THE LIBERTARIAN ENTERPRISE
Number 621, May 29, 2011
"Anything less than freedom is not freedom, but something else."
Attribute to The Libertarian Enterprise
We have been hearing a lot about greed in the last several years, particularly in regard to Wall Street, big banks and the financial crisis. The crisis was caused by the insatiable greed of investment bankers and financial speculators with their mortgage backed securities and predatory lending and hedge funds and derivatives and whatnot. It all happened because all these people got greedy and exploited the system. And, of course, greed, as Tom Woods has said, apparently comes in 20 year cycles.
Apparently bankers and Wall Street movers and shakers go along happily, being model citizens for extended periods of time and then some sort of evil madness possesses them and they go on binges of uncontrollable greed. Likewise, on the other side of the coin we have the envious people who envy all of these rich people and it's class envy that's responsible for unsustainable entitlements which are bankrupting the country. So it's all about greed and envy and if people would stop being either greedy or envious or both all our economic problems would go away.
Yeah, that's the ticket, let's change human nature! After all, it's not like people have always been greedy and envious and it's not like they always will be. It's not like some people have always been willing to do just about anything and bend just about any rule to acquire money and stuff to which they may or may not be entitled. All we need to do is suddenly transform ourselves into the sort of people who would never covet what our neighbor has and never compromise a principle in order to gain an advantage over others. All we have to do is eliminate greed and envy. Yeah, that's going to happen.
The truth is we humans will always be greedy and envious just as we will always be all the other, more or less admirable things that people are. Greed and envy are part of all of our natures to one degree or another. We are all greedy and envious about something, even if that something has nothing to do with money or possessions. As for myself, sure, I wish I were rich. I wish I had my own tropical island in the south Pacific and my own 10,000 acre ranch in Colorado with log mansion and a couple of hundred thoroughbred race horses and on and on.
I'm certainly envious of the people who have those things, but it's fairly unlikely I will ever have them myself. And it hardly matters at all that I am envious about these things. Rather than beat ourselves up over who and what we arewhich is merely human maybe we need to ask ourselves what is it about the way we do things and about our system that allows the greed and envy of a relative handful of us to have such an impact on the rest.
We've heard a lot about something called "moral hazard" in recent yearsa term most of us were hardly familiar with until fairly recently. I knew the term was associated with the insurance industry, but I didn't really have a clear understanding of its broader meanings until I checked into it after hearing so much talk about it. There are many definitions of moral hazard with subtle differences in meaning depending on the context. Essentially what it means is that a person is protected or insulated from the consequences of his choices and actions because the risks involved with those choices and actions are borne by someone else. A person then is more inclined to or has more of an incentive to behave in ways and to take risks that he or she might not were they fully exposed to the consequences of those risks.
In the context of insurance a person may be inclined to take risks with his property he would not take were it not insured and he were not protected from loss. A person may have an incentive to, say, burn down a house or a business that he wants to unload but can not in order to collect the insurance money involved.
In the case of, say, a Wall Street banker there are at least a couple of facets involved. The obvious one is the inclination to gamble with other people's money in the hope of making a windfall in profits while being buffered from consequences your bets should they go bad with the knowledge that if you lose you will ultimately be bailed out by taxpayers who are held hostage by the paradigm of "too big to fail".
Another facet involves the misrepresentation by, say, a Goldman Sachs with respect to the riskiness of their investments in mortgage backed derivative products and the purchase of insurance against the failure of those derivatives, essentially betting on them becoming worthless. And, of course, AIG who underwrote this insurance was driven to the brink of collapse when the housing bubble collapsed and being "too big to fail" and all, that left you and me and every other taxpayer was left holding the bag.
So AIG was then able to pay off the Goldman insurance claims and Goldman execs were able to stuff their pockets with taxpayer money. So, no matter how terrible the bets were that Goldman made, they couldn't lose. Now, I am not remotely an expert about any of this stuff, so forgive me if my examples and my understanding of the situation leaves something to be desired. It's certainly more complicated than I am able to comprehend, but I think the basic issue remains.
There is a subclass of people in this country and not just on Wall Street who can not lose no matter how poorly they perform or how ridiculously stupid are the choices and decisions they make. We see this in government all the time and in the unholy alliance between corporate America and the governing class. They call it crony capitalism. This is how, for a select handful among us, risk is socialized and profit is privatized.
In the case of government you have legislators willing to squander other people's money in order to pander to their bases or to satisfy their contributors or to guarantee themselves well paying (by most of our standards, grotesquely well paying) "consulting" or lobbying jobs once they leave "public service". Our economic system and our government is rife with moral hazard. It is integral to our system.
That is the great American pastime for the ruling classshirking responsibility and making others suffer the consequences of their terrible decisionswhether it involves asinine, gratuitous decisions to invade and occupy foreign countries so you can be a "war President" or setting the entire country on a course to economic collapse with a national debt and entitlement programs which can not possibly be sustained by any model.
And isn't our system or entitlements an exercise in moral hazardbeing protected from the consequences of your choices and decisions? Now, I don't have any issue with people who have grown up in a system that essentially forces them into dependency. I don't have any contempt for, say, a "welfare mom" who feeds her kids Clark Bars and potato chips for dinner. It is hard to work up any ill will against those people who are dependent on the state for a pittance to sustain their existence when you have millionaires and billionaires gorging as a matter of course at the public trough. The welfare mom is just as much a victim of the system as the taxpayers who subsidize her existence and but for the grace of God go you and I.
She is a product of the system and has little hope of finding a way out. I guess the point I would like to make is that the system is set up this way deliberatelywith a political/ruling class and their pals skimming off the cream while creating a dependent underclass beholden to them for the crumbs they let drop from the grownup table. And that underclass is not just welfare moms living from hand to mouth, but it is also many of us who are subject to the whims of those in charge of our financial systemthe Federal Reserve and the big bankers to whom they answerfor the jobs some of us have managed to hold onto for the time being. The question becomes, what happens when there is not enough left on the table for our overseers to gorge themselves and still have some crumbs left over for the rest of us. I suspect that day is coming, so we shall see.
The overall point I am trying to make is this: That moral hazard is central to the way the system is set up, from top to bottom and is not merely a concern with respect only to Wall Street. The system has designed to set up a system of dependencies with all of us ultimately dependent on those at the top with their hands on the levers of economic and political power. In that way they can ensure that no one will rock the boat seriously and they are at little risk of being knocked off their high horses.
So all of this talk about greed (and, on the other hand, envy) is completely beside the point and deliberately so. They don't want you to see that it is the rigged system that puts some people in a position to exploit everyone else. It is a system of well connected people, the political/ruling class, with an inside track on everything and who protect each other's interests and keep the charade going for the rest of us little people. The problem is not greed or envy themselves, but a system of government into which mechanisms are build by which greed and envy are rewarded.
It wouldn't matter how greedy, say, a banker was if there were not a system in place by which he can exploit the rest of us. Likewise, the envy of the have nots wouldn't matter were there not a system in place by which your wealth and mine (pathetic though it may be) is redistributed as our rulers see fit.
Sure these people are greedy, envious, power hungry and self servingas nearly all of us are to one degree or another, but the problem lies not in our greedy natures, but with a system that gives some an advantage over others and is set up in way that allows them to inflict their greed and their envy on the rest of us. As libertarians like to say: It's not the abuse of power. It's the power to abuse.
There is a major issue in this country and in the world with wealth inequality and people like to blame greed and envy for it, but just as my envy of millionaires matters not a whit, the greed and envy of others wouldn't matter were it not for a system that gives people a mechanism by which exercise their greed and envy. You have to ask yourself, how many of the very wealthy would have become very wealthy in a genuinely libertarian society? How much of that wealth is the direct result of the notion of intellectual propertya concept with which many libertarians, myself included, have an issue with.
And how many of the very wealthy became very wealthy by virtue of their proximity to the levers of power? How many billions have been paid to Dick Cheney's company, Black Water? And isn't there a particular reason why 6 or the 10 wealthiest counties in the country happens to be in the Washington DC area? What wonderful product are they producing there that produces so much wealth? This is the free market at work, I suppose. There is apparently a huge demand in the country for bureaucrats and lobbyists. And, of course, it is greed that is responsible for using your taxpayer dollars to give subsidies to millionaire farmers not to grow rice or raise pigs and so on. It's certainly isn't that the government is meddling in the market in a way that it has no genuine authority to do. And, of course, it's not just farmers. It's millionaire sports team owners, it's power companies, it's movie producers, it's the use of eminent domain to benefit millionaire developers, it's everybody except you and me and everyone like us. Also, consider all the barriers to entry that are erected all over the economy to hinder competition.
Big companies complain about regulation, but this is a charade. Big, successful companies have the wealth to deal with onerous regulations. It's their potential competitors who do not. On a smaller scale look at licensing for virtually any activity that someone could potentially make a business out of. Try manicuring nails or braiding hair without a license and see what happens. This is to prevent competition and to protect the interests of a view at the expense of others. It is all over the economy and it is all the result government intervening on behalf of special interests.
I guess the point I am trying to make is this: all of this talk about greed and envy is merely a distraction. As long as we have a system that can be exploited for the benefit of the few at the expense of the rest, that's what we will get. As long as we give the government the power distribute and redistribute the wealth of this country, the bulk of that wealth will end up in the hands of the people who need it the leastwhatever the supposed intentions of our overseers.
And as long as we have a system which can be manipulated to give an advantage to some over others it will be. I happen to believe the vast disparity of wealth that exists in this country is largely a direct result of government meddling with the economy and I am convinced that under a libertarian system this kind of disparity could never exist. Don't get me wrong, I don't oppose rich people. I would very much like to be one myself, but the odds aren't very good. What I oppose is the accumulation of wealth at the expense of others and the crony capitalism on which it is based. In a genuinely free market, all wealth would be legitimately acquired and would never be at another's expense. I don't actually think that greed and envy are praise worthy, but they are part of the human condition and certainly they can be drivers for the kind of economic growth that will make us all wealthier.