A lot of people have blamed greed for the current economic meltdown. Corporations took on why too much risk in their myopic pursuit of double digit growth. The next logical step is to blame capitalism, since capitalism is based on the concept that greed is good. Therefor, capitalism is bad because it created too much greed.
But there are a few
fallacies with this argument.
Myth #1 Capitalism creates greed
Economic systems do not create greed. Man was greedy before capitalism was ever in existence.The history of the world is rich with stories of battles fought for economic purposes (battles over trade routes, land, slaves, spices, weapons and in the case of Iraq....oil). As long as there is scarcity of resources, there will be greed. Even if there was no scarcity of resources, greed will still be prevalent. Inequality would still exist in power, looks, athletic ability, intelligence or any other number of factors. If my neighbor and I both have the same exact resource but my wife is hotter or my job gives me more power, than there will still be greed.
Myth #2 Greed is bad
The economy thrives when consumers are confident (aka greedy) and decide to purchase goods and services. Greed is what makes us want something better out of life. Imagine if man was content with watching Remington Steele on
Betamax. Thank God greed led to discontent and that led to better TV shows and technology for recording them. Now I can watch The office on
DVR....which is way better. Greed encourages discontentment which is what drives a lot of technological innovation.
Myth #3 Greed led to the economic downfall
There are numerous factors that led to the economic downfall. One could argue that much of the housing bubble was created by government intervention which encouraged
homeownership for everyone. While this was a lofty goal, the reality is it also encouraged Fannie Mae and Freddie Mac to loosen up lending guidelines and abandon the financial prudence the were originally founded on. Another example of government intervention leading to economic troubles would be our huge trade deficits. Drilling in
Anwar could help reduce our reliance on foreign oil, likewise reducing the trade deficits we run will OPEC nations. This is a clear cut case of environmental policies costing the economy jobs.
Encouraging a strong dollar over the last few decades has made our exports too expensive and encouraged US buyers to turn to foreign imports. Greed did not lead to these huge deficits. Failed economic policies did. In a true capitalist economy, a country like China would not be able to artificially weaken their currency and run huge trade surpluses. They would be forced to even out the trade surplus by purchasing goods from western nations,
benefiting the manufacturing sectors of both countries. One could even argue that the fact that the Chinese government refuses to give in to the greed of a billion and a half hungry consumers in order to run large surpluses has led to the economic downfall.
It was not greedy consumers that hurt our economy. It was the fact that our entire economy and much of the global economy become too reliant on US consumers spending. At the same time, the US continued to export jobs. It started as manufacturing jobs and continued with engineering, accounting and other sectors. The solution is not to discourage greed. Rather the solution lies in making the US economy a
competitive and productive economy.
Here are a few thoughts on how to do this:
-Determine where our competitive advantages lie and build up those sectors. For example, British Humor sucks. But American humor is awesome. There has to be something else we are better at than just making jokes. Lets find out where our advantages lie and exploit them.
-Negotiate fair trade agreements that create wealth and parity for both countries. We buy shoes made in China, they buy our Pop-tarts and Cornflakes.
-Encourage
entrepreneurship. Imagine if we spent a fraction of what we waste on military contracts lending money to start-ups. I read an article once about how researchers are developing a
biofuel out of
alae.
Hypothetically if this
biofuel was to become a legitimate source of energy and it was US scientist who were first to break this technological barrier. It would give us an advantage over other countries. Same goes for stem cell research,
nano technology and other future innovations.
-Reduce government spending and grow the private sector. Last I checked, you can not spend your way out of a deficit.
-Privatize a portion of social security. This would add liquidity to the market and give the average Joe a bigger stake in the economy.
-Strongly enforce anti-trust laws. The consolidation of the financial, pharmaceutical and energy industries has led to a large number of oligopolies which discourage
competition and hurt consumers. I once saw an intersection where 3 gas stations were all circle K's. Apparently an
Exxon and mobile both became mobile, which then became circle K. Later, the Shell across the street became circle K as well. In my neighborhood we have a B of A branch inside of a grocery star, then their is a B of A Home Loans branch and a B of A bank branch. I could literally want a few hundred yards and run into 3
separate Bank of Americas.
- Let crappy businesses fail. Maybe filing for BK will lead to a leaner, stronger, more innovative GM.
Ultimately it will be competition and capitalism that will lead to the economic recovery. Lets just hope that this next time around that there are safeguards in place to be sure that we are all playing by the same rules.
