It’s Not Politically Correct To Say, but Individuals Pursuing Their Self-Interest is Essential for Free Markets; Greed Did Not Cause the Financial Crisis

Excerpts from September 19, 2013 LA Times article: “Five Years After The Meltdown: MBA Schools learn, teach new lesson” The financial crisis spurs soul-searching and beefed-up courses on ethics and risks

“It’s all part of an effort to combat the mantra that has become central to business culture over the last few decades: the single-minded pursuit of shareholder value. A case in point could be the subprime mortgage deals that propelled the crisis. Mortgage brokers and Wall Street Traders earned big bucks selling faulty loans and packing them into…it turned out…worthless investments. Their goals was to make as much as possible.”

“’That goes to the heart of the problem,’ said Jeffery Smith of the University of Redlands, who is a visiting professor at DePauw University in Indiana this year. ‘They weren’t rewarded on the basis of whether or not these products and services actually produced wealth for society as a whole.’”

“Is this Redlands professor right? Is the whole tenor of this LA Times article, that business ethics lapses and greed were the cause of the financial crisis, right? I don’t think so. How would we then make every day decisions, especially economic/business decisions? On the greater good for society as a whole? Who’s view? I was taught that our capitalistic system only works properly if we pursue our own self-interests (subject to complying with all laws and regulations). It’s for our government and our religious/civic/charitable organizations to fill in were our free market capitalistic system falls down. I still think that’s right. And what’s greed? Isn’t it greedy to want your kids to go to Stanford and do everything possible to make that happen. You went to Stanford. Why not let some other family have a chance? Is it greedy to want your college alma mater to win the BCS championship every year? Shouldn’t you let someone else win for a change? I bet the Alabama faithful don’t think so? What amount of wealth accumulation is greedy and what is not? I think the financial crisis was caused by many factors, including well-intended government distortions of the financial, mortgage, and housing markets, global macroeconomic factors, economic uncertainty, and investor exuberance for all types of assets. I don’t think it was caused by greed (because that is always present in our system and needs to be) or by fraud.” Michael Perry, September 19, 2013

Excerpt from NY Times, September 10, 2013, “Embracing Wynne Godley an Economist Who Modeled the Crisis”:

“Mainstream (economic) models assume that, as individuals maximize their self-interest, markets move the economy to equilibrium.”

Excerpt on Capitalism and Greed from Feb. 11, 1979 Phil Donahue Interview of Nobel prize economist and Presidential Medal of Freedom recipient Milton Friedman:

Phil Donohue: “When you see around the globe the mal-distribution of wealth, the desperate plight of millions of people in underdeveloped countries, when you see so few haves and so many have-nots, when you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism? And whether greed is a good idea to run on?”

Milton Friedman: “Well first of all tell me, is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy. It’s only the other fella that’s greedy. The world runs on individuals pursuing their separate interests. The greatest 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 that you are 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 kind of societies that depart from that. So that the record of history is absolutely crystal clear, there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

Phil Donohue: “Seems to reward not virtue as much as the ability to manipulate the system.”

Milton Friedman:  “And what does reward virtue? You think the Communist commissar rewards virtue? You think a Hitler rewards virtue? Do 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 political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? You know I think you are taking a lot of things for granted. And just tell me where in the world you find these angels that are going to organize society for us? Well, I don’t even trust you to do that.”

Posted on September 19, 2013, in Postings. Bookmark the permalink. Leave a comment.

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