Gordon Gekko, Oliver Stone and Michael Douglas are back and the sound bite “Greed is good” is once again inescapable. Mr. Stone and Mr. Douglas could reprise their take on Wall Street because the Financial Crisis has once again given greed a bad name. So it is time again to restate the question..What role does greed play in our economic system?
Is Greed what motivates entrepreneurs, innovators and leaders of business enterprises to take risks, to come up with new products, to enter new markets, to make their enterprises more efficient ? and by doing don’t they create companies, hire workers, provide new products, lower prices and amass the capital to continue their efforts.
There is no limit on how much money they can accumulate because such a ceiling would, by its very nature, diminish the incentives to do such good works (the religious analogy is deliberate).
What really restrains greed is not government or morality but competition. As one person or company dominates a business and amasses extraordinary profits, others seek to fulfill their own greed by going after the leader. Just look at the iPhone and all the imitators it has spawned.
Of course, everyone believes that it was greed on Wall Street that caused the Financial Crisis. Wall Street people were greedy; they always have been. So too were the politicians who ordered Fannie Mae and Freddie Mac to buy sub prime mortgages to expand home ownership. And no one should forget the role that Ben Bernanke and Alan Greenspan played when they made the crisis inevitable by lowering interest rates so much that taking on excessive risk was only the way to generate acceptable profits for investors. Greed comes in many forms.
Is this what Adam Smith’s meant in Wealth of Nations ? But since studying economics isn’t an American passion, I’ll just ask: What role does greed play in our economic system? (credit g.david)