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A Few Thoughts About Greed

Recently, former Secretary of the Treasury and current Obama economic adviser Lawrence Summers addressed a private audience at a dinner sponsored by the US Chamber of Commerce. His remarks centered around "boom and bust" cycles in the US economy. Here is how he described the situation:

"An abundance of greed and an absence of fear on Wall Street led some to make purchases - not based on the real value of assets, but on the faith that there would be another who would pay more for those assets. At the same time, the government turned a blind eye to these practices and their potential consequences for the economy as a whole. This is how a bubble is born. And in these moments, greed begets greed. The bubble grows.

"Eventually, however, this process stops - and reverses. Prices fall. People sell. Instead of an expectation of new buyers, there is an expectation of new sellers. Greed gives way to fear. And this fear begets fear. ...

"It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself. It is this transition that has happened in the United States today."

Summers could have made those exact same remarks in March of 2003, following the collapse of the tech-heavy NASDAQ index (which shed nearly 80% of its peak value), the spectacular self-destruction of previously hot dot-com properties like Boo, Flooz, EToys, and WebVan, and the implosion of major corporations like Enron, Global Crossing, and WorldCom. Except at that time, it would have been a Democrat Administration led by Bill Clinton, and Summers himself as Treasury Secretary, who "turned a blind eye" to the controversial accounting and stock trading practices during the late 1990's that created the "tech bubble."

No self-respecting liberal would ever describe himself, or the liberal movement, as "greedy." Instead, liberal Democrats dream of ending boom and bust cycles and replacing them with a steadily expanding economy managed by a compassionate government. Most liberals seem to like the free market as a mechanism for creating wealth, but believe that markets are too easily manipulated by the wealthy. Social justice, then, requires that government must tightly regulate the distribution of wealth.

Yet contemporary liberal Democrats have been continually derailed from this mission because rapid economic growth provides such a golden opportunity for government to siphon the resources of wealthy individuals and successful businesses, and then build bigger bureaucracies that can redistribute those resources. Their appetite for tax revenues has led them to support dangerous and economically unsound rapid growth policies time and again; and when those policies fail, they blame the failures on Wall Street and the Republican party and then demand an even bigger government as the solution.

Now comes Barack Obama. Perhaps in an effort to forbear and atone for the sins of the members of his own party who peddled influence, wrangled sweetheart deals, grew rich off lobbyist money, forestalled investigations, and fought to cripple regulation and oversight of the mortgage industry, he has expressed a strong desire to "correct" the wayward policies enacted by Republicans during the 14 years that the Democrats did not have absolute control over Washington, DC. And chief among those "corrections" is the implementation of a number of tax increases that will strip those in the nation's top 1% earnings bracket of a major portion of their income and empower the government to redistribute that wealth as it sees fit.

Unfortunately, such schemes never work as intellectuals envision them. Instead of prosperity, large scale confiscation and redistribution of wealth has historically resulted in a steadily decreasing supply of wealth. In a free market economy, where individuals are free to create capital based on ingenuity, talent, and hard work, income is not generated by stealing wealth from others; rather, it is generated by the very act of capital creation. When the highest income earners (who are by definition the biggest creators of capital) become at first resentful, and then fearful of crippling government regulation and taxation, their output falls. Thus the supply of capital available for confiscation shrinks.

And just like the free market entrepreneurs that they despise, socialists have a curious habit of never being satisfied with what they have. "Fairness" can never be exactly defined, yet it always seems to involve "more." As confiscation dampens incentive, and capital production decreases, government will demand a bigger share. Taxes then become a heavy burden for everyone, not just the "rich." Thus the greed of the government stops the economy dead in its tracks.

This is why financial analysts, investors, and conservatives in general have been so alarmed by the Obama Administration's new plans to drastically increase taxes and government regulation. These things slow down economic growth, and during a recession the worst thing possible is an economy that continues to shrink. In fact, we question the morality of such a move, since we admittedly have trouble understanding how policies that have been historically proven to deepen existing recessions will result in true prosperity for anyone, even those who might receive a bigger share of redistributed wealth. Social justice then becomes irrelevant, as these policies will simply be very damaging to the US economy.

As I explained in an earlier post, there seems to be some degree of religious faith on the part of the Obama Administration with respect to economics. Specifically, there seems to be a strong belief that government growth, increased taxation, and economic growth can all occur smoothly together. And when that happens for an extended period of time, we will magically begin the journey toward utopia. Unfortunately, history teaches us differently.

Greed in and of itself is not a good thing, but allowing people to keep a satisfactory portion of what they create has always been the single greatest incentive for entrepreneurs to take risks and create capital. And when the government doesn't interfere -- either with ill-conceived incentives that spur boom-bust cycles, or heavy taxation that cripples economic growth -- then everyone prospers.


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Comments (13)

"boom and bust" cycles crea... (Below threshold)
tyree:

"boom and bust" cycles create opportunity, and the Democrats seems to believe it must be controlled, also. Do they have any proof that a government controlled, steadily expanding economy will help the poor more than capitalism?

The reason communism ultima... (Below threshold)
Mac Lorry:

The reason communism ultimately fails as an economic system is that it runs counter to human nature. Sorry, but humans are motivated by greed and fear much more than they are by altruism. Obviously, there are exceptions, but for the most part people look out for themselves and their family first and foremost. This is particularly true In the economic area. If long hours, hard effort, and high risk gets little more results than short hours, little effort, and low risk, then most people opt for short hours, little effort, and low risk and the economy goes into the dumps.

To a large degree the cycles in the market are the result of a tug-of-war between greed and fear. Sure, government stupidity like guaranteeing subprime mortgages can override the cycles, but it's public confidence in the economy that normally drives the cycles. That confidence is driven in part by the news media. When times are good any economic bad news gets air time and eventually it erodes public confidence and there's more and more bad news. At some point people just get tired of hearing the bad news, tune it out, and start spending and investing again. By then any good news gets air time and eventually it bolsters public confidence and there's more and more good news. When people get tired of hearing the good news the cycle starts over again. Apparently someone told Obama about this and he's been talking positively about the economy lately.

The idea that you can control the market in such a way as to smooth out the highs and lows while retaining the benefits of the market is just another liberal pipe dream.

Lets see would you define G... (Below threshold)
retired military:

Lets see would you define Greed as someone who makes about $250k a year and donates less than .33% of their income to charity?

If so than Joe Biden is greedy.

That means that Good Ole Joe donated about $800 a year to charity for each of 2006 and 2007. WHAT A GUY!!!!


Reading the above article, ... (Below threshold)
Steven Danis:

Reading the above article, you would never guess that the marginal Federal income tax on the highest income brackets during the 1950's was twice as high as it is now. That was a decade with one of the fastest growing economies in American history, of which most of it occured under a conservative Republican President, Dwight Eisenhower. There's a lot of factors which affect economic performance, one of which are tax rates. But to imagine that if a country will slash income tax rates on the affluent that prosperity will be sure to follow flies in the face of history.

It's evident that the negat... (Below threshold)
irongrampa:

It's evident that the negative connotation of greed has been co-opted and used as a whipping boy by the left. By emphasizing this,it's become easy to demonize "big business" in order to promote the agendas of social and economic equality.

It then forms the basis for implementation of that despicable tenet of "from each according to his ability, to each according to his needs".

All of which ultimately leads to a life totally controlled by the government. If you doubt this, then I suggest you pay close attention to the upcoming legislation proposed by the Dems.

There will always be those ... (Below threshold)
GarandFan:

There will always be those who can be labeled "greedy". But EVERYONE is guided to some extent by 'self-interest'. Unless they have a death wish.

"But to imagine that if a country will slash income tax rates on the affluent that prosperity will be sure to follow flies in the face of history."

Context, Steven, context. In those years we were still paying for a little incident called WWII. In addition there was a long pent up demand for consumer goods. Prior to the 'little incident' was something called a Great Depression. And to throw another wrinkle in, there was a large amount of rebuilding going on in Europe and the far east.

Does anyone really want someone like Maxine Waters, Chris Dodd or Barney Frank dictating their economic life and circumstances? That's were Obama is headed.

That was a decade ... (Below threshold)
Mac Lorry:
That was a decade with one of the fastest growing economies in American history, of which most of it occurred under a conservative Republican President, Dwight Eisenhower.

The late 40's and 50's were a time of great optimism fueled by winning WW2. That optimism not only translated into strong economic growth, but also the baby boom. Contributing to economic growth was the pent-up demand for manufactured goods that were not obtainable during the war. American goods were not only the best in the world, but often the only ones available because most of the nations in Europe and Asia were in shambles into the early 50's. America was also the largest exporter of oil in the world.

With so much optimism and so many economic advantages of that time, the high income tax rates for the highest brackets could be sustained without slowing the economy. It's a mistake to assume that high tax rates won't show our economy now that we live in far more competitive world. One we helped build and still protect at great expense to U.S. taxpayers.

Steven"a lot of fact... (Below threshold)
retired military:

Steven
"a lot of factors which affect economic performance, one of which are tax rates. But to imagine that if a country will slash income tax rates on the affluent that prosperity will be sure to follow flies in the face of history."

How do you explain the record breaking influx of money into the treasury from the years of the Bush tax cuts?

How did JFK increase revenue to the govt?

Your statement should read

"But to imagine that if a country will slash income tax rates on the affluent that prosperity will be sure to follow is apparant in the face of history."
'

BTW after WW2 and hte Korea... (Below threshold)
retired military:

BTW after WW2 and hte Korean war it was extremely hard to have women barefoot and pregnant at home vs in the workplace. More people worked which increased the amount of money for households to spend which increased demand which increased production.

It's called the "Greater Fo... (Below threshold)
glenn:

It's called the "Greater Fool Theory"

"Greed in and of itself is ... (Below threshold)
bryanD:

"Greed in and of itself is not a good thing, but allowing people to keep a satisfactory portion of what they create has always been the single greatest incentive for entrepreneurs to take risks and create capital."-ml

You cannot win hearts and minds against the rolling socialist zeitgeist by painting your shield "greedy" green and marching under the banner of _CAPITAL_.

Not on the Field of Marx, you can't. To wit, you "allow":

"And JUST LIKE THE FREE MARKET ENTREPRENEURS that they despise, socialists have a curious habit of NEVER BEING SATISFIED WITH WHAT THEY HAVE."_m.l.

You shouldn't grant to the socialists that which isn't true. For MOST entrepreneurs, business is the MEANS to and end, that END being "Happiness". Thus the unfortunate business failure rate (even in the best of times) due to businessman's enjoyment of the APPARENT security that Happiness entails.

So your Truth is NOT self-evident, but is an old "saw" of scientific Marxian dialectics.

Wizbang, despite itself, is INTERESTING.


Okay, let's talk about gree... (Below threshold)

Okay, let's talk about greed. How about greed for political power? Is that a dangerous form of greed? Are there any Democrats who are politically greedy?

Let's talk about altruism. Do Obama, Pelosi and Reid do what they do because of altruism? Do people vote for Democrats because of altruism? Are they altruistic when they vote for they guy who promises more government handouts? Are they altrusitic when they vote for the guy who promises to increase taxes only for the income brackets they will never see?
http://www.rightklik.net/

Leftists prefer to replace ... (Below threshold)
RScott:

Leftists prefer to replace greed...with envy.




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