Greed is not good

In the 1987 movie classic Wall Street, the sinister protagonist Gordon Gekko played by Michael Douglas gives this famous quote:

In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.

Since that time, this quote has become famous as the “Greed is Good” philosophy of capitalism.  Gekko symbolizes an era in which it is believed that the free hand of market capitalism will steer the economy efficiently and effectively with little need for government intervention or regulatory oversight. Instead, so the theory goes, we are each allowed encouraged to pursue our manifest destiny of getting filthy rich. Screw everybody else.

Well, let me tell you something greed is not good.  Greed is corrosive and it is tearing at the very fabric of our democracy. A generation ago most people in America worked for a few institutions in their lifetimes.  Many had employer-paid healthcare and employer-financed defined benefit pension plans.

But, since the 1980s the moorings have come off and set us adrift in a world of economic insecurity.

• Job insecurity has increased dramatically, especially as reflected in part work statistics(see here and here). This has resulted in deteriorating health and declining work safety.
• The healthcare debate is front and center in the US today. Yet, incongruously, the focus has mainly been on how ‘socialist’ proposed remedies appear.
• And defined benefit has been almost completely replaced with 401(k) plans, leaving retirees to face potential economic hardship in old age.

This is “the Great Risk shift” in which corporations in pursuit of shareholder value (remember ‘greed is good’) have sloughed off as many economic risks onto ordinary Americans as they could reasonably get away with. This is crony capitalism, not free market capitalism. And a anesthetized American public has put up with this. I continue to ask myself why.

Maslow’s hierarchy of needs was very much on display earlier in the year as we entered the worst of this financial crisis. Everyone felt vulnerable. But now that recession is over, it does seem that America is returning to business as usual, both on Wall Street and on Main Street.

What I find most galling is that just one year ago Barack Obama was saying, “Elect me! Elect me! I am change you can believe in. But, no sooner does he enter office and he continues the massive bailout of the financial services industry that was begun by the predecessor administration. And today there are really no substantive regulatory changes on offer by this Administration. It was this same support for the financial elite at the expense of the middle class which has led to a widening gulf in income and wealth.

And by the way, if you haven’t noticed, real incomes are lower now than 36 years ago.  So, this is certainly not change I believe in…yet. And given many of the players today are the same as they were before the crisis, don’t expect any real change. Apparently the only thing that is going to induce change in Washington (or London) is a horrific depression.

So, what about greed then? Roger Bootle takes this on in his latest book, “The Trouble with Markets,” which I highlighted earlier in the week. Here is how the Telegraph quotes him:

The free-market vigilantes are already rushing to defend the unfettered market system. Their defence is based on one or other of three arguments. First, the market solution is to let failing financial firms fail. If the state intervenes to stop this, the blame for the resulting mess cannot be laid at the door of the market system. Second, banking has been a heavily regulated activity. The regulators have failed in their job. Third, the monetary policy authorities should have paid more attention to the growth of money and credit and the resulting inflation of the property market bubble.

In this way, they try to argue that what seems on the face of it to be a failure of markets is in fact a failure of government. So the solution, they say, is not less freedom for markets but more.

These people are dangerous. The idea of letting the financial system implode and then waiting for the market to bring spontaneous, healthy revival out of the wreckage might read well on the pages of a book, but in the real world it would bring human misery on a gigantic scale. In today’s society, people simply will not tolerate it. If that is what the market system is about then they will have none of it; and rightly so.

Have a go at the full article linked below. Bootle makes some very good points. I liked his last book, “Money for Nothing”. So I suspect his new book is a good read too.

Greed isn’t good– it’s dangerous – Telegraph