5 Nov 2012

Greed is good. Sometimes.

Remember Gordon Gekko's "greed is good" speech? It's funny that economists have always considered it an innocent statement of the importance of self-interest, while most of the rest of the world have associated it with ruthless selfishness, social darwinism and ripping off neighbors.

The necessary (?) clarification that we need to keep in mind during this season of electing leaders and voting on laws is that these ideas can be reconciled by noting that "greed is good" WHEN:
  • Rules protect the innocent against greed from (white and blue) collar theft. These same rules -- the rule of law, in other words -- make it possible to earn and accumulate wealth.

  • A safety net ensures that the wealth produced by greed is partially redistributed to protect those without the wits or the luck to do well. Taxes fund common pool goods like social insurance (unemployment, health, education) and infrastructure (roads, police, fire, courts, etc.) that help people "build that." I prefer simple taxes that are not distorted by lobbyists and legal clauses -- like property taxes.

  • Government functions support the creation and trading of private goods without dictating what those are. Consumerism that increases the demand for resources is not great, but it can be troublesome when consumption produces negative externalities.
Bottom Line: Greed is good but don't steal.