/suburban/exurban centers. My point is the people in the glass towers think that is how life is, and the same holds true for the suburbanite, etc. And the small-town folks largely think the bicoastal crowd is nuts too. It helps to have an open mind, and to be cognizant of your point of reference.

  9. I happen to like McKinsey’s New York office.

  10. D. Christopher Leonard

    The U.S. is peculiar, hence American exceptionalism; the belief that we are a chosen people, outside of history, not subject to the vicissitudes of life as the rest of humanity. Having suffered no war on U.s. territory for a century and a half, we have no sense of tragedy. One might argue that American national ideology is less the product of the Enlightenment, then the endless playing out of the schismatic propensity of the Protestant Reformation: what happens when you let de-ratiocinated peasants read scripture in the vulgate. To be American is to be amongst the elect.
    How to account for the behavior of financial elites? They believe they achieved their position and wealth on merit and thus are not bound by the constraints of ordinary people. As Hemingway noted, “the rich are not like other people”. Hence, all the crowing about how financial firms attracted all the ‘best and brightest’ (no irony here that the phrase was coined to describe the political & military elites that took us into the indochina war – no forgotten). As to merit, check the work by Bowles et al on the heritibility of wealth in the U.s. (i.e. lower rates of mobility than much of Western Europe).
    Financialization began roughly in the Regan presidency when it appeared that the “American century” was going to be much shorter than Henry Luce had believed. This was to be a new wave of accumulation to replace the industrialization of a half century earlier, the displacement of traditional elites from the northeast with cockroach capital from the right-to-work states (e.g. Regan, Bush, Clinton, Bush). The relative decline in U.S. industrial strength was as much the consequence of the growth of Europe & Japan (UK excepted) where the industrial base was modernized having been destroyed. This coincides with income inequality beginning to rise (after a post-war decline), with a new politics of resentement to appeal to increasingly marginalized white working-class ethnics (the Republican party since Goldwater), and dis-investment in public infrastructure (including educational attainment as Federal support to primary, secondary, and post-secondary education begins its steep decline, or health outcomes (e.g. infant mortality begins to rise).
    And, there has been increased economic volatility; at first regional energy boom/bust in Colorado-Texas, the S&L crisis (in 1987 it has been said, there was only one solvent bank in the state of NH), the ‘dotcom’ boom/bust, up to the present more ‘systemic’ crisis.
    Notice too, that the period from the early 1980s has witnessed the production of new ideologies to legitimize financialization. The development of the law and economics paradigm was initially largely underwritten by the John Olin Foundation (e.g. funding ‘research’ and faculty chairs at place such as U. Chicago) that undergird the move towards loosening regulation, letting markets (always perfectly efficient!) operate unrestrained, an everything became ‘incentivized’. The old textbook argument that management was separated from ownership to ensure efficiency and transparency to ‘harmonizing’ the interest of management and shareholders with the concomitent increase in executive compensation and their drive for short-term profitability.
    In a country that has always been at best a-historical and at worst, anti-historical (Henry Ford: “history is bunk”) we are most unlikely to realize that we are at a critical historical conjuncture. Hence the sunny optimism of financial elites and their unreformed (and unrepentant) behavior. here undeth the first lesson.

  11. I don’t necessarily think optimism is “the American right” – I think it is the peculiar provenance of a nation so undeniably blessed with fertility, space and military might. We have food; we have room; we have been singularly protected from the rubble and destruction of war on our land, compared to much of the rest of the world.

    In terms of today’s economic crisis, the view may be higher now, more spectacular and with an expansive view of the collateral, but the “best and brightest” have long divvied up the country into high-yield tranches that suit their needs and income requirements.

    Look at the Southern gentlemen like Thomas Jefferson who propped up their wealth on the backs of slaves (and, in Jefferson’s case, died $100,000 in debt); the oil and railroad trusts of the late 19th/early 20th century; the pork palaces built in Chicago from stockyard wealth derived from immigrant labor (described by Upton Sinclair in The Jungle.)

    Arrogance may have motivated these people, but self-interest provided the fire in the belly. These are incredibly wealthy people doing whatever they can to protect their fiefdoms from the grubby hands of the masses.

    But let’s remember Jefferson’s example – a brilliant mind who creates a spectacular view built on debt will die penniless in the end, with his family forced to sell off everything, even the slaves who kept the lifestyle possible.

  12. “You also happen to be looking at the collateral.”

    No. *You* are the collateral.

  13. James Kwak: “But as a generally pessimistic person, I’ve always been confused by this idea that optimism is inherently good.”

    Mildly depressed individuals make better assessments of things than others. So moderate pessimism probably also helps one to make accurate assessments.

    OTOH, to a great extent we create the world we live in. If pessimism leads to resignation, opportunities may be missed. Pollyanna optimism is also unrealistic. However, optimism of the “Yes, we can” variety probably helps us to find, create, and exploit opportunities. :) American optimism is of the “Yes, we can” variety.

  14. Ed Beaugard

    I don’t find either quote particularly interesting, the Negrych one is pretty bad, in fact.
    To paraphrase Mr. Negrych, I would write:

    “Yes, the collapse of financial markets over the past year and a half to two years has nothing to do with the attack on the living standards of working people, crushing unions, getting rid of AFDC at the Federal level, deregulating finance, telecommunications, and everything else under the sun, and certainly the tens of millions of dollars spent by the banking industry to lobby for these changes had nothing to do with it either.
    The problem is the American spirit of optimism which we, the bankers and financiers, were helpless to resist, indeed it’s not our fault at all that any of this happened, and it’s certainly not our fault, or anyone else’s fault. Things just happened that way because of the American optimism.”

    I did read the article and found it uninteresting.

  15. Ed Beaugard

    Sorry about the typos in my last post.

  16. Pingback: The Cult of Optimism - Lower Wisdom

  17. comet schmutz

    James,

    Having worked in a few of those offices, I’d occasionally thought the same thing. But it’s less the view than the sheltering of oneself away from the larger reality – like those giant estates in Brazil which are located miles past the entrance gate with its armed sentry.

    I always thought management consultants were worse than bankers – I’m wondering what you think. I guess it would be difficult for you to gauge if you’d never worked in banking, but am curious about your opinion nonetheless.

    The inside of management consulting firms reminded me a great deal of the courts at Versailles. Next to that bankers-as-pirates seemed almost a relief – and banking was, to my memory, certainly a more egalitarian environment than the consulting firms.

    I also saw more of an obsession with ivy league academic credentials in management consulting – this in spite of the fact that the big 3 automakers and other dysfunctional American corporations have been paying a pretty penny for management consultants with ivy league academic credentials, but apparently none of those consultants had the imagination or the balls to tell the Big 3 to invest in cutting-edge technology.

    Then again, you might not be hired back as a management consultant if you actually fix the company.

    Having said that, I still appreciate what the highly credentialed Robert McNamara did for, I think it was Ford Motors. Seatbelts – that was brilliant. On the other hand, his incredible ivy league credentials didn’t stop him from getting us neck-deep into Vietnam.

    Is there something wrong with the moral/practical training provided by Ivy League schools?

  18. Eric Dewey, Portland, Oregon

    Good post, James – thanks as always for your insightful writing.

    After all the economists are finished slicing and dicing the numbers on why we’ve experienced these recent economic and financial meltdowns, it will always come down to the human factors – people in positions of influence and power making decisions based on their limited view of the world…

  19. I read the article and thought it was okay, but I really think the best “color” piece on the Meltdown is this one by Michael Lewis appearing in the now-defunct Portfolio mag:

    http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

  20. You’re writing about architecture and sociology. Hunh.

    BTW, my croak on optimism.

  21. I used to work on the 18th floor of a building in San Francisco. I had a view of the bay, a bridge, and various people below. But I still felt insignificant and insecure. Probably didn’t use enough PowerPoint.

  22. The view from the highest towers may be great. The air is fresh and clear and the problems of people below may seem far away. But if the foundations are rotting to pieces, eventually the building will come crashing down and those at the top will have the greatest distance to fall.

  23. bungalowbill

    Nick,

    thanks a lot for the link. This is one of the most (if not the most) interesting article I’ve read about the financial crisis.

    There’s one passage which I feel is important but cannot understand:

    “That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?””

    How can they create a bond with no mortgage?

  24. Great riches and great minds seemingly have never mixed well. I recall these lines from the renowned Jewish poet of Islamic Spain, Shmu’el Hanagid:

    “The rich are far from common,
    and the brilliant likewise are few;
    and the number of each is further reduced
    when they step side by side into view.”

    I am dubious about mindless optimism in progress and somehow comforted by enduring wisdom.

    Hanagid, in addition to be a leader of Spain’s jewish community, served as prime minsiter for the Islamic state of Granada as well as a general of its armies.

  25. CBS from the West

    Actually, check out Edwin Tufte’s book “The Cognitive Style of Power Point: Pitching Out Corrupts Within” (Graphics Press, New Haven CT). I wonder to what extent the use of Power Point or other slideware contributed to the misjudgments and errors of those who led us into this morass. Just a thought.

  26. Wirte On!!!

  27. But first check spelling!

  28. DesolationRow

    I really really don’t believe optimism is the reason for the debt we have…rather it was greed, arrogance and stupidity. Optimism to me manifests itself in thinking that people generally tend toward fairness and justice. I’m generally a realist but with an optimist’s edge…and yes, I’ll usually give people the benefit of the doubt (once).

    As for “the view”, well sit in an ivory tower long enough and you’ll start to believe whatever you tell yourself. As they say, never get “too” comfortable.

  29. James Kwak

    bungalowbill,

    Sorry your comment delayed – it was the profanity filter.

    I create a close approximation of a bond by selling a credit default swap. Let’s say some mortgage-backed security already exists. I can sell a credit default swap on that security to someone else, even if neither one of us owns the underlying security. I then get a stream of small payments; but if the underlying security defaults, then I lose a lot of money. This is structurally similar to holding the underlying security; it has cash coming and the exact same credit risk.

    I do that 100 times, take the cash flows from the 100 payment streams, put those in a pool, create tranches of that pool, and sell them off – voila! Synthetic CDO.

    I can do that as long as I can find someone who wants to by credit default swaps on those underlying securities. That’s why, in Michael Lewis’s Portfolio article, the investment banks were happy that people like John Paulson wanted to short MBS; the more Paulson shorted MBS, the more synthetic CDOs they were able to create.

  30. James Kwak

    Management consultants are probably worse than bankers in some ways. They (we) have their own peculiar ideology, which in its pure form denies that management consulting is even a business. And their recommendations tend to conform to convention rather than challenging it.

    Banking has historically been more open to people with diverse economic and educational backgrounds than consulting. That is partially explained by the fact that the work is different – the skills you need to be successful in consulting are more closely related to doing well in school than the skills you need to be successful on a trading floor.

    On the other hand, management consultants have far less power and can do far less damage.

  31. comet shmutz: “Is there something wrong with the moral/practical training provided by Ivy League schools?”

    IMO, there may be something wrong with legal and economic training on the moral/practical level, in that competition is emphasized over cooperation. Note Posner’s belief that you can’t blame businessmen for being predators. But that training is not confined to the Ivy League. Nor is it general to higher education. Philosophy and social sciences other than economics do not share that viewpoint.

    Also, education is not limited to the classroom. I went to an Ivy League college, and IMX there were many intense late night bull sessions devoted to debating moral and practical issues. I am sure that the Ivy League is not unique in that regard. However, it may matter that all of the participants were very well informed and sharp as a tack. The result for all concerned was a deep consideration of moral and practical concerns, where opinions were put through rigorous intellectual testing.

    I am talking about undergraduate education. There may be problems with graduate level training, but if so, I doubt if they are peculiar to the Ivy League.

  32. bungalowbill

    James,

    thanks for the explanation! I think I roughly get the idea. I have to say, the concept of a synthetic bond based on CDS is pretty cunning.

    But who were those people who bought all those mortgage based CDOs and synthetic CDOs? Were they wealthy people investing their own money or were they managing other people’s money? Could we be involved in those without knowing it?

  33. Ditto Nick, what a beautiful read that link was.

    Just now, though, it still feels as though the lunatics are in charge of the asylum.

  34. comet schmutz

    “I am sure that the Ivy League is not unique in that regard. However, it may matter that all of the participants were very well informed and sharp as a tack.”

    Min,

    I’m not sure – are you saying that you’ve been so ensconced in your Ivy bubble post-graduation that you can’t really make that assessment?

    Is it unimaginable that kids who went to a state school would also be “well-informed and sharp as a tack”?

    Do you think those sessions don’t occur in state schools?

    Is is unimaginable that kids who could not afford the Ivy League, perhaps because they had family commitments, might have a truly higher education about the world? Kids who spent their college years not in the safe bubble of Harvard Yard, but in actual urban centers (Harvard Yard, I am afraid, does not count), and had to deal with a true variety of people?

    (It’s part of the appeal of Obama – he took his Ivy League education AWAY from the Ivy League, and into the neighborhoods, instead of remaining in the bubble.)

    I don’t want to generalize, but I’ve seen far too many Ivy League nitwits (Bush, Paulson, Geithner) et cetera, to believe you when you say everyone was “well-informed and sharp as a tack.”

    The term “meritocracy” was originally intended as a tongue-in-cheek comment. But I guess they don’t teach you that in the Ivy League?

    What I learned from the Ivy League: it’s all about branding.

    BTW, how many Ivy League nitwits are running giant pharmaceutical companies and supposedly peer-reviewed medical journals? Are these people really sharp as a tack? Or merely greedy as pigs? It seems to me that they only THINK they are so sharp that no one understands the massive fraud they are perpetuating.

  35. This link to the BBC and their City Diaries page for June 4th is also revealing:

    http://news.bbc.co.uk/2/hi/business/8081484.stm

  36. comet schmutz

    James, thanks for your thoughtful response.

    “On the other hand, management consultants have far less power and can do far less damage.”

    We should perhaps be grateful for that. I have never witnessed a group of people who so believed they walked on water.

    Most of that, I thought, was actually the fault of the institutional structure of the firms. It seemed to be one of the “perks” of all the training they put the consultants through – you are OUR little product that we sell, so you have to believe in how relentlessly “developed’ you are.

    Young consultants came out of that training believing even more that a 3.8 at Harvard and some winning internships had catapulted them to demi-god status. And unlike banking, they never competed with anyone in the firm who hadn’t come out of the Ivy League. So they never had the opportunity to lose to another class.

    Even doctors I worked with did not manage to convey the same smug sense of superiority – and M.D.’s had, in many ways, earned it through the years of grubby labor and hands-on work with the poor.

    As for the skills you need to succeed in management consulting – I don’t mean this as snark but as observation – A lot of the “science” of consulting was inventive interpretations of good old Peter Drucker projected onto a graph which was then sliced into powerpoint presentation. It had nothing to do with the business they were consulting; everything to do with what the consultants could sell. If you don’t believe me, just read the books management consultant gurus publish – laughable.

    Thus, the fable version of the Siege of Athens: Young Athenians preparing to defend the city have to sit through a series of sales pitches from various craftsmen (consultants) for the “most essential” piece of equipment, which is always the piece of equipment that particular craftsman sells. It is during one of these sales sessions that the invading army breaks through the city walls and massacres everyone. Whether the craftsmen/consultants survive is not included in the common Greek’s telling.

    I suspect that even Paulson would wake up some mornings and think: “Who on earth am I kidding?” But who in management consulting allows themselves that smidgen of doubt?

  37. comet schmutz: “Young consultants came out of that training believing even more that a 3.8 at Harvard and some winning internships had catapulted them to demi-god status.”

    I expect that they achieved demi-god status (in their eyes) soon after arrival at Harvard, or perhaps earlier. I come from a small town and a classmate of mine and I were the first to go to the Ivy League in living memory. During Christmas vacation of our freshman year he came up to me and asked, “How does it feel to be a god?” ;)

  38. comet schmutz

    That’s quite possible – on the other hand, I’ve worked with plenty of Ivy League grads (and better yet Ivy League dropouts) who didn’t go through the management consulting mindwarp, and they seem a lot more normal. Most of these people have, post-Harvard, re-entered the real world where their “god-like” status is rather brought down to earth by the presence of mortal folk.

    Having said that, do you think there might be an inherent problem in the assumption that going to those schools made you, as your friend implied, a god? Or do you still believe that, winking emoticon aside?

    Is it possible that the carte blanche given to people with the ivy league stamp has resulted in the very crisis that this blog is devoted to covering?

    We have no Diogenes in America, but if we did, you can rest assured that what I have affectionately come to refer to as the “Ivy League Nitwit League” would be busy asserting that he was a mere public masturbator, rather than someone who asked relevant questions about society.

  39. Pingback: Top Posts « WordPress.com

  40. D. Christopher Leonard

    Vis a vis elite college graduates and management consulting, I think two distinct issues have been conflated. One is the value/merit of a degree from an elite school, and the second is the relative merit of the kind of advice tendered by management consultants. A degree from an ‘elite’ (ivy) institution is about purchasing a status good. What matters is the perceived ‘value’ of an ivy degree, the fact that many banks, law firm, corporation, and consultancies look to schools their principals attended to recruit. Students (or their parents) are purchasing access to social networks (you might say that for elite firms, restricting their recruiting to elite schools lowers the transaction costs ) of the respective elites. Elite schools are also a means (or at least were until recently) for elite to pursue marriage strategies – your boy at Dartmouth gets a safe and approved mate in a Smithie. Elites need to recruit from amongst the unwashed to replenish the pool (remember the old saw, three generations shirt sleeves to shirt sleeves) and scholarship boys and girls at ivies are safe material. Remember that elite schools all maintained quotas on suspect groups well into the 70s. Ivies all had quotas restricting the admission of Jews into the early 60s – and maintained quotas for them on faculties as well. Asian-Americans suffered the same fate until at least the early 80s. The English equivalent (or should I say, model?) is the public school feeder system into Oxbridge. Permitting too many interlopers into the pool threatens to make things actually competitive.
    In other words, its not about the ‘quality’ of an education. Your kid can get a fine education at Grand Guignol state u. or a mediocre one at an ivy – or vice versa.
    Management consultancies produce a remarkable genre of literature with both professional (usually proprietary) advice and popular literature. In the longer term, I see little indication that the success of failure of firms is closely linked to the ministrations of consultancies. Indeed, over the last half century since the emergence of the ‘consultancy’ sector, there has been wave after wave of new ‘strategies'(e.g. the learning firm, flattening management hierarchies, the rise and demise of conglomerates, etc). The frequency with which the substance of sage counsel shifts approximates the paradigmatic instability of theories of literary criticism in the academy (how many of you remember, “New Criticism”?). Business schools (with their cute, canned, ethnographic studies of problem solving) and the consultancies bear an unusually strong resemblance to any earlier genre: courtly literature of the 14th-16th century. “One hundred habits of highly effective people” – or something to that effect is very much like the archetype: Castiglione’s Book of the Courtier. Lest this be viewed as a frivolous comparison, remember that Machiavelli’s Il principe was written to curry favour with a Medici prince (and get M out of exile from Florence). Speaking truth to power rarely sells well but whispering the flattering words that reassure princes has been a growth industry for a long time.
    In sum, I think people can leave the issue of ‘morality’ out of it. It was Machiavelli’s deepest insight that in high politics, ordinary morality was irrelevant. That remains true for the advice for modern princes, and for those who would hope to advise them.

  41. comet schmutz: “Having said that, do you think there might be an inherent problem in the assumption that going to those schools made you, as your friend implied, a god?”

    Most grow out of it, but it is a problem for a few, I expect. I think that the problem is worse in the medical profession. Of the few intellectual pricks that I have met as an adult, most have been medical doctors. That being said, if I had to choose a doctor, it would be a Harvard or Yale Medical School graduate.

    “Is it possible that the carte blanche given to people with the ivy league stamp has resulted in the very crisis that this blog is devoted to covering?”

    I think that a major problem is intellectual insularity. Both major parties suffer from that. The Dems are perhaps more wedded to the Ivy Leaguers, I don’t know. But the pols surround themselves with advisors of the same mind set.

    “We have no Diogenes in America, but if we did, you can rest assured that what I have affectionately come to refer to as the “Ivy League Nitwit League” would be busy asserting that he was a mere public masturbator, rather than someone who asked relevant questions about society.”

    Here I would disagree, based upon my experience. The Ivy Leaguers would be quite willing to engage with Diogenes, to listen and perhaps to debate. It is lesser intellectual lights who find a need to resort to ad hominem and character assassination. One reason that I would prefer a Harvard or Yale M. D. is that she or he would not take any questions from me as a challenge, but would welcome them. :)

  42. comet schmutz

    “Of the few intellectual pricks that I have met as an adult, most have been medical doctors.”

    Perhaps you haven’t yet had the privilege of working with management consultants.

    “That being said, if I had to choose a doctor, it would be a Harvard or Yale Medical School graduate.”

    Mmmmm…. if you had to choose a specialist, perhaps. But only perhaps – bear in mind the useful criticism that Dr. Dean Ornish has of those same specialists who routinely recommend profitable stents and other invasive procedures over non-profitable but more effective lifestyle changes to treat heart disease.

    And bear in mind that the US health care system, in the capable hands of those Yale and Medical school grads, is one of the worst in the developed world. We spend more than anyone else on end-of-life issues, and we have the worst results. Not to mention Infant mortality rates in our cities that appall the Balkan states… and even China.

    Let’s face it, Min, those Harvard and Yale docs exist largely (and I won’t include everyone) to support a system that’s profoundly broken. But their “intellectual insularity” (your term) doesn’t allow them to point out that the emperor has no clothes. Perhaps they’re too busy congratulating themselves on their credentials.

    “The Ivy Leaguers would be quite willing to engage with Diogenes, to listen and perhaps to debate.”

    Ivy Leaguers like Condi, Wolfowitz, McNamara, Paulson, Bernanke, Geithner…. when has that happened? who are you kidding?

    “It is lesser intellectual lights who find a need to resort to ad hominem and character assassination.”

    Hmmm…. lessser intellectual lights resorting to ad hominem and character assassination? I can’t even count the number of Ivy League politicians who have resorted to ad hominem (attacks) and character assassination.

    I think if you still have such a high opinion of the Ivy League, you really need to get out more and consort with the dirty plebes.

    Is it impossible for you to consider that, having invested in that particular education, you need to protect the investment by constantly trumpeting its virtues? Instead of acknowledging what the Ivy League has become?

  43. The green-eyed monster is strong with this one.

  44. Management consultants are highly unlikely to locate the cause of a company’s problems with the executives who hired them. That is the economic driver of which the belief system is an epiphenomenon.

  45. comet schmutz

    “Business schools (with their cute, canned, ethnographic studies of problem solving) and the consultancies bear an unusually strong resemblance to any earlier genre: courtly literature of the 14th-16th century.”

    Ouch. Painfully true.

    Sounds like you did your time in consulting. Or Florence.

  46. comet schmutz

    Green-eyed or clear-eyed?

  47. Bill Johnston, Jr.

    Perhaps someone else has pointed this out but, with respect to your statement that “By contrast, Silicon Valley startups – some of them, at least – take pride in having the cheapest, most unremarkable offices possible, since every dollar saved is one dollar less you have to raise from investors,” the rule in the Valley is that buildings should be no more than two stories tall so that when the company goes bust the worst is a broken ankle.