October 21, 2014

>The Crusade Against Greed: Government’s Scapegoat

>Despite the fact that this economic crisis is unfolding exactly the way that the Austrian economists predicted it would, along with the impending police state that Hayek predicted over 60 years ago, the American people show absolutely no sign of figuring out the CAUSE of this crisis. The most discouraging aspect of the whole debacle is the propensity of the American people to take the government bait by blaming this financial and economic collapse on “greed.” This plays right into the government’s hands.

As platitudes go, those warning against greed are the ones that people should be most suspicious of. Anyone that seems overly interested in making you feel guilty about accumulating too much property probably has an interest in acquiring what you leave behind. If nothing else, the fact that both Republicans and Democrats are vilifying greed should make people think twice about whether they may be burning the wrong witch when they seek to blame greed for our present troubles.

Webster’s defines greed as “a selfish and excessive desire for more of something (as money) than is needed.”[1] Any student of economics should be suspicious of this vice. While “selfish and excessive” certainly conjures up distasteful emotions, those are little more than prejudicial adjectives accompanying the real substance of the definition: desire for more of something than is needed. Does this mean that anyone with a savings account is greedy?

While one could counter that some savings are actually “needed,” a moment’s reflection should have one questioning what the real motivation for vilifying greed might be. Who do we find denouncing greed the most vehemently? The rich and powerful. Does this bother anyone besides me?

Let me be clear. Greed had nothing to do with causing this financial crisis, no matter how many times you are told that it did by the media and politicians looking for votes. In economics, the goal of every market participant is to acquire “more than is needed.” If the truth be told, acquiring more than is needed is what Jefferson really meant when he talked about the “Pursuit of Happiness.” Property – the fruits of your labor – is the means by which you sustain your existence and provide opportunity for intellectual and spiritual enrichment. Those who must work every waking hour just to provide the basic necessities of life have time for neither quiet meditation nor for reading Dostoevsky. By acquiring more than you need, you create leisure time to pursue your other interests and enable yourself to provide for your children or to give to charity. In this life on earth, acquiring more than you need is the means to happiness and security for yourself and those that you love. It is also your unalienable right, as our founders repeatedly told us.

The whole point of participating in a free market is to acquire as much property as you possibly can. Not only is there nothing wrong with this, it is actually vital to the health of the market. With every participant acting in their rational self interest to maximize their wealth, the minds of all participants are leveraged and society as a whole reaps enormous benefits.

One of the key mistakes that critics of free market capitalism make is failing to understand that there is only one way to acquire great value in that system: to offer great value in return. Listening to the proponents of socialism, one might be led to believe that one can only gain at another’s expense. This is not true. In a laissez faire capitalist system, economic agents trade to their mutual benefit. Every exchange is perceived by both parties to be an EQUAL exchange, or it does not occur. That is the nature of VOLUNTARY exchange. No one deliberately causes themselves harm. While they may not always trade wisely, more often than not they do, and in every case they make an exchange that they believe is in their best interests. One can only consume great wealth by producing great wealth.[2]

Thus, it should be clear that there is no such thing as acquiring “too much” in a free market. Only by supplying enormous value can any economic agent acquire enormous value. Acquiring property in a voluntary trade by offering equal value in return is the essence of “earning.” In a free market, all transactions are voluntary. Therefore, all wealth must be earned.

A second reason for wrongly perceiving a threat from greed in a free market is the failure to acknowledge the role played by risk. There is always some amount of wealth that can be acquired with very little risk. However, in order to achieve greater amounts of wealth, economic agents must accept greater amounts of risk. Risk acts as a counterbalance to what is commonly referred to as greed. If an economic agent seeks to acquire value far beyond the value he is offering in return, he can only do so by taking inordinate risk, and will virtually always fail. While the attempt to acquire value with this type of speculation might not be admirable, others certainly have no right to forcefully stop him from doing so. The risk is his, as are the gains or losses he realizes as a result. In a free market, there is no moral or economic justification for attacking “the speculator.”

That brings us to our present crisis and its real cause. It was not greed – the desire to accumulate more than one needs – that caused the crisis. What caused the crisis was government removing the risk of lending to sub-prime borrowers by guaranteeing mortgages through Fannie Mae and Freddie Mac. With no fear of losing their investment, lenders had no reason not to take inordinate risk in lending to sub-prime borrowers. In fact, Fannie Mae CEO Daniel Mudd told the New York Times that he was actually pressured by the government to continue increasing the risk that Fannie was exposed to. According to Times reporter Charles Duhigg,

“Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.”[3]

Whatever the true intentions behind creating these government-sponsored enterprises (GSE’s), they violated moral and economic law with predictable – and predicted – results. This intervention into the market and suspension of market forces was the direct cause of the sub-prime crisis, not greed.

This was more than just a bone-headed mistake by government. It was a crime. Governments are instituted to secure individual rights, including property rights. Instead of protecting the property of its citizens, government stole it to guaranty sub-prime loans. Now that its ill-advised program has failed, government is looking for a scapegoat. Enter “the greedy financier,” and the real culprit walks.

None of this is meant to absolve the lenders, who knowingly made loans to people who could not pay them back. However, the guilt should be shared equally between the lenders, the borrowers, and the government. It was not greed that they were guilty of, it was stealing. They stole money from the taxpayers to make the loans possible. All three parties benefitted by passing risk onto taxpayers without their consent. The problem was not the desire for too much wealth. It was the desire for wealth that they did not earn.

This is an important distinction, because we will soon be subject to a government “solution” to this supposed problem of excessive greed. Blaming greed for the crisis plays right into the government’s hands, as it allows government to respond with measures that will limit the amount of money that can be earned, even legitimately. Already we are hearing calls for more regulation. This amounts to a further violation of our rights and will continue the destruction of our markets. On the other hand, if we recognize the true cause of the crisis, we can demand less regulation and an end to government intervention into the marketplace, which is what our markets actually need. One cannot prescribe the medicine until one has accurately diagnosed the disease. Don’t let the government off the hook by buying into their crusade against greed. Instead of free markets, let’s punish the truly guilty for once.

[1] http://www.merriam-webster.com/dictionary/greed
[2] It should be noted that this applies to truly free markets. In the U.S. mixed economy, government privilege allows some to accumulate great wealth because of that privilege, rather than any great value they offer the marketplace in return. Of course, the solution to this is to eliminate government privilege, not restrict the market further.
[3] Duhigg, Charles “The Reckoning: Pressured to Take More Risk, Fannie Reached Tipping Point” The New York Times Oct. 4, 2008 http://www.nytimes.com/2008/10/05/business/05fannie.html?pagewanted=1&sq=mudd&st=cse&scp=1

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Comments

  1. poulianna says:

    >Questions:
    So what do you call economical gain at the expense of other human’s well being? Is there a name for that other than greed? Greed to me is hate, greed to me is selfishness in action. Are we splitting hairs here? Are you right and am I wrong? So greed is OK as long as it is practiced within the framework of a free market “no regulations,no stipulations etc. Could this be the good side of greed? Could there be a bad side to greed? To just render the whole complicated issue of the rotten economics that have been tearing up our existence to just one simple term “greed” is over simplifying the causes and the mechanisms generating the collapse of our economic/political system – I get it. But in the exchange of ideas between people who are on the same side must it always need to be so dog-gone dogmatic? OR maybe we should always keep our guard up so not to dilute or lose sight of the changes that must be made?
    poulianna

  2. Tom Mullen says:

    >Hello Anna!

    “So what do you call economical gain at the expense of other human’s well being?”

    I would like to call that greed, but that is not what happened here. The lenders and borrowers both took inordinate risk. In a free market, the lender would have lost his money and the borrower would have had to leave the home that he never could afford in the first place, so neither would have profited at the other’s expense. The only criminal here was the government, which interferred in the scenario I just described and used MY MONEY (and yours!) to prevent the lender from losing and the borrower to face the consequences of his actions. THus, the borrower and lender may have been greedy, but that posed no risk to anyone else until government interferred and guaranteed the loan with our money.

    THat was my point in the article, that greed poses no risk to anyone else in a free market. If your greed makes you take too much risk, you lose, and the losses are your responsibility.

    However, by blaming the crisis on greed instead of government intervention, you create an excuse for government to create unjust barriers to people making vast amounts of wealth legitimately, which is good for the market and good for society.

    “To just render the whole complicated issue of the rotten economics that have been tearing up our existence to just one simple term “greed” is over simplifying the causes and the mechanisms generating the collapse of our economic/political system – I get it.”

    It’s not oversimplifying, it’s just accusing the wrong culprit. The cause of all of our economic problems is government – nothing else. Government using its coercive power to either redistribute wealth that would have been employed otherwise or to force economic agents to make choices that they otherwise wouldn’t make (i.e. write a sub prime loan) causes every economic problem we have. Without government inserting brute force into the the system of voluntary exchange. we would trade with each other to our mutual benefit indefinitely without any need to interrupt the system. I am sure people will jump in with tortured logic and Keynesian nonsense to refute that, but when you reason through every problem we have, government interference has been at the root of it.

    Hopefully we will finally realize and admit one day that we cannot improve our economy by pointing guns at people. Until we realize that, we will continue to do the same things over and over again and expect a different result.

  3. toneyal says:

    >Election 2008: The short story

    Once upon a time:

    In August 2008 one of the pending presidential candidates
    was “puffied” (a threatening letter with some unidentified
    powder was received).

    A lot of press exposure was given to this event.

    In late September and October 2008 a lot of American Citizens
    who were FED UP with the political systems in the U.S. started
    puffing all the candidates. Their letters said: “Obama Rules”.

    These American Citizens passed this story on to their
    friends and neighbors.

    By November President Bush declared it a national emergency
    and shut down the 2008 elections.

    Bush is still the President.

    The End

    http://www.saps08.net

  4. GAEA says:

    >You must volunteer your rights. Although we were children when our parents signed our rights away. We have the ability to reclaim that now. We can all Choose life and a life that needs no Assistance. You know what I mean? Our Cause is Noble, Our Tower is Secure and truth is the way we live authentically. We are One unified by love and private entities unto ourselves. We are all states within ourselves and we must take back our freedom one at a time. It is our will that holds us in stasis. It is our will that will lead us home. The Past is over, the Present is our Gift and the Future is a game we have yet to play. That gives plenty of room for improvement.

    We appreciate you Tom Mullen and all that your doing to educate the People.

    :AEON
    Unified Vessel Charter (_Exploring the land)
    aeonpi.com