Niels Veldhuis says don’t blame greed
An excellent article (PDF) written by Niels Veldhuis of the Fraser Institute lays out solid description of the poor government incentives that significantly contributed to the recent market crunch. He does all of this while discussing the difference between greed and self-interest (one of my favourite topics) and why self-interest is truly what makes the market work.
Eloquently he states:
Self-interested individuals and businesses are the backbone of our economy, vital to economic progress and society’s well-being, and ought to be celebrated rather than demonized.
And:
The quality of food and high level of service we receive at our favourite restaurant is not the result of a kind act by its owners; rather, the owners are self-interested and wish to operate a profitable restaurant.
Along with:
While it may not be popular to endorse self-interest, vilifying it is to condemn the economic system that has significantly improved our lives.
The basic conflation of Ayn Rand style greed with Smith’s self-interest, that is often done knowingly by a variety of anti-market commentators, is done to vilify a pretty simple concept - the free market. Let people do what they want, within a framework that solidly protects all property rights equally.
Much of the credit fiasco can be blamed on US government policies that include:
- Historically low rates from the Fed
- Fannie and Freddie purchases of obviously sub-prime mortgages
- The Community Reinvestment Plan pushing banks to provide high-risk loans
All of these provide perverse incentives for banks to provide low risk wrappers on high-risk loans, which eventually collapsed as credit tightened and people began to look at the assets their paper was backed by.
The quote at the end of the article, from Milton Friedman is one I trot out on a regular basis when talking to fans of command and control economic policies:
…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.
I allude to this idea when I talk about the idea of being labelled as second-best (not necessarily the Theory of Second Best). People that subscribe to socialism tend to believe that there are philosophies and plans that can do a better job than a free market, which supposes that a free market is second (or further) best. My question is to ask, second best to what? There has not been a serious command structure in known history that has not crumbled beneath the weight of poor planning, bureaucracy, corruption, actual greed and often enough genocide. A market economy that has, as de Soto repeats regularly, a small bureaucracy, actual property rights and equality before the law, cannot be matched by any sort of central planning that fundamentally lacks broad-based self-interest and the creativity that it generates.
If you’d like to read more about self-interest and Adam Smith’s take on it, don’t forget to look at Adam Smith’s Lost Legacy.
And thanks to the Fraser Institute, as part of their mandate, for providing their publications and articles free-of-charge to the public. Since I’m a contributor the Institute, I see my donations as being in my self interest.
Anything here rankle you? Feeling overly perturbed or elated? Leave a comment below. or subscribe to the Sauce Captain feed.
I thought Rand agreed with Smith style self-interest, so what do you mean by Rand style greed?