Is Greed Good?

Is Capitalism Founded on Greed, or Is That Just Leftist Blather?

Amazon’s decision last February to abandon plans for a second corporate headquarters in New York City was met with mixed reaction from both sides of the political aisle. Many backers of the proposed project pointed the finger of blame for Amazon’s change of heart at Congresswoman Alexandria Ocasio-Cortez (AOC). Her opposition to the company’s plan was clear. AOC stated that “corporate greed” was the reason to reject the project, noting that proposed tax subsidies Amazon was to receive from New York were an example of “worker exploitation.” AOC’s comments reflected the kind of socialist commentary one would expect to hear from the progressive Left. They have become far too proficient at extolling the so-called “evils of capitalism” and how the greedy 1% need to share more of their wealth with the rest of us.

Putting aside the merits of Amazon’s proposal for the moment, what about this idea of greed? Is capitalism based on greed? Those of us who have seen the movie Wall Street recall the lecture from the villainous Gordon Gecko who told a room full of stockholders that “greed… is good.” Was it really “greed” that Gecko should have been advocating, or is capitalism based on something else? Given capitalism’s long track record of generating prosperity and lifting millions around the world out of poverty, this question is worth answering.

Relationships Are Transactional and So is American Capitalism.

Bernie Sanders, Elizabeth Warren and other socialists have joined with AOC in trying to convince us that our capitalist system is rigged by the wealthy to exploit the rest of us. In their minds the notions of greed and exploitation go hand in hand with capitalism. Unfortunately, this outdated view of our capitalist system ignores the underlying morality of free-markets and how they are designed to elevate our social interaction as well as our standard of living.

First, it is worth noting that everything we do when relating to others in society is a transaction. Some transactions are moral and therefore beneficial to society, and some are not. Recognizing this, there are only three types of transactions that individuals can engage in within a free marketplace. It is useful to examine these transaction types against the progressive notion of greed to better understand which are moral and which are not.

The First Type of Transaction is a “Lose-Lose” Where No Value is Created.

When two parties come together in the hopes of a beneficial exchange, and both come away without any benefit, the result is a lose-lose transaction. We saw an example of this earlier in the year when President Trump went to Vietnam to hold his second summit meeting with North Korean leader Kim Jong-un. Both met with the stated intention of negotiating a nuclear arms treaty, and both left empty-handed. However, there can still be a positive moral outcome in this type of transaction, even when value is not created through exchange. This happens when a personal relationship is established between the parties, thereby creating the possibility of forming a beneficial exchange in the future.

The Second Type of Transaction is a “Win-Lose” Where Someone is Exploited.

When two parties come together in an exchange and only one obtains value at the expense of another, the result is a win-lose transaction. We saw a plethora of win-lose transactions created during the 2008 financial crisis. They occurred because federal regulators incentivized market makers Fannie Mae and Freddie Mac to lower mortgage underwriting standards.  These ill-advised standards further incentivized banks and mortgage companies to originate as many subprime loans as possible, loans that were purchased by Fannie and Freddie to meet their regulatory quotas.

Unfortunately, when mortgage interest rates began to rise and housing markets dropped in 2006, many homeowners found themselves with property values worth less than their outstanding mortgage debts. Others found themselves at risk from sub-prime balloon payments that kicked in five years or more into the term of their mortgage loans. As a result, many homeowners who took on subprime mortgages faced bankruptcy, foreclosure or both. Banks, Fannie, Freddie, and mortgage companies all made money on these transactions, but many subprime homeowners did not. What resulted were countless examples of win-lose transactions.

The Third Type of Transaction is a “Win-Win” Where Both Parties Receive Value.

Finally, when two parties come together to complete a beneficial exchange and both benefit, both participate in a win-win transaction. Such a transaction would not occur unless both parties are receiving greater value in the exchange than they are giving away. Most of us engage in win-win transactions every day without even thinking about it, even when buying a cup of Starbucks. Wealth is created because both parties now have greater value as a result of the exchange. Greed has no part in such a transaction because free-market exchange is completely voluntary.

It is Self-Interest, Not Greed, That is Good.

Greed is the selfish pursuit of power, money or property. Relationships based on greed always result in win-lose transactions where one party gains by exploiting another. Progressives see capitalism as inherently exploitive, thereby explaining their interest in government control over most free-market transactions. But progressives confuse greed with self-interest, and it is self-interest that is an inherent requirement in achieving a win-win transaction. After all, how can a win-win transaction be completed unless both parties believe their self-interest has been served?

And if you think only big corporations are greedy, think again. No one would argue about the need for fair and efficient regulation of corporations that create incentives to operate on the win-win model. However, as economist John Maynard Keynes once reminded FDR, “it is a mistake to think that… [businessmen] are more immoral than politicians.” What Keynes understood is that government bureaucrats can also serve their own interests by exploiting parties involved in public transactions. This is the essence of crony-capitalism, a system that serves as its own version of political greed.

American Capitalism is Moral Because it is Based on Win-Win Relationships.

Economist Walter Williams of George Mason University once told us how capitalism has injected greater morality into our relationships.  He spoke of the biblical admonition of Jesus Christ when he said, “It is as difficult for a rich man to get into Heaven as for a camel to go through the eye of a needle.” Progressives will reference this quote as a basis for condemning what they see as the immorality of capitalism, implying we have a moral obligation to redistribute wealth held by the rich. Williams offers us a different observation. He reminds us that Jesus spoke these words prior to the industrial age when wealth was most often acquired by plunder and theft. He notes that free-market capitalism has enabled the creation of new wealth through service to others. True service is only provided through win-win transactions. This is true even when we look at the wealthiest entrepreneurs, like Steve Jobs who founded Apple. Hopefully we can all see that Jobs’ invention of the iPhone has served society well, even while making millions for himself and others. And no one had to put a gun to our heads to buy one.

Somewhere in America, Amazon Will Find a New Home for its Headquarters.

While there may have been good reasons to reject Amazon’s bid for a new headquarters in New York City, concerns about corporate greed and exploitation are not among them. Progressives who target capitalism as a system based on greed and selfish pursuits are just projecting their own leftist ideological version of morality on others. Their devotion to equal outcomes is what drives their pursuit of coerced market relationships, an ideology that when implemented can only result in win-lose relationships. In other words, socialism.

Help Millennials Understand Why America is Exceptional.

If you are the parent of a millennial and want to inspire them to understand more about American exceptionalism and free markets, there is something that you can do. Give them a copy of Conquering the Political Divide – How the Constitution Can Heal Our Polarized Nation. This book provides the grounding we all need in basic civics and economics to help us defend ourselves from progressive ideology. Order your copy today by clicking here.

If you would like to suggest a topic for a future blog, or to provide us with feedback on this commentary, email us at: feedback@FreeNationMedia.com

Eric Beck
Editor-In-Chief
Free Nation Media LLC
Greenville, South Carolina

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