December 13, 2017

What is Greed?

Whether you are liberal, conservative, libertarian, or none of the above, it is hard not to feel some sympathy for the “Occupiers.” Even if do not agree with them on every issue, there is something very American about a grassroots movement to “fight the man” and protest the existing order. After all, that is how the united States of America were born. As with the Tea Party, it is refreshing to see a group of Americans objecting to something about the sad state of our republic, rather than indifferently accepting each new depridation like sheep awaiting the slaughter.

It is in this spirit that I take issue with one of the central themes of the OWS movement: the fight against “greed.” Here is one area where I believe that the Occupiers are chasing a phantom. Greed is the government’s favorite hobgoblin. Any politician with a bad record, skeleton’s in his closet, or some other threat to his phoney baloney job can invoke this loosely defined vice and count on some level of support in his time of need (for votes). But what is greed and how can one fight it?

That is two questions and one cannot answer the second before resolving the first. I believe that if you asked any 10 people at random for their definition of greed, you would get 10 different answers. The first answer is usually “a desire to have more than one needs.” However, this doesn’t hold up very well. It is obvious that all people desire more than they need. Without accumulating more wealth than what is minimally needed for survival, no human being can read or write a book, create a work of art, or perform an act of charity. In fact, none of what we commonly call “culture” would be possible if human beings did not accumulate the excess wealth that affords them the leisure time to create art, literature, charitable organizations, or the other blessings of society.

To this objection, proponents of the “more than one needs” definition will immediately clarify. “No, I meant desiring far more than one needs.” This clarification is just as problematic. How much is too much? Who sets the limit? At what point has one changed from being a hard worker to being “greedy?” Does that limit change from person to person? Is there a greed-o-meter out there that can set a dollar amount?

If one accepts this definition of greed, the solution to the problem is even murkier than the definition itself. Exactly what is to be done about the fact that “the 1% cares only about profits and not about the  rest of society?” Should businesses take specific actions to cut their profits? What are those actions? The great majority of all new businesses fail within their first year, even when their sole motivation is profit. How is an entrepreneur to know for sure that his business will succeed at all, much less make “excessive” profits? What action can he take to counteract this? Should he cease to innovate, improve efficiencies, lower costs for consumers, improve the quality and features  of his products, or employ people? These are the things that entrepreneurs do to make profits. Specifically which one is “bad” for the 99%?

To be fair, many of the comments on the OWS Demands page are more specific. As I’ve said before, they are definitely in the ball park when they finger the financial sector. However, comments like this one indicate that they haven’t yet found their seats:

“The moneyed elite of our society has changed from being apart of the team that built an economy that raised the lives of all men with ample profits for themselves to a Gambler, who only wants to keep score through the accumulation of money, ever screaming for more profits for themselves at the expense of the people they pretend to serve.”

This is a popular theme and not just among OWS supporters. The accusation that economic players in the financial sector took excessive risks that harmed people other than themselves is almost universally accepted, even by conservatives. Remember George W. Bush’s famous pronouncement, “Wall Street got drunk.”

However, the statement that the “gamblers” make “profits for themselves at the expense of the people they pretend to serve” just doesn’t compute. Wall Street did take excessive risks during the boom that predeceded the bust. They did indeed take those risks in the hope of making greater profits. However, those profits would not have been made at the expense of the people they serve. The people they serve would have made those profits, too, on their own money. They voluntarily gave their money to the financial sector in the hopes that the “gamblers” would win them a return on their investment. Had all gone well, the 99% would have realized a huge return. It is fashionable to claim that financiers make money for producing nothing, but this isn’t true. They make money from their ability to make sound investments and the willingness of other people to pay them to do if for them.

So what can be done about this problem? How do politicians or their constituents, who know nothing about investing (which is the whole reason that they give their money to financiers in the first place), make rules for how much risk investors are allowed to take? Do those rules apply to their own investments? Without some risk, there are no new businesses, no new jobs, no economic growth. How much risk is too much and who decides? The investors themselves or people who know nothing about investing? If investors are not allowed to take whatever risks they deem prudent and the result is that the economy in America dies, will the 99% take responsibility for that? We know that the politicians won’t.

All of these seemingly insoluble dilemmas spring from the initial premise about greed. As long as greed is defined in terms of how much wealth one desires to accumulate, the conclusions that one draws from that premise will always be absurd. The amount of wealth one accumulates or desires to accumulate is immaterial. Instead, it is the means by which one wishes to acquire it that is vital.

If you change your definition of greed from “desiring more than one needs” to “desiring more than one has earned,” then all of the contradictions and ambiguities disappear. Of course, we are immediately begging the question of how to define “earned,” but that is a simple matter. One has earned wealth if one has acquired it without initiating the use of force against anyone else. Under this definition, money given to someone as a charitable contribution qualifies as earned just as profits made from selling products do. In this scenario, the amount of wealth one is able to accumulate has a natural limit – the amount that others are willing to pay for one’s goods or services. This eliminates those troublesome questions about how much is too much in terms of profit.

To be greedy, then, is not the desire to accumulate more wealth than one needs, but the desire to accumulate more than others are willing to pay you for your services. For in order to do that, you must forcibly take the money that they would not willingly give. There is only one institution in all of society that can facilitate this legally: government.

Thus, if Person A accumulates $1 million by selling 100,000 units of his product at $10 per unit, he is not being greedy. He has made an equitable exchange with his fellow human beings: $1 million in products for $1 million in money. In this scenario, he and the 99% are square. Each has benefitted equally from the exchange. We know that he has earned his $1 million because the consumers set the price of his products with their voluntary decision to buy.

Now consider Person B, who wishes to accumulate that same $1 million through government employment, subsidies or privileges. No one voluntarily buys his product. The fact that the government has to either subsidize Person B or protect him from competition means that he is trying to sell something that people would not otherwise buy at his asking price. At best, Person B has sold something at a higher price than people are willing to pay. At worst he has sold something that his fellow humans don’t want at all, but are forced to purchase by the government.

Either way, Person B is greedy – he wishes to accumulate wealth beyond what people are willing to pay him voluntarily. In other words, he is willing to commit armed theft against his neighbors. As you can see, Person B may be far more greedy in his desire for even $50,000 than Person A is in his desire for $100 million, if Person B plans to obtain it by force and Person A means to obtain it through voluntary exchange.

OWS is right to want to stamp out greed, but they aren’t defining it correctly. Since Woodrow Wilson, progressives have been making the same fundamental error in failing to distinguish between legitimately acquired wealth and wealth acquired through government force. It is the latter that OWS should look to stamp out, rather than indiscriminately condemning anyone who becomes wealthy. The most effective way to fight greed by its true definition is to take the Occupation to Washington, D.C., where the power that the greedy utilize resides.

Imagine a world in which every individual has an equal chance to be a millionaire, but only if he offers his fellow individuals $1 million in benefits, with the 99% deciding for themselves how much they are willing to pay. That is a world without greed. That is what we used to call “freedom.”

>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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