Monday, February 18, 2008

Greed Is Good

My last post received some negative comments concerning the idea of greed. In my defense, I appealed to the always brilliant Walter E. Williams and his recent piece on the importance of greed in our society. Apparently, this assertion needs a bit more explanation.

Williams begins his piece by pointing out that greed cannot be easily defined:

Let's talk about greed, starting off with Merriam-Webster's definition: "a selfish and excessive desire for more of something (as money) than is needed. That definition is a bit worrisome because how does one know what a person really needs? It's something my economics students and I spend a bit of time on in the first lecture. For example, does a family really need one, two, three or four telephones? What about a dishwasher or a microwave oven? Are these excessive desires? If you say these goods are really needed, then I ask, how in the world did your great-grandmother and possibly your grandmother, not to mention most of today's world population, make it without telephones, dishwashers and microwave ovens? "Need" is a nice emotional term, but analytically, it is vacuous.

How much do we really need? Lots of people like to go around making sweeping statements about what is or is not "enough." I agree that people (especially Christians) should not be living life with the ultimate goal of possessing mere things and indulging in pleasure with little or no regard for other people or a higher calling. This can be a difficult question to ponder as it applies to one's personal life. Indeed, my family often chooses to forgo certain luxuries so that our resources can be put to a higher use (supporting mission work, having more family time, etc.) The problem comes when we try to define what is "enough" for other people. One man's luxury is another man's necessity. Who are you to decide for me or anybody else whether something is a luxury (greed) or a necessity (reasonable)?

The temptation always exists for us to look at those of more lavish means and label those items and services which they possess and we cannot as luxuries, possibly indicating that they are, in fact, "greedy." But we rarely look at those of more humble means and conclude that we are "greedy" for possessing more than they. Why not? Politicians love this, because they can conjure all sorts of images of "fatcat" oil tycoons buying more ivory back-scratchers and laughing that evil Mr. Burns laugh. After all, those gas prices are getting awfully high for those poor "working" people (as if oil tycoons do nothing but sit around and count their money). For more information on how this works, just listen to any democrat campaign speech.

Williams then gives us the better term, selfish:

"Selfish" is a bit more useful term, and it's the human motivation that gets wonderful things done. For example, I think it's wonderful that Alaskan king crab fishermen take the time and effort, often risking their lives in the cold Bering Sea, to catch king crabs that I enjoy. Do you think they make that sacrifice because they care about me? I'm betting they don't give a hoot about me. They make it possible for me to enjoy king crab legs because they want more money for themselves. How much king crab would I, and millions of others, enjoy if it all depended on human love and kindness?

Again, Christians ought not live a life of selfishness. We should consider the "least of these" and do what we can. However, selfishness is really just self-interest--looking out for ourselves and our own families. So there is a good side to this coin. And part of self-interest is making money, and lots of it. Here's where all this "greed" drives our whole economic system for the betterment of everyone, rich and poor alike. The question is not "why are gas prices so high?" but "why are they so low?" Last time I checked, oil-drilling equipment isn't very cheap. And you usually don't find oil just shooting out of your back yard--you have to travel to the ends of the earth, and then you might find it. Or you might lose your shirt. You get the idea (I hope). Being an oil tycoon is hard, hard, really hard work, and if somebody wasn't crazy enough (greedy enough?) to do it, we'd all be riding around in buggies and enjoying the fresh smell of manure instead of griping about gas prices.

The quest for profit (what some might call greed) brings us untold technological advances and a bewildering array of products and services. If you want it badly enough ($$$), someone will figure out how to offer it to you, possibly gift-wrapped. Whenever you hear someone knocking those "greedy rich people," you let 'em have it. Tell them those greedy rich people pay your salary, fill your gas tank and let you shop at their grocery stores (most have around 30,000 products for sale). They generously give to worthy humanitarian causes. They invent better medicine and make safer cars. They let you watch 1,000 channels on your HDTVs. They allow Christians to support mission work in foreign lands. They give you coffee from Sumatra and chocolate from Switzerland. And they offer us all this for less money than the year/month/day before. Greed makes the world go around.

Greed is good.


Stephen said...

This is something of a semantic issue. If we define greed as economic self-interest, then yes, greed is good.

We reach a different conclusion if we define greed as it is found in such scriptures as:

Proverbs 15:27
He that is greedy of gain troubleth his own house; but he that hateth gifts shall live.

1 Timothy 3:3
Not given to wine, no striker, not greedy of filthy lucre; but patient, not a brawler, not covetous;

This is a different kind of greed--it's primarily a heart issue. It's the destructive, insatiable desire for worldly goods. Unfortunately, this has also become a part of American life; we may call it materialism or consumerism. The Bible is pretty clear that this is a fruit of man's sinful nature.

Since greed and selfishness are potentially ambiguous terms, let's frame the discussion in clearer terms.

I'm sure we'd all agree that materialism is bad.

Likewise, we should agree that economic self-interest, or the profit incentive, is a good thing. The profit incentive is the lifeblood of capitalism, and capitalism is the fairest and most efficient economic system produced by man to date. Capitalism has enabled the dramatically higher standards of living that we enjoy in the Western world.

Conversely, socialism is an unfair and inefficient economic system in which the government appropriates the profits of the most productive participants and distributes the remainder to the least productive participants, generally squandering a great deal of it in the process. In this environment, there is no profit incentive, rather, there is an incentive to be lazy and live off the government dole.

In short, capitalism rewards hard work, while socialism penalizes it. It is in this way that capitalism is good.

Philip said...

Well put.

todd said...

It's true that incentive to profit is the glue the holds our strong economic system in balance. I wouldn't live anywhere else. And I do not carelessly criticize those that undergird our structural, financial integrity. In fact, I think to think of myself as one of them.

And perhaps I would just leave it at that if it hadn't been mentioned in such misleading terms that "greed is good" or that "greed is good except for Christians" . . . or something like that.

I'll try to speak directly to the "brillant" article's arguements.

Let’s take the given example Jack Welch. If it’s of interest to anyone, I admire Jack. He inspired a unity of purpose model for business and made getting the “right” people the top priority it should have always been. Mr. Welch worked tirelessly, he had to in order to accomplish a business plan that only a top-down message could set in motion. We could call him the MVP or the Esprit de corps. Without his vision, success would not have been possible – that’s reality. Now consider another reality – His vision and inspiration + the combined work of countless others= financial success. His contribution alone could not make up the difference. BUT – what was the weight of his contribution? (remembering Stephen’s point that capitalism rewards hard work) Was Mr. Welch’s work equal to that of all of the other employees combined to make GE a success? Notwithstanding that he the clear MVP (as already mentioned) his work does NOT approximate to the efforts of the rest of the employees. Even the continuity of the work was maintained by layers of talented management and other hard-working, intrinsically-motivated persons.

Now, if when then say that paying Mr. Welch 115 times the average 1990s worker (4million) [or 228 times the average worker once he retired (8 million) if you prefer] involved in the GE transformation is “just what the market dictates” for his services is to ignore the facts about who did what.

Is his incentive for profit what took him there? YES

Did he earn it? Let’s say, hypothetically, YES (even though one could easily argue NO for the reasons implicit)

2nd point:

Now let’s take GE current CEO Jeffery Immelt. Does get any benefit from Jumpin Jack’s fraternity? You decide --

In 2002 he received 43 million in incentives in addition to his 6.9 million dollar salary. This is after GE shares fell 39% that same year. GE’s board of directors cited Immelt’s commitment to enhancing long-term “investor value” as part of the rationale for rewarding him so handsomely. Make sense?

Immelt has his profit incentive intact and, I would hope, actualized. (Although he’s probably just gonna pull down his barns and build them bigger)

By the way, GE shares are sitting today right about even with the 2002 EOY price.

In summary, I would say that a problem has been discovered, and it’s not the system it’s the manipulation of the system. You can toss the sports star analogies – those men and women have to perform. Also, Oprah’s ratings don’t seem to be slipping. By the way, Oprah and Tom Brady (and a few historical oil barons) are sole proprietorships. The same does NOT apply to the CEO executives that sell their stock publicly and then take on no PERSONAL, fiscal responsibility into account when they draw their salaries.

Anyone think that the same greed that supposedly built the system has the potential to topple it?

Philip said...

No company is perfect. Sometimes companies pay bad CEOs too much. Sometimes bad CEOs wreck the company. These unfortunate situations don't automatically invalidate the value of greed.

After all, would you rather have a CEO who loves making profits or one who doesn't really care much? Or, worse yet, one who hates profits?

And how do you propose we go about fixing this "problem"? Do we need a law against "excess" salaries? Who gets to decide how much is enough? What would become of companies (even the profitable ones) if we remove or diminish the incentive to profit (which you declare to be the glue that holds the economy together)? Surely they could only be hampered in their profit-making endeavors from such measures.

Market forces are not broken just because some chump drives his company into the ground. Companies who pay their CEOs the "right" amount (and get all the other factors of success right, too) are eventually rewarded by market forces. Companies who over-pay bad CEOs are eventually punished, even without a single congressional hearing. The real culprit in your examples is bad judgment, not greed.

todd said...

I cannot agree with how you gather up your argument.

However, don't misinterpret comments. All things are not broken. Some things are and MAY require a rule or too added (as was in the case rampant hostile company takeovers during the 80s). I honestly don't have enough detailed knowledge to suggest an effective plan. I don't think one is implictly provided for in the system as you seem to indicate.

Let me gather up my points back to the source by saying that it's easy see the problems with exective salaries for publicly traded companies. You can fault Obama and the likes for suggesting that he will crusade for equality. After all, that's a Democrat round-up policy. And even though I would certainly fear HIS solution - I cannot take away his ammo but suggesting it doesn't exist.

Stephen said...

If a CEO is overcompensated, and you make a very good case that many are, it is entirely the fault of the board of directors who have complete control over his compensation package.

The blame for choosing overcompensating directors lies entirely at the feet of company shareholders. Shareholders choose directors, and directors choose CEOs and how much to pay them.

This is a completely fair system because executive salaries, like all salaries, are paid at the expense of the shareholders who own the company. If they overpay CEOs, it's on their own dime.

The question is whether the government needs to step in and decide for companies how much to pay executive officers. It should be obvious that this would be a terrible blow to the free capitalism that has facilitated our current level of prosperity.

If a firm overpays its CEOs, it's really nobody's business except that firm's shareholders. And the forum for addressing these concerns is not in the kind of political rhetoric the Democrats are throwing around--no, there is a time and place for the airing of such grievances: the shareholders' meeting.

Philip said...

Finally, the tag-team element of this blog is working like I envisioned...!

mark said...

Well said Stephen. Free markets should ultimately determine salaries for all levels of workers. There should be no federally mandated minimum (or maximum) wage.