How to pronounce "restitution"

The first thing I want to do is say thank you to all of you.

The second thing I want to do is introduce my co-author

and dear friend and co-teacher.

Ken and I have been working together

for almost 40 years.

That's Ken Sharpe over there.

(Applause)

So there is among many people --

certainly me and most of the people I talk to --

a kind of collective dissatisfaction

with the way things are working,

with the way our institutions run.

Our kids' teachers seem to be failing them.

Our doctors don't know who the hell we are,

and they don't have enough time for us.

We certainly can't trust the bankers,

and we certainly can't trust the brokers.

They almost brought the entire financial system down.

And even as we do our own work,

all too often,

we find ourselves having to choose

between doing what we think is the right thing

and doing the expected thing,

or the required thing,

or the profitable thing.

So everywhere we look,

pretty much across the board,

we worry that the people we depend on

don't really have our interests at heart.

Or if they do have our interests at heart,

we worry that they don't know us well enough

to figure out what they need to do

in order to allow us

to secure those interests.

They don't understand us.

They don't have the time to get to know us.

There are two kinds of responses

that we make

to this sort of general dissatisfaction.

If things aren't going right,

the first response is:

let's make more rules,

let's set up a set

of detailed procedures

to make sure that people will do the right thing.

Give teachers scripts

to follow in the classroom,

so even if they don't know what they're doing

and don't care about the welfare of our kids,

as long as they follow the scripts,

our kids will get educated.

Give judges a list of mandatory sentences

to impose for crimes,

so that you don't need to rely

on judges using their judgment.

Instead, all they have to do

is look up on the list

what kind of sentence goes with what kind of crime.

Impose limits

on what credit card companies can charge in interest

and on what they can charge in fees.

More and more rules

to protect us

against an indifferent, uncaring

set of institutions we have to deal with.

Or -- or maybe and --

in addition to rules,

let's see if we can come up

with some really clever incentives

so that, even if the people we deal with

don't particularly want to serve our interests,

it is in their interest

to serve our interest --

the magic incentives

that will get people to do the right thing

even out of pure selfishness.

So we offer teachers bonuses

if the kids they teach

score passing grades on these big test scores

that are used to evaluate

the quality of school systems.

Rules and incentives --

"sticks" and "carrots."

We passed a bunch of rules

to regulate the financial industry

in response to the recent collapse.

There's the Dodd-Frank Act,

there's the new Consumer Financial Protection Agency

that is temporarily being headed through the backdoor

by Elizabeth Warren.

Maybe these rules

will actually improve

the way these financial services companies behave.

We'll see.

In addition, we are struggling

to find some way to create incentives

for people in the financial services industry

that will have them more interested

in serving the long-term interests

even of their own companies,

rather than securing short-term profits.

So if we find just the right incentives,

they'll do the right thing -- as I said -- selfishly,

and if we come up with the right rules and regulations,

they won't drive us all over a cliff.

And Ken [Sharpe] and I certainly know

that you need to reign in the bankers.

If there is a lesson to be learned from the financial collapse

it is that.

But what we believe,

and what we argue in the book,

is that there is no set of rules,

no matter how detailed,

no matter how specific,

no matter how carefully monitored

and enforced,

there is no set of rules

that will get us what we need.

Why? Because bankers are smart people.

And, like water,

they will find cracks

in any set of rules.

You design a set of rules that will make sure

that the particular reason

why the financial system "almost-collapse"

can't happen again.

It is naive beyond description

to think that having blocked

this source of financial collapse,

you have blocked all possible sources of financial collapse.

So it's just a question of waiting for the next one

and then marveling at how we could have been so stupid

as not to protect ourselves against that.

What we desperately need,

beyond, or along with, better rules

and reasonably smart incentives,

is we need virtue.

We need character.

We need people who want to do the right thing.

And in particular,

the virtue that we need most of all

is the virtue that Aristotle called

"practical wisdom."

Practical wisdom

is the moral will

to do the right thing

and the moral skill

to figure out what the right thing is.

So Aristotle was very interested in watching

how the craftsmen around him worked.

And he was impressed

at how they would improvise

novel solutions to novel problems --

problems that they hadn't anticipated.

So one example is he sees these stonemasons

working on the Isle of Lesbos,

and they need to measure out

round columns.

Well if you think about it,

it's really hard to measure out round columns using a ruler.

So what do they do?

They fashion a novel solution to the problem.

They created a ruler that bends,

what we would call these days a tape measure --

a flexible rule,

a rule that bends.

And Aristotle said,

"Hah, they appreciated that sometimes

to design rounded columns,

you need to bend the rule."

And Aristotle said

often in dealing with other people,

we need to bend the rules.

Dealing with other people

demands a kind of flexibility

that no set of rules can encompass.

Wise people know when and how

to bend the rules.

Wise people know how to improvise.

The way my co-author , Ken, and I talk about it,

they are kind of like jazz musicians.

The rules are like the notes on the page,

and that gets you started,

but then you dance around the notes on the page,

coming up with just the right combination

for this particular moment

with this particular set of fellow players.

So for Aristotle,

the kind

of rule-bending,

rule exception-finding and improvisation

that you see in skilled craftsmen

is exactly what you need

to be a skilled moral craftsman.

And in interactions with people,

almost all the time,

it is this kind of flexibility that is required.

A wise person knows when to bend the rules.

A wise person knows when to improvise.

And most important,

a wise person does this improvising and rule-bending

in the service of the right aims.

If you are a rule-bender and an improviser

mostly to serve yourself,

what you get is ruthless manipulation of other people.

So it matters that you do this wise practice

in the service of others

and not in the service of yourself.

And so the will to do the right thing

is just as important as the moral skill

of improvisation

and exception-finding.

Together they comprise practical wisdom,

which Aristotle thought

was the master virtue.

So I'll give you an example

of wise practice in action.

It's the case of Michael.

Michael's a young guy.

He had a pretty low-wage job.

He was supporting his wife and a child,

and the child was going to parochial school.

Then he lost his job.

He panicked

about being able to support his family.

One night, he drank a little too much,

and he robbed a cab driver --

stole 50 dollars.

He robbed him at gunpoint.

It was a toy gun.

He got caught. He got tried.

He got convicted.

The Pennsylvania sentencing guidelines

required a minimum sentence for a crime like this

of two years, 24 months.

The judge on the case, Judge Lois Forer

thought that this made no sense.

He had never committed a crime before.

He was a responsible husband and father.

He had been faced with desperate circumstances.

All this would do is wreck a family.

And so she improvised a sentence -- 11 months,

and not only that,

but release every day to go to work.

Spend your night in jail, spend your day holding down a job.

He did. He served out his sentence.

He made restitution

and found himself a new job.

And the family was united.

And it seemed on the road

to some sort of a decent life --

a happy ending to a story

involving wise improvisation

from a wise judge.

But it turned out

the prosecutor was not happy

that Judge Forer ignored the sentencing guidelines

and sort of invented her own,

and so he appealed.

And he asked for the mandatory minimum sentence

for armed robbery.

He did after all have a toy gun.

The mandatory minimum sentence for armed robbery

is five years.

He won the appeal.

Michael was sentenced to five years in prison.

Judge Forer had to follow the law.

And by the way, this appeal went through

after he had finished serving his sentence,

so he was out and working at a job

and taking care of his family

and he had to go back into jail.

Judge Forer did what she was required to do,

and then she quit the bench.

And Michael disappeared.

So that is an example,

both of wisdom in practice

and the subversion of wisdom

by rules that are meant, of course, to make things better.

Now consider Ms. Dewey.

Ms. Dewey's a teacher in a Texas elementary school.

She found herself listening to a consultant one day

who was trying to help teachers

boost the test scores of the kids,

so that the school

would reach the elite category

in percentage of kids passing big tests.

All these schools in Texas compete with one another

to achieve these milestones,

and there are bonuses and various other treats

that come if you beat the other schools.

So here was the consultant's advice:

first, don't waste your time on kids

who are going to pass the test no matter what you do.

Second, don't waste your time

on kids who can't pass the test

no matter what you do.

Third, don't waste your time

on kids who moved into the district

too late for their scores to be counted.

Focus all of your time and attention

on the kids who are on the bubble,

the so-called "bubble kids" --

kids where your intervention

can get them just maybe over the line

from failing to passing.

So Ms. Dewey heard this,

and she shook her head in despair

while fellow teachers were sort of cheering each other on

and nodding approvingly.

It's like they were about to go play a football game.

For Ms. Dewey,

this isn't why she became a teacher.

Now Ken and I are not naive,

and we understand that you need to have rules.

You need to have incentives.

People have to make a living.

But the problem

with relying on rules and incentives

is that they demoralize

professional activity,

and they demoralize professional activity

in two senses.

First, they demoralize the people

who are engaged in the activity.

Judge Forer quits,

and Ms. Dewey in completely disheartened.

And second,

they demoralize the activity itself.

The very practice is demoralized,

and the practitioners are demoralized.

It creates people --

when you manipulate incentives to get people to do the right thing --

it creates people

who are addicted to incentives.

That is to say, it creates people

who only do things for incentives.

Now the striking thing about this

is that psychologists have known this

for 30 years.

Psychologists have known

about the negative consequences of incentivizing everything

for 30 years.

We know that if you reward kids for drawing pictures,

they stop caring about the drawing

and care only about the reward.

If you reward kids for reading books,

they stop caring about what's in the books

and only care about how long they are.

If you reward teachers for kids' test scores,

they stop caring about educating

and only care about test preparation.

If you were to reward doctors

for doing more procedures --

which is the current system -- they would do more.

If instead you reward doctors for doing fewer procedures,

they will do fewer.

What we want, of course,

is doctors who do just the right amount of procedures

and do the right amount for the right reason --

namely, to serve the welfare of their patients.

Psychologists have known this for decades,

and it's time for policymakers

to start paying attention

and listen to psychologists a little bit,

instead of economists.

And it doesn't have to be this way.

We think, Ken and I, that there are real sources of hope.

We identify one set of people

in all of these practices

who we call canny outlaws.

These are people

who, being forced to operate

in a system that demands rule-following

and creates incentives,

find away around the rules,

find a way to subvert the rules.

So there are teachers who have these scripts to follow,

and they know that if they follow these scripts, the kids will learn nothing.

And so what they do is they follow the scripts,

but they follow the scripts at double-time

and squirrel away little bits of extra time

during which they teach in the way

that they actually know is effective.

So these are little ordinary, everyday heroes,

and they're incredibly admirable,

but there's no way that they can sustain this kind of activity

in the face of a system

that either roots them out

or grinds them down.

So canny outlaws are better than nothing,

but it's hard to imagine any canny outlaw

sustaining that for an indefinite period of time.

More hopeful

are people we call system-changers.

These are people who are looking

not to dodge the system's rules and regulations,

but to transform the system,

and we talk about several.

One in particular

is a judge named Robert Russell.

And one day he was faced

with the case of Gary Pettengill.

Pettengill was a 23-year-old vet

who had planned to make the army a career,

but then he got a severe back injury in Iraq,

and that forced him to take a medical discharge.

He was married, he had a third kid on the way,

he suffered from PTSD, in addition to the bad back,

and recurrent nightmares,

and he had started using marijuana

to ease some of the symptoms.

He was only able to get part-time work because of his back,

and so he was unable to earn enough to put food on the table

and take care of his family.

So he started selling marijuana.

He was busted in a drug sweep.

His family was kicked out of their apartment,

and the welfare system

was threatening to take away his kids.

Under normal sentencing procedures,

Judge Russell would have had little choice

but to sentence Pettengill to serious jail-time

as a drug felon.

But Judge Russell did have an alternative.

And that's because he was in a special court.

He was in a court called the Veterans' Court.

In the Veterans' Court --

this was the first of its kind in the United States.

Judge Russell created the Veterans' Court.

It was a court only for veterans

who had broken the law.

And he had created it exactly because

mandatory sentencing laws

were taking the judgment out of judging.

No one wanted non-violent offenders --

and especially non-violent offenders who were veterans to boot --

to be thrown into prison.

They wanted to do something about what we all know,

namely the revolving door of the criminal justice system.

And what the Veterans' Court did,

was it treated each criminal as an individual,

tried to get inside their problems,

tried to fashion responses to their crimes

that helped them to rehabilitate themselves,

and didn't forget about them once the judgment was made.

Stayed with them, followed up on them,

made sure that they were sticking to whatever plan

had been jointly developed

to get them over the hump.

There are now 22 cities

that have Veterans' Courts like this.

Why has the idea spread?

Well, one reason is

that Judge Russell

has now seen 108 vets

in his Veterans' Court

as of February of this year,

and out of 108,

guess how many have gone back through

the revolving door of justice

into prison.

None. None.

Anyone would glom onto

a criminal justice system

that has this kind of a record.

So here's is a system-changer, and it seems to be catching.

There's a banker

who created a for-profit community bank

that encouraged bankers -- I know this is hard to believe --

encouraged bankers who worked there to do well

by doing good for their low-income clients.

The bank helped finance the rebuilding

of what was otherwise a dying community.

Though their loan recipients were high-risk by ordinary standards,

the default rate was extremely low.

The bank was profitable.

The bankers stayed with their loan recipients.

They didn't make loans and then sell the loans.

They serviced the loans.

They made sure that their loan recipients

were staying up with their payments.

Banking hasn't always been

the way we read about it now in the newspapers.

Even Goldman Sachs

once used to serve clients,

before it turned into an institution

that serves only itself.

Banking wasn't always this way,

and it doesn't have to be this way.

So there are examples like this in medicine --

doctors at Harvard

who are trying to transform medical education,

so that you don't get a kind of ethical erosion

and loss of empathy,

which characterizes most medical students

in the course of their medical training.

And the way they do it is to give third-year medical students

patients who they follow for an entire year.

So the patients are not organ systems,

and they're not diseases;

they're people, people with lives.

And in order to be an effective doctor,

you need to treat people who have lives and not just disease.

In addition to which there's an enormous amount of back and forth,

mentoring of one student by another,

of all the students by the doctors,

and the result is a generation -- we hope -- of doctors

who do have time for the people they treat.

We'll see.

So there are lots of examples like this that we talk about.

Each of them shows that it is possible

to build on and nurture character

and keep a profession

true to its proper mission --

what Aristotle would have called its proper telos.

And Ken and I believe

that this is what practitioners actually want.

People want to be allowed

to be virtuous.

They want to have permission to do the right thing.

They don't want to feel

like they need to take a shower

to get the moral grime off their bodies everyday

when they come home from work.

Aristotle thought that practical wisdom

was the key to happiness,

and he was right.

There's now a lot of research being done in psychology

on what makes people happy,

and the two things that jump out in study after study --

I know this will come as a shock to all of you --

the two things that matter most to happiness

are love and work.

Love: managing successfully

relations with the people who are close to you

and with the communities of which you are a part.

Work: engaging in activities

that are meaningful and satisfying.

If you have that, good close relations with other people,

work that's meaningful and fulfilling,

you don't much need anything else.

Well, to love well and to work well,

you need wisdom.

Rules and incentives don't tell you

how to be a good friend, how to be a good parent,

how to be a good spouse,

or how to be a good doctor or a good lawyer

or a good teacher.

Rules and incentives

are no substitutes for wisdom.

Indeed, we argue,

there is no substitute for wisdom.

And so practical wisdom

does not require

heroic acts of self-sacrifice

on the part of practitioners.

In giving us the will and the skill

to do the right thing -- to do right by others --

practical wisdom also gives us

the will and the skill

to do right by ourselves.

Thanks.

(Applause)