Cafe Hayek: "Greed" Is Not an Explanation

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October 04, 2008

"Greed" Is Not an Explanation

Don Boudreaux

Here's a letter that I sent today to National Public Radio:

Mr. Scott Simon, Host
Weekend Edition
National Public Radio

Dear Mr. Simon:

John Lithgow is a fine actor, but his explanation of the current financial turmoil -- as being caused by "greed" -- is inadequate (Weekend Edition, Oct. 4). Saying that "greed" caused today's problems is like saying that gravity caused the death of someone pushed from the top floor of the Empire State building. Some things are sufficiently constant in human affairs - and self-interest, even greed, is among them - that they explain nothing.

"Greed" certainly can be unleashed to do harm, but it can also be harnessed to do good. Any compelling explanation of any observed economic reality must take "greed" as a given while identifying the specific incentives provided by prevailing social institutions. If these institutions make serving the needs of others the best path to personal gain, then "greed" is harnessed for human betterment. But if these institutions make predating on others - either through force or fraud, or either intentionally or unintentionally - the best path to personal gain, then "greed" will indeed lead people to act destructively. In either case, though, it is the institutions and their accompanying incentives, rather than "greed," that explain economic reality.

Sincerely,
Donald J. Boudreaux

Posted by Don Boudreaux in Economics, Myths and Fallacies | Permalink

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Comments

It's an indictment.

Posted by: Sam Grove | Oct 4, 2008 3:49:56 PM

I'm sure Lithgow has never asked for more than living expenses as compensation for acting in a movie.

Posted by: James Hanley | Oct 4, 2008 4:07:01 PM

Liberals expiate their personal guilt in this manner.

Posted by: Sam Grove | Oct 4, 2008 4:18:53 PM

I can spend a thousand dollars a month either to accumulate entitlement to rents or to feed, clothe, house and educate two children who will ultimately pay rents, because institutions and their accompanying incentives create this choice for me.

So we've had fewer children than our parents, and we've bid up the price of entitlements to rents. Ten year Treasuries haven't been so dear in fifty years, so we're now finding innovative, new ways to collect more rents, with the aid of our statesmen, because that's what statesmen do.

I learned this lesson from Julian Simon, among others.

Posted by: Martin Brock | Oct 4, 2008 4:47:08 PM

It's funny that no one "blames" Wall Street's greed when the economy is booming...

Posted by: Paulo | Oct 4, 2008 5:07:30 PM

Greed; An excessive desire to acquire or possess more than what one needs or deserves.

Excessive; Who decides?
Desire; It is human nature to desire.
To Acquire or Possess; A given, but what matters is the method chosen. To acquire or possess even the smallest thing by theft is always wrong. To acquire or possess even the greatest thing by earning is never wrong.
More than what one needs or deserves; And again, who decides?

The word "greed" is illogical. Its only purpose is propaganda.

Posted by: Randy | Oct 4, 2008 6:26:00 PM

"....his explanation of the current financial turmoil -- as being caused by "greed" -- is inadequate..."

Baloney .... unbridled greed takes the money and runs before the free hand of markets knows what hit it. Greed with fair oversight can make competitive markets.

What we've just seen is unbridled greed. Loosed of any oversight it circumvented market forces took the money from the productive economy and left us here to discuss competing philosophies neither of which greed supports. Greed is already planning it's next exploitation of the market. Greed left to itself always plans for the short term and never plans for the future. The modern computerized markets favor greed over prudence and planning and growing an honest business.

I'm glad to see that you believe greed can be harnessed... I was starting to think you believed in a completely unplanned economy/ society.

So why should we not insist federally insured banks taking advantage of access to the treasury must keep the loans they make and not e allowed to securities them?

Doing so seems to fit your requirement for serving others and avoiding predation as we've just seen the markets do when unleashed and given perverse incentives.

Posted by: muirgeo | Oct 4, 2008 7:15:21 PM

You're funny George.

What do you do when "greed" manifests in the halls of government?

Are you suggesting that politicians are less impervious to "greed" than private actors?

Do you recognize no coin other than moola?

"Always" and "never" are rather absolute, and "greed" is very subjective.

You've got to dive a little deeper.

Government "oversight" of "greed" is an invitation to totalitarian government, for then greed will govern.

Posted by: Sam Grove | Oct 4, 2008 7:25:40 PM

Greed; An excessive desire to acquire or possess more than what one needs or deserves.

Excessive; Who decides?

Posted by: Randy

Apparently you think you should. You've repeatedly claimed to know who has earned their money and who has gotten it by way of their political class connections.

The top 400 wealthiest people in this country earned $650,000,000,000 dollars since Bush came into office. Which ones made their money honestly in the markets and which ones made it via their political class clout?

In your world apparently anything goes so who are you to complain about greedy bastards making their fortunes via their political connections.

You don't get to complain about outcomes because you want no rules... this is what you get with no rules... you get rules made by others... a political class as you say. And because you have no rules you also have no solution except to live as a complaining whining victim of greed.

Posted by: muirgeo | Oct 4, 2008 7:26:08 PM

What do you do when "greed" manifests in the halls of government?

Posted by: Sam Grove

You VOTE!! Hopefully on an equal basis without disproportional representation by the wealthy and their lobbyist.

But you don't want to outlaw bribery of public officials via lobbyist. So IN YOUR world THERE IS NOTHING you can do about greed in the government. NOTHING and it's all of YOUR CHOOSING because YOU support the current system. WE ARE following your rules and this is the results you will see every-time.

So no complaining on your part.. you've gotten your way.

Posted by: muirgeo | Oct 4, 2008 7:30:58 PM

You really don't listen very well. "Hidebound" might be an appropriate descriptive.

Bribery is already illegal. And it actually is the lesser problem from our perspective.

Why does bribery occur? There is a reason.

Political power is the linchpin. do you know what a linchpin is and what it means in this reference?

Bribery occurs because politicians control large portions of the wealth created by producers. Sans that control, there would be no incentive to bribe politicians.

Do you think most people would be better off if you found a way to actually restrict such venal corruption?

Politicians are the fingers of the oligarchy.

Tell me, who paid off all those politicians to vote for the bailout?

WE ARE following your rules and this is the results you will see every-time.

I still have a hard time believing you can be this stupid.

The government controls over a third of our productive effort. THE GOVERNMENT does.

It was once estimated that just the cost of the paperwork that is required to comply with tax accounting and returns was equal to the entire output of GM for one year. (this was back when GM was considered rather robust)

Don't blame what is going on on what I believe.

The government operates a vast regulatory network and a large portion of that is devoted to regulating the finance industry.

This is a product of "progressive" government. I blame this mess on people like you who want a big, strong, powerful government to protect us from "evil" profit makers.

What has actually happened is that they are all in league to maintain the structure, the oligarchy, the system to maintain control of our productive effort.

You seem to have entirely forgotten my illustration with the CA electrical power regulatory structure.

Posted by: Sam Grove | Oct 4, 2008 8:01:07 PM

The top 400 wealthiest people in this country earned $650,000,000,000 dollars since Bush came into office.

For me, this figure itself is not a problem. If you told me that 400 people personally consumed goods of this value during this period, I'd have a problem with it. Conflating investment with consumption is a problem. It's a problem for Bushniks, and it's a problem for their ideological adversaries too.

Posted by: Martin Brock | Oct 4, 2008 9:27:22 PM

Bureaucracies and politicians have their own form of greed. Since governments are driven more by political considerations, their currency is in areas like votes, support, flattering articles in the media, and especially increased power.

Posted by: theBuckWheat | Oct 4, 2008 9:36:05 PM

Muirgeo assumes that the corruption is all one way.

Posted by: Sam Grove | Oct 4, 2008 9:50:15 PM

I'm glad to see that you believe greed can be harnessed... I was starting to think you believed in a completely unplanned economy/ society.
Posted by: muirgeo | Oct 4, 2008 7:15:21 PM

Great! Can our Dear Tenured Professor now develop a syllabus for “Harnessing greed 01?”

Posted by: Per Kurowski | Oct 4, 2008 10:07:24 PM

If Wall Street was greedy, than so were the state and local governments who benefited from an increase of property tax revenue.

Posted by: kurt | Oct 4, 2008 10:13:54 PM

If someone else makes a profit that is considered to be too large, it is "greed". If the situation were reversed, it is merely "self-interest". Are succesfull sellers and successful bidders on eBay "greedy" when they match up?

Posted by: theBuckWheat | Oct 4, 2008 10:34:02 PM

What's worse - financial greed or political greed? Greed for political power is to want to dictate how people live, what they can say, what they can do, etc, especially here in California. Shouldn't we start recognizing the larger evil of political greed? Isn't this why we have a constitution to guarantee certain freedoms? These freedoms are slowly, but surely, being stolen from us by the greed of our politicians. Isn't this worse?

Posted by: Mace | Oct 4, 2008 11:18:13 PM

Muirgeo,

"You've repeatedly claimed to know who has earned their money and who has gotten it by way of their political class connections."

I don't "know", but I certainly do assume. I assume that those who make their money through agreements earned it, barring evidence to the contrary. I assume that those who make their money through the use of force did not earn it, again barring evidence to the contrary. As the only evidence of agreement is a voluntary exchange of value, the safe assumption is that money made in the free market is earned and money made through political activity is unearned. Of course, in our progressive fascist state where political activity is often an integral part of running a business, the lines do get blurred.

To bring it back to the subject at hand, and assuming that greed is the desire for unearned wealth, we see that while greed may be present in business activity, it is always present in political activity, as the whole point of political activity is to obtain something without having to earn it.

Posted by: Randy | Oct 4, 2008 11:19:07 PM

Muirgeo,

"You don't get to complain about outcomes because you want no rules..."

Boiled down, the rules say that the political class collects rent and I pay rent. To obey them is pragmatic, nothing more.

Posted by: Randy | Oct 4, 2008 11:37:49 PM

Greed is whatever 50.1% of society thinks it is at any moment in time. Democracy is grand?

Posted by: Crusader | Oct 5, 2008 12:07:22 AM

So you're saying we can't complain about what happens when someone makes rules, because we don't want rules, & without rules we get rules, & since we have no rules we have to accept the consequences of these rules, presumable the rules we don't have, which is how we got rules, which we don't have.

Wow.

Posted by: Hans Luftner | Oct 5, 2008 12:19:03 AM

Greed is whatever 50.1% of society thinks it is at any moment in time. Democracy is grand?

Unless the 50.1% of society thinks greed is something different from what George thinks, then he'll make some excuse as to why it was decided unfairly, or why they decided wrong.

The solution is always to vote for George's party, though, even after they bail out the greedy corporations, despite The Will Of The People.

"Greed" is an entirely emotional word. It's a handy word to use when manipulating people who only think emotionally.

Posted by: Hans Luftner | Oct 5, 2008 12:28:24 AM

Was Harold Raines greedy when he fudged the numbers to get their fat bonuses? They are Clintonistas...

Posted by: Crusader | Oct 5, 2008 12:49:06 AM

So no complaining on your part.. you've gotten your way.

This just doesn't work.

If I was having things my way, I wouldn't be complaining. In fact, I haven't been complaining so much as describing.

Complaining is what you're doing, as indicated by your use of "greedy" when referring to people who make money via speculation. You'll find this covered in the ten planks of Communism.

But all in all, I'd rather have "greedy" people running things than stupid, arrogant people. "Greedy" people are often satisfied with a pay-off, but stupid, arrogant, busybodies will never leave you alone.

Posted by: Sam Grove | Oct 5, 2008 12:54:13 AM

Hans - what about Harold Raines? He's a Clinton guy.

Posted by: Crusader | Oct 5, 2008 12:54:23 AM

Sam - our resident left wingers would have us believe it's a choice between greedy Republican businessmen and altruistic Democrat regulators...

Posted by: Crusader | Oct 5, 2008 12:57:17 AM

One thing all of us sane ones must keep in mind are all the memes the left like to keep. Remember their memes, and you can fight back.

Posted by: Crusader | Oct 5, 2008 1:00:53 AM

Hans - what about Harold Raines? He's a Clinton guy.

What about him?

Posted by: Hans Luftner | Oct 5, 2008 1:17:20 AM

Crusader, you have not yet figured out everyone around here. You need to learn more of Martin before you render an assessment.

Posted by: Sam Grove | Oct 5, 2008 1:28:34 AM

"I still have a hard time believing you (Muirduck) can be this stupid."

I believe it. Vidyohs has a list that proves it.

Posted by: brotio | Oct 5, 2008 1:59:35 AM

I'm glad Bill Gates had greed, he helped me with the internet and software products.

Posted by: Rudy | Oct 5, 2008 2:04:55 AM

Boiled down, the rules say that the political class collects rent and I pay rent. To obey them is pragmatic, nothing more.

Posted by: Randy

Then I'd argue you are a complacent slave or serf. A slave to your ideology and a serf to the wealthy ruling class. I guess you can call it pragmatic.

Posted by: muirgeo | Oct 5, 2008 2:49:33 AM

Wow.

Posted by: Hans Luftner

Exactly Hans.... it's stupid indeed. Especially when there are solutions. But you've an ideology to follow... so.... carry on with exactly what you wrote above.

Posted by: muirgeo | Oct 5, 2008 2:53:35 AM

Sam - our resident left wingers would have us believe it's a choice between greedy Republican businessmen and altruistic Democrat regulators...

Posted by: Crusader

Nope! It's a balance between the two. I don't think it's a coincidence that we have close to 50% on either side of the issue. Greed is a fact of human even animal nature. It is held in check by society and rules. The balance is what allows us to be the supreme species.

Posted by: muirgeo | Oct 5, 2008 2:58:48 AM

I'm glad Bill Gates had greed, he helped me with the internet and software products.

Posted by: Rudy

I'm glad Steve Jobs was greedy because PC's suck. If the market always paid fair value Jobs would be the richest man not Gates and his crappy OS.

Posted by: muirgeo | Oct 5, 2008 3:02:09 AM

Exactly Hans.... it's stupid indeed. Especially when there are solutions. But you've an ideology to follow... so.... carry on with exactly what you wrote above.

I can't make heads or tails of your reply. You realize that I was paraphrasing you to point out how nonsensical & self-contradictory your statement was, right?

Posted by: Hans Luftner | Oct 5, 2008 3:51:15 AM

What George is saying is that we should trust the overseer, even when he (Barney Frank) spent 8 years sleeping with someone who was a VP at Fannie Fae making millions of dollars being in charge of figuring out how to make risky loans to home buyers who couldn't traditionally qualify. Herb Moses is the guy's name.

Posted by: BoscoH | Oct 5, 2008 4:26:57 AM

To blame the sub-prime crisis on private greed was to say that there was no connection between the public agencies of sub-prime lending and the lending itself, that it was created entirely by the market, and there was really no need for the public agencies of it. So, why were they created, and not yet abolished?

Private greed alone could not have created the sub-prime crisis. For even the greediest individuals in the market could not distort its incentives and signals, force their errors on others, nor lock them in. Only the “greed squad” itself could do so.

Supposedly we need more of it to correct a market that couldn’t correct itself. But how could its participants not respond to its incentives and signals, and the market not clear, its eager buyers and sellers not come together, if free to do so? And how could coming between them not keep them apart, and not stifle the market?

Posted by: dg lesvic | Oct 5, 2008 5:57:03 AM

Muirgeo,

"Then I'd argue you are a complacent slave or serf. A slave to your ideology and a serf to the wealthy ruling class. I guess you can call it pragmatic."

Slave isn't right. There is no physical restraint. It is possible to drop out. In fact, I did when I was younger. It was fun for awhile, but the cost was too high. Pragmatism quickly replaced idealism.

Serf is pretty close. I pay roughly half of what I earn in rent to the political class. And like the serfs, my only alternative is to join the political class. The serfs of old had the option of joining the military or a religious order. Modern serfs have roughly the same options, though the modern equivalents of joining a religious order are civil service, political activism, or the ministry of education.

As for my ideology, I'm a realist and a pragmatist. My objective is to see the situation clearly, and then to make the best of it.

As for my complacency, it seems to me that all you muddle headed, propaganda drunk idealists have accomplished is to increase the power of the political class. You know there's something wrong but the best you can do about it is to scream mindlessly at whatever targets your political handlers give you. You're just useful idiots.

Posted by: Randy | Oct 5, 2008 6:23:34 AM

Everyone here is making an incorrect assumption: that muirgeo is rational, and can have his mind changed. He is not, and it cannot. Do not reply to him; it is the only way.

Posted by: Russ Nelson | Oct 5, 2008 9:32:57 AM

BoscoH, you should trust the journalist, even though his wife was veep legal at Fannie Mae :)

Posted by: kurt | Oct 5, 2008 9:38:51 AM

Posted by: dg lesvic

dg ,

Greed got everything it wanted from the government.

It got a Libertarian head of the Fed, it got the government to the the peoples money to make mortgage backed securities, it got the government to loosen lending standards, it got the government to allow its securities to be unregulated, it got private rating agencies to falsely rate their unregulated securities and accounting agencies/ audit agencies to look the other way.

This was a failure of regulation. It was a work of greed to et itself loosed from regulation and to use all it's money to set up the rules for it's own interest.

If you think you can deregulate the markets and the wizards won't come right back and figure high tech ways to steal wealth from the productive economy and walk away with masses of wealth before anyone knows what happened you are a being foolish.

Posted by: muirgeo | Oct 5, 2008 10:07:40 AM

Everyone here is making an incorrect assumption: that muirgeo is rational, and can have his mind changed. He is not, and it cannot. Do not reply to him; it is the only way.

Posted by: Russ Nelson

Russ,

Thanks for your thoughtful reply.

You stand on a hugemongous shit-pile (I like how the spell checker reminds me to hyphenate shitpile) of a failed economy resulting from a failed ideology you support and suggest maybe the problems is with me not being able to have my mind changed into believing the disastrously stupid, ignorant, failed pile of shit ideology you stand on is a nice thing. I mean come on you admitted you had crap on your shoes a while ago. I thought we decided you should watch where you step. Now you're asking me to follow you.

Posted by: muirgeo | Oct 5, 2008 10:17:07 AM

The notion of "greed" is entirely subjective and differs amongst different people.

How much is "too much"?
What is "excessive"?
What does a person "need"?

No person, including John Lithgow, could possibly determine these subjective, nornative values for me or anyone else for that matter.

Shame on his arrogance and intellectually bereft analysis which can only be fit for the rentseekers at National Public Radio!

Posted by: Pingry | Oct 5, 2008 10:23:24 AM

Go to this NY Times article and pull up the multimedia graphic showing the boom in sub-prime lending. It's clear with a basic understanding of the history of events leading to the surge in these loans that the underlying problem was NOT greed but it was a problem of deregulating it, not overseeing it and trusting greed to do good.

"Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone."

-- John Maynard Keynes

Posted by: muirgeo | Oct 5, 2008 10:42:19 AM

Don,
I enjoyed your letter, and agree with your treatment of greed as a constant. I will link it to the website I maintain for students. I believe that the distrust of greed, or self interest, as a motive is at the heart of the first of Bryan Caplan’s four biases, anti-market bias.
I ask my students if they really believe that oil company executives, or bankers are any greedier than in the past, or if they are likely to be less greedy in the future. If not, what changes in markets or market structure changed to make their greed manifest. In the case of oil, the change was probably increasing demand. In the case of the home loan market, it was probably changes in regulatory structure pushing loans to individuals in underserved areas, and perhaps one of Taleb’s Black Swans, leading investment bankers that had never seen a decline in housing prices to believe that one never would occur.

Posted by: Brooks Wilson | Oct 5, 2008 10:48:11 AM

I'm glad Steve Jobs was greedy because PC's suck.

That's an emotive assessment. For one thing, Microsoft does not make PCs. I have built my own PCs and none of the hardware is made by Microsoft. One benefit of the PC industry is that it is relatively easy and inexpensive for me to upgrade my system. When you buy a Mac, you are virtually locked in to everything being made by a vertical monopoly.

It got a Libertarian head of the Fed,

Where, who, I haven't seen any libertarians at the head of the Fed.

You still have no idea what constitutes a "libertarian". Just as you have no comprehension of the moral nature of political power, just as you have no idea what "the market" is.

it got the government to the the peoples money to make mortgage backed securities, it got the government to loosen lending standards, it got the government to allow its securities to be unregulated, it got private rating agencies to falsely rate their unregulated securities and accounting agencies/ audit agencies to look the other way.

If you want to keep business out of government, you have to keep government out of business.

Repeat til it sinks through the molasses of your mind.

Posted by: Sam Grove | Oct 5, 2008 11:11:09 AM

failed economy resulting from a failed ideology you support

To suggest that the current political/economic system is in anyway the product of libertarian ideology is purest nonsense and totally representative of how leftists/socialists/progressives blatantly misrepresent the state of affairs for political purposes.

It almost as bad as how the right/Republican cadre passes itself off as pro free market/limited government advocates.

Posted by: Sam Grove | Oct 5, 2008 11:16:52 AM

I think that the minds behind the propaganda that folks like Muirgeo keep spouting recognize that Libertarianism is a real threat. That's why they spend so much time attacking a system that they themselves admit does not exist. The threat from libertarians is not that we will take over the government. It is that a significant percentage of the population will simply ignore the government. When the faith dies, they die.

Posted by: Randy | Oct 5, 2008 12:19:54 PM