TGIF: Free Markets and Greed

"Greed, for lack of a better word, is good."

Ever since corporate raider Gordon Gekko, the lead character in Oliver Stone's Wall Street (1987), made that declaration, left-wing opponents of the market economy have regarded that one-liner as the only rebuttal required to silence their libertarian adversaries. (Right-wingers like the national conservatives probably find Gekko's line useful too.)

But Gekko's scriptwriters, Stone and Stanley Weiser, neglected to have their creature define the word. How interesting, then, that Gekko says, "for lack of a better word." Is there no better word or phrase than greed for what he might have had in mind? "The peaceful pursuit of one's interest" or "the pursuit of happiness" works for me.

The lack of a definition, of course, has never stopped anyone from quoting Gekko. It's as though a real person had finally blown the whistle on the market economy. It's about greed, and we all know that greed is the worst thing! What more do we need to know?

Bear in mind that the economy that Gekko operated in was not free, especially in banking and corporate finance. The politicians' and bureaucrats' hands were and still are all over it.

The video clip of Gekko praising the morality and efficacy of greed is still a staple of the left. So advocates of the market ought to be prepared for the charge. Milton Friedman can help.

Friedman, the late Nobel-Prize-winning economist, market advocate, and classical liberal was second to none when it came to handling questions from critics, and fortunately we can watch him in action as he answers the charge that greed is a moral stain on the marketplace. (YouTube has many videos showing Friedman answering market critics. Each is a superb lesson in how to respond with patience, civility, and clarity. Everyone would benefit from studying those videos.)

In 1979, eight years before Wall Street, Friedman appeared on Phil Donahue's popular television program. In this short segment of the interview, Donahue asked Friedman, "When you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism and whether greed's a good idea to run on?" (Like greed, the ink-blot word capitalism means different things to different people, which it makes it a bad name for a social system. Hence it is often modified with such conflicting adjectives as free-market, crony, laissez-faire, political, and state. That's only one reason I have for rejecting the word.)

Friedman replied:

Well, first of all, tell me, is there some society you know that doesn't run on greed? Do you think Russia doesn't run on greed? Do you think China doesn't run on greed?

What is greed? Of course, none of us are greedy. It's only the other fellow who's greedy.

The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn't construct his theory under order from a bureaucrat. Henry Ford didn't revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you're talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it's exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way, so far discovered, of improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free-enterprise system.

Donahue isn't finished, however. "But it seems to reward not virtue as much as the ability to manipulate the system."

Then Friedman:

And what does reward virtue? You think the communist commissar rewards virtue? You think a Hitler rewards virtue? You think -- excuse me, if you'll pardon me -- you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout?

Is it really true that political self-interest is nobler somehow than economic self-interest? You know, I think you're taking a lot of things for granted. Just tell me where in the world you find these angels who are going to organize society for us. I don't even trust you to do that. [Smiling.]

Without my intending any criticism, Friedman might have asked Donahue what system he thinks some business people try to manipulate in today's mixed economy. Isn't it the interventionist political system that free-market advocates object to? Friedman also might have asked what's unvirtuous about a system that leaves individuals free to peacefully pursue their happiness through production and trade that necessarily makes many other individuals better off too. State-run or state-guided alternatives are all zero-sum, if not negative-sum, systems. One person's gain is another's loss. Only the market economy is positive-sum -- win-win. John Stossel likes to underscore that buyers and sellers typically thank each other when they complete their transactions. That should tell the Phil Donahues of the world something.

By the way, if you want an actual good movie on the economics of corporate takeovers, check out Other People's Money (1991), based on the play by Jerry Sterner, screenplay by Alvin Sargent, directed by Norman Jewison, and starring Danny DeVito and Gregory Peck.

Bernie Sanders's Short Memory

During his interview with the New York Daily News, Bernie Sanders was asked to specify the fraud committed by Wall Street banks. He replied:

What kind of fraudulent activity? Fraudulent activity that brought this country into the worst economic decline in its history by selling packages of fraudulent, fraudulent, worthless subprime mortgages. How's that for a start? 

Selling products to people who you knew could not repay them. Lying to people without allowing them to know that in a year, their interest rates would be off the charts. They would not repay that. Bundling these things. Putting them into packages with good mortgages. That's fraudulent activity.

Does Sanders really forget that it was progressives like him who demanded that banks lower lending standards so that low-income people with no, weak, or bad credit histories could get mortgages with low teaser interest rates that would later balloon? Is he ignorant of the fact that these banks had every reason to believe the government would bail them out if they failed? Does he not recall Fannie Mae and Freddie Mac, the government-sponsored enterprises championed by Barney Frank and other progressives, that were right in the middle of this action, knowing they'd be saved if they failed? Has Sanders no memory of mortgage lenders like Countrywide, which were celebrated by progressives for aggressively pushing mortgages on people who could not afford them? Is he unaware that HUD, under Bill Clinton (and Secretary Andrew Cuomo) as well as George W. Bush, enabled people with poor credit and low incomes to "buy" houses with little or no down payment? And finally, is he oblivious of the fact that it was all these government-pushed shaky mortgages that were bundled into the exotic investment instruments Sanders now decries?

I'm pretty sure Sanders is aware of all this. But it doesn't fit his narrative that the Great Recession was entirely the result of private-sector greed, so he can't acknowledge it. Wall Street is properly viewed with suspicion, but what makes that reasonable is that it has long been in cahoots with the national government, notably with federal deposit insurance, which rewards irresponsibility by relieving depositors of the need to judge banks' sobriety or lack thereof.

In other words, Sen. Sanders, Wall Street couldn't have done it alone. It needed people like you.

(For details see Peter Boettke and Steven Horwitz, "The House that Uncle Sam Built.")

Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is a senior fellow and chair of the trustees of the Center for a Stateless Society, and a contributing editor at Antiwar.com. Become a Free Association patron today!

Clinton's Wall Street Red Herring

In response to Bernie Sanders's stigmatizing her as an establishment candidate who takes big bucks from Wall Street, Hillary Clinton challenged Sanders to show that she ever changed a vote or a position because of a campaign donation or speaker's fee.

That's a red herring.

Sanders's concern presumably is not that she was or is for sale, but that Wall Street operators see her as already friendly to their interests. If so, they did not need her to change her position or disposition. Rather, they like what they see and want her in charge.

For some reason, Sanders is reluctant to go in for the kill. Maybe he's not very sharp on his feet.

TGIF: Will 2016 Be a Good Year for the Corporate State?

It's shaping up that way. See TGIF.

Wall Street Couldn’t Have Done It Alone

To Occupy Wall Street:

Wall Street couldn’t have done it alone. It takes a government and/or its central bank, the Federal Reserve System, to:

• Create barriers to entry for the purpose of sheltering existing banks from competition and radical innovation, then "regulate" for the benefit of the privileged industry;
• Issue artificially cheap, economy-distorting credit in order to, among other things, give banks incentives to make shaky but profitable mortgage loans (and also to grease the war machine through deficit spending);
• Make it lucrative for banks – and their bonus-collecting executives -- to bundle thousands of shaky mortgages into securities and other derivatives with the knowledge that government-sponsored enterprises Fannie Mae and Freddie Mac and other companies, all subject to powerful congressmen looking for campaign contributions, would buy them after a government-licensed rating cartel scores them AAA;
• Inflate an unsustainable housing bubble by the foregoing and other methods, enticing people to foolishly overinvest in real estate.
• Work closely with lending companies to establish a variety of programs designed to lure people with few resources or bad credit into buying houses they can’t afford;
• Attract workers to the home-construction bubble, setting them up for long-term unemployment when the bubble inevitably burst;
• Implicitly guarantee big financial companies and/or their creditors that if they get into trouble they would be rescued;
• Compel the taxpayers to bail out those companies and/or creditors when the roof finally fell in.

No bank or group of banks could do these things on its own in a freed market. It takes a government-Wall Street partnership – the corporate state -- to create such misery and exploitation.

So demonstrators, you are right. Something is dreadfully wrong. But your list of culprits is far from complete. So go ahead and protest outside Goldman Sachs and Bank of America. But also spend some time outside the White House, the Fed, the Treasury, and the Capitol Building. Together they are responsible for our current economic woes. These are the entities that control our fate and over which we have no real say. It's time for things to change.

Greed without political power is boorish. Greed with political power is dangerous.

The freed market is the alternative to what you properly despise.

TGIF: The Washington-Wall Street Kabuki Dance

There’s something eerily ritualistic about the current occupant of the White House berating Wall Street for its irresponsibility and proposing new regulations, while his targets send a swarm of lobbyists to Washington to keep the regulatory overhaul from getting out of hand. (History says they’ll be on good terms with the regulators in any case.)

I’m reminded of journalist and historian Walter Karp’s book Indispensable Enemies. These apparent adversaries need each other.

The rest of TGIF is here.

I'm happy to say that Counterpunch has reposted the article.