GREED

We hear a lot of criticism about capitalism and frequently it centers around greed. The question is: Does greed have a master? Is there some system by which greed can be kept in check? If so, how can that be accomplished? First, we’ll look at free-market capitalism.

In order to do that, let’s remember the character, Gordon Gecko, from the movie, Wall Street. He was the purported pinnacle of greed. He would take over companies and their fate would depend upon whatever was best for Mr. Gecko’s bottom line. He was greedy. Greed is one of many human frailties that will always be present.

If it made him more money, Mr. Gecko would restructure the company so that it could continue to function and pay him profits. If, on the other hand, its profitability could not be achieved, he would simply cannibalize the company; carving it up and selling its assets to the highest bidder.

So, in a free-market system, people like Gordon Gecko will always do whatever lines their pockets the most. Let’s examine that. If the company can be made profitable, it will persist. In so doing, salaries will be paid to the employees, the company’s service will still be available to its customers, and Mr. Gecko will make his profit. Each employee will continue to shop and otherwise spend their paychecks which will help countless other businesses. What about taxes? Well, each employee will continue to pay taxes, the corporation will pay taxes (under the IRS fiction that it is a person), and Mr. Gecko will pay taxes on his precious profit.

Occasionally, the company will have to purchase goods, and services from other businesses such as office supply stores, consultants, tax professionals, plumbers, A/C repair people, carpet layers, painters, etc. (to do necessary repairs as needed on the building(s)), computer systems personnel, and countless others. Thus, Mr. Gecko’s greed pays dividends to countless others. Surely a greedy bastard such as he cannot stomach the notion that his quest for greed enriches others. So, what if he decides he is going to double the prices he charges? What if he triples them, or quadruples them so that he can further maximize his precious profits and satisfy his insatiable greed? Well, to simplify this question, let’s assume Mr. Gecko runs a Wal-Mart. If he increases his prices beyond those of his competitors, then his business will likely fail. Is it possible for him to market his store as the new Saks Fifth Avenue of grocery stores, and that might find a niche, but he will no longer be competitive with other low-price-based grocery stores. Thus, the free market will keep even Gordon Gecko’s infamous greed in check.

What if he cannibalizes the company? Well, because of his greed, he will only do that if it earns him more money than simply keeping the company open. But, if he does that, some other company will be able to purchase used goods they need. Hopefully, their acquisition of low-cost machinery, inventory, etc. can be used to keep them profitable. if so, they may need to hire additional employees. Perhaps the buyer of Mr. Gecko’s building(s) will establish new businesses therein.

By contrast, is greed also held in check by government? Well, government has no duty to please with its services. Its services are compelled by force. For example, the IRS does not exist for customer service. It exists to take money from American individuals and businesses under penalty of imprisonment. Even taxpayers who find money in an old garage-sale purchase are required by law to pay taxes on it. How about public (government) schools? When you go to the school to complain about the new policy which teaches young children to put condoms on bananas, no one gets fired. No one even gets sent home without pay. You are free to go to a private school, but you must continue to pay property taxes to the public school. If you do not have the money to pay for private school, you must continue to send your child to the condom school. There are indeed differences between government and private business. One of those differences is choice, but what about greed?

Well, when Jimmy Stewart’s character, “Mr. Smith,” went to Washington, he was idealistic. He trusted the congressman that helped get him elected, because that man was his father’s long-time friend. As it turned out, the congressman’s greed ultimately led him to deceive Mr. Smith, and to try to destroy him. Greed in government leads to corruption because no price is paid for it. Rather, it enriches him to be greedy and immoral. If a politician is greedy, he will sponsor legislation that enriches and empowers him.

For example, the prohibition on Insider Trading under the Securities Exchange Act (S.E.A.) exempts Congress. Congress can use inside information it learns to make money in the markets, and you can’t! Worse yet, Congress can enact laws specifically designed to earn their stocks money. Why would it do that? Well, Congress wrote the law, and congressmen are not immune from human frailties such as greed. In fact, they are great utilizers of it. The whole purpose of the S.E.A. was to ensure to individual investors like you and me that the rich, powerful, and connected could not exploit us by using “insider” information which is unavailable to the rest of us. The rationale was that there should be a level playing field to foster confidence in the integrity of the stock market. Then, why would anyone in a position of power be exempted? Again, because Congress gets to write the laws, and greed is very rewarding in government.

There are innumerable government powers to illustrate this point far beyond the S.E.A. For example, did you ever notice how many politicians enter Congress as middle-class people, but leave as multi-millionaires? Did you ever notice how many politicians just happen to buy worthless farm land just before a brand new interstate road project is announced to go through it? We had a local congressman who owned property for 45 minutes, and then sold it for millions more than he paid for it! Imagine that! As Ms. Piggy would say, “what an unbelievable coincidence!”

Locally, in order to open a business, you need a permit (among other things). Assuming you don’t have to “grease” the local politician, the permit can still come with strings attached. The municipality in which you seek to start, build, and grow your business can lawfully extract things from you in exchange for permission to open the doors. You might think that local politicians would clear the way for you to bring a new business complete with new tax revenue, new employment opportunities for citizens, etc. to their town. Usually, however, they ask what you can do for them. So, a new store might have to build, improve, or widen roads, or other public expenses. Politicians vested with the power to decide whether you can start a new business, have a great deal of power over you. In this example, their greed benefits them while it restricts your ability to enter the “free” market. Along with restricting you, it may restrict all of the potential employees you would have hired. Even where your business permit was lawfully conditioned upon things like building a new park, the politician will be the one at the ribbon-cutting ceremony. He will receive accolades for the park that he required you to pay for.

To be sure, government does not hold greed in check. To the contrary, it is the most fertile ground for greed to flourish.

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