Can greed save us from ourselves?

Two hands hold a piggy bank full of coins.
Written by The ReReport
As seen in the Source link, written by on 2019-02-18 06:35:44


February 18, 2019 06:35:44


It’s regarded among the worst of all our failings, coming in third on the seven deadly sins hit parade just behind lust and gluttony, although exactly who was on that judging panel remains a mystery.

At a personal level, it’s an insidious and destructive force, undermining relationships and tearing families apart. Globally, it has been the catalyst for conflict and war since time began.

And yet, if you can believe modern economic theory, if marshalled correctly, greed can work to all our benefit. It’s an ethos that has flourished, particularly since the 1980s when Gordon Gekko, the lead character of Oliver Stone’s movie Wall Street, an ode to the era, declared: “Greed is good.”

That was the era when banks were suddenly transformed, via the magic of deregulation, from boring utilities run by cardigan-wearing pen-pushers to glamorous institutions fronted by slick salesmen. When conspicuous consumption became an aspiration.

Despite all the negative connotations of that “Decade of Greed”, it continues to be lauded as something for which we should strive. For close to four decades it’s been the driving force behind the push for deregulation and trade liberalisation.

Adam Smith, the father of modern economics, was the first to identify the potential benefits of self-interest in his 1776 tome, The Wealth of Nations.

It might seem obvious now but his theory of market economics — that individuals acting out of self-interest, when competing against one another, optimise the allocation of resources within society — was a revelation at the time.

But even back then, Smith recognised our frailties and the boundaries of self-interest; the distinction between it and selfishness and what he perceived as a vice, greed.

Have we gone too far?

Banking Royal Commissioner Kenneth Hayne summed it up beautifully: “Too often, the answer seems to be greed — the pursuit of short-term profit at the expense of basic standards of honesty.”

For many, Hayne’s verbal assault in his interim report last September was an attack on the concept of greed; what many believe should be the fundamental driving force underpinning capitalism.

Little wonder that bankers and investors were expecting the worst this month and why they were so relieved at the final list of recommendations, which essentially suggested our financial institutions obey existing laws.

But it’s not just Hayne, and it’s not just here. Unfettered capitalism, the idea that markets free of any regulation or interference always will deliver the most desirable result for society, increasingly is coming under attack.

That’s not so surprising. For in no other field of human endeavour would such an idea be tolerated or even entertained.

Just imagine the chaos if we deregulated or abolished road rules.

Let’s use the same logic that’s been employed with market deregulation; we are all rational and act in our own self-interest, so therefore we won’t drive at speeds that endanger our safety.

Rational drivers always automatically calculate the incremental danger (marginal cost) of driving faster to ensure they balance it at the point where it equals marginal benefit.

It’s a terrific theory. The problem, however, is that it’s just a theory, one that’s riddled with flaws and that largely ignores reality. For while we almost always act in our own self-interest, we are not rational, at least not all the time.

Modern society is governed by laws, rules, regulations and social norms that prohibit and restrict our human excesses; that save us from ourselves.

Some is good, but is more better?

Deregulation and market liberalisation have made the world a better place.

Living standards across the globe have risen dramatically in the past half century: billions of people have been dragged out of abject poverty and delivered decent medical care, better education and a chance to participate in modern society.

Is Gen Y worse off financially?

Is Gen Y worse off financially?
The debate over “who had it tougher” between Gen Y and Baby Boomers could well be over.

There are dangers, however, in taking things too far, of being seduced into the idea that if some is good, more must be better. For not everyone has gained.

Developing economies, particularly China, have gained at the expense of the developed world. And within western economies, a small number of people have gained hugely at the expense of the vast number of fellow citizens.

Not surprisingly, across the developed world, there’s a whiff of revolution in the air. So far, thankfully, it has played out within the constraints of an ordered democratic process.

There has been the unlikely election of Donald Trump as US President, the surprise vote by Britons to exit the European Union and the seething discontent across Europe that has seen a political polarisation that has split the centre and shifted toward extremes on either side.

You could argue the same forces are at work here.

The reasons behind the growing angst are obvious. Wages growth has stalled across the developed world, industries have been laid waste by the vast shifts in international capital and many believe they have been left behind.

It’s not all to do with market liberalisation. Technology, particularly the internet, has played a major role too. But that doesn’t dull the pain many are feeling. The wealth divide is real, and it is growing. As it does, so too will the discontent.

This graph tells it all. Young Americans feel like they’ve been delivered the faecal focaccia. That’s because it’s true. They’re worse off now than those from 30 years ago, the previous generation.

The growing wealth gap is creating divisions and tensions within the US between racial groups, age groups, even those who have worked hard to attain an education. The data may be US-specific. But the trends are similar across the western world.

For the most part, politicians across the western world have doubled down on the push for a market-based recovery. More central bank money infusions, more tax breaks for the wealthy and for multi-nationals. If it worked then, why not now?

Unfortunately, it’s a strategy that’s destined to further inflame social tension within national boundaries and across borders.

While many were disappointed with its recommendations, the Hayne Royal Commission tapped into a rich vein of community discontent; the same one that has been coursing the globe.

Greed and unrestrained market forces no longer hold sway within the community, a sentiment that our political masters would do well not to ignore.

Perhaps our leaders should return to the work of Adam Smith and other classical economists like Turgot and Malthus who came up with the Law of Diminishing Returns.

Sometimes, the law goes, the pain simply outweighs the gain.