More on “Greed is Not Good”

Ed Harrison has an excellent post over on his Credit Writedowns blog, following up and elaborating on his “Greed is Not Good” post here yesterday.

To whet your appetite, here it the beginning of “More on greed, regulation, Lehman and the financial industry“:

In one of my latest posts I said “greed is not good.” Quite frankly, I looked at this statement as self-evident in the wake of an economic catastrophe where greed was a defining element. Yet, a remarkable number of people commented in defense of greed; they seem to believe greed is a good thing. So, I would like to clarify a few things about greed in the context of the recent financial crisis and prudent regulation of the financial industry.

Greed is not good

Greed is defined as:

A selfish and excessive desire for more of something (as money) than is needed (Merriam Webster)

An excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth (Free Online Dictionary)

The selfish desire for or pursuit of money, wealth, food, or other possessions, especially when this denies the same goods to others. It is generally considered a vice, and is one of the seven deadly sins in Catholicism. (People who do not view unconstrained acquisitiveness as a vice will generally use a word other than greed, which has strong negative connotations.) (The Free Dictionary)

The obsession with accumulating material goods (Access-Jesus)

Do you notice the commonalities in all these definitions? Excessive, selfish, more than what one needs or deserves, unconstrained, obsessive. You can make the non-judgmental argument as I did that greed is neither good nor bad. But, in what twisted world view is any of this good? Greed is not ambition or hunger or drive. Greed is by definition excessive and unconstrained, and, thus, leads to unstable and suboptimal outcomes. Greed is not good.

Ed discusses how the free market ideology is a religion and serves to maintain the power of kleptocrats and why regulation is the least bad of the options available to deal with the concentrations of power that are inherent features of a stratified society. His post continues here.

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  1. Vinny G.

    Great points. I’d venture to say that “greed is not good” is not strong enough. “Greed is evil” may get closer to the heart of the matter.

    You mentioned the Catholic view on greed as a deadly sin. Greed and materialism in general are direct enemies of any form of spirituality. The New Testament part of the Bible makes it very clear that material possessions are in direct opposition to God. Other religions have virtually identical views.

    I don’t mean to turn this into a religious posting, but I can’t help but think about the encounter between Jesus and the rich man who asked Jesus what to do in order to gain eternal life. Jesus told him to give all his possessions to the poor and follow him. However, the rich man turned away because he could not part with his riches, and the Bible says “because he was very rich”.

    One thing seems almost certain, though: if there is a hell, looks like most AIG executives will be there.

    Vinny G.

  2. Toby

    In my view human civilizations have been organized within a hierarchical and philosophical model that is itself responsible for the tendency for greedy behaviours to manifest, and cumulatively cause ever larger disruptions till civilizational collapse. Greedy behaviours are to be expected in a system built atop the presumption of scarcity. Scarcity encourages hoarding, hoarding is therefore “wise” in the sense that it protects against future want. Hoarding leads to increasing gaps of wealth between rich and poor as the successful secure their positions, further encouraging the hoarding impulse — being poor is increasingly horrible relative to the increasingly rich.

    While there is scarcity as sine qua non of a production-exchange-consumption model, hoarding makes sense, greed makes sense, and “success” is, at least monetarily, over-rewarded, while failure over-punished. Over time the successful entrench their positions, petrifying the system, which tends to further motivate greed and hoarding, which lead to collapse.

    I don’t see any way of stopping this cycle unless we humans tackle scarcity head on. That is, set ourselves — globally — the task of providing the basics (and luxuries as time goes on) in abundance. Surely it is only fear of want that gives rise to the unhelpful and disruptive behaviour of greed Ed Harrison describes. Conversely, providing material comfort for all would encourage a healthier relationship with possessions and acquisitions. Fear of want is a powerful motivator, and corrupting too.

    There is of course far more to this process than I can possibly hope to lay out in a comment here. What I am coarsely describing is the outline of a resource-based economy, a model which represents a radical alternative to capitalism, in that it seeks to render redundant the need for a medium of exchange. I do not see the model as a guaranteed success, nor as a hopeful lunge for nirvana, merely a direction to pursue which would have human dignity and environmental health as its central motivation. With scarcity underpinning capitalism, no amount of clever laws can place these two most important things (dignity and environment) in the driving seat. Where there is scarcity, greed will always make some kind of sense.

    In short, as a kind of Plan C, we need to test the idea. All assumptions need to be tested. As I see it, scarcity is one of the most important, as is the idea that human nature is greedy, or selfish, or competitive, or even fixed.

    Your voice from the lunatic-fringe,


    1. Anonymous Jones

      Oh, if it were only this simple. Scarcity is a fundamental aspect of the universe. Economists study how scarce resources are allocated. Even goods that sometimes seem (on a relative basis) less scarce, like drinking water, are still in fact scarce and actually do face severe allocation problems.

      Although I cannot prove that the elimination of hoarding would not in fact help alleviate the type of scarcity that bothers you, I sincerely doubt it. I would suggest that we accept scarcity and work within the framework of scarcity to achieve a better allocation of these scarce resources.

      In any event, it would seem that the sample size is now large enough that we should all be able to agree that (1) a certain percentage of human beings always and forever have been susceptible to greed, (2) that percentage is, and has always been, enough to radically distort the allocation of resources toward those who do not understand the concept of “enough,” and (3) we are not likely to be able to eliminate this (as so many have tried and failed throughout the dozens of sophisticated societies that have passed through this earth).

      That doesn’t mean we shouldn’t try to minimize the effects of those who are prone toward greed. But we should probably just accept that greed is here to stay.

      As a latter day Sherman McCoy might say, “I *need* my private jet and my nanny,” and that’s all that matters.

      1. Toby

        Everything is scarce in the sense that it is finite, but only some things are scarce in the sense that there is not enough for everyone. The economic definition of scarcity is not a physical definition of scarcity, but a practical one: “infinite wants versus finite resources.” There’s no such thing as infinite wants (if you think there are, prove it), and finite resources can be in plentiful supply. Air proves this, as does perhaps sand/silicon, as does the digital revolution.

        Water is in plentiful supply. It is merely a technological challenge to keep it clean/potable and distribute it efficiently to everyone. Ditto food. Energy is everywhere, far more than we could ever use. Shelter is another design challenge, as is transport. Scarcity in the economic sense is not some unbreakable physical law.

        You say we have a sufficient sample size to prove that some people are greedy by nature. What tests have been done to look into why some people are “greedy?” How does greed manifest and why? Is there a greed gene? Is there a greed phenotype? Why is it that we are greedy for things we don’t need, and yet greed is defined as excessively more than we need? Do we REALLY understand what greed is? Where is the research that shows we do? Looking at history over the last two or three thousand years and saying, see, people are often greedy, is not enough.

        In Marshall Sahlin’s work on hunter-gatherers, he shows they have no concept of greed. They are homo sapiens sapiens too. What is it about them and their life-style that inhibits greedy behaviours? The people of St. Kilda lived without money for centuries on their harsh, almost barren island. They displayed no greedy behaviours either, according to historians who studied them. What was it about their life-style that inhibited greed?

        Your point (3) is predicated upon points (1) and (2) being true. They are not. You say “sample size” as if some massive experiment had been conducted with the sole purpose of analyzing greed, as if civilizational efforts have been deliberate attempts to understand greedy behaviour. Point (2) is also predicated upon point (1). You proceed from an untested assumption to a conclusion. That’s not science.

        I ask that these ideas be tested, not by idle extrapolation and generalization, but with purposeful and well designed tests. I do not claim to know that a resource-based economy will work, only that it makes sufficient sense to test the idea. The idea that history has ended, that the current model and its assumptions are immutable and the best we can do, is arrogant and naive.

  3. MarcoPolo

    Wow. With Yves’ indulgence will post below something I wrote about 6 mos. ago for a different purpose. But it doesn’t touch this.

  4. MarcoPolo

    This is about iniquity. Or, if you prefer, inequitable distribution of the benefits of production.

    I’ve been waiting for this opportunity. Ask yourself, how are wealth and prosperity created? What are the top 10 attributes of man that is responsible for its creation?

    Here is my list. I think the order isn’t important as they are inter-related.

    • Knowledge – the foundation of understandings which can be acted upon to produce new wealth.
    • Imagination and/or vision – the ability to see in new ways.
    • Innovation – the ability to apply new visions to existing knowledge.
    • Passion – a confidence in the “rightness” and necessity of that vision.
    • Persistence and/or determination – a derivative of passion, the need to continue in the face of adversity to see ideas realized.
    • Compassion and altruism – a willingness to make a commitment to the broader good of man and the acknowledgement that only this new wealth can provide the basis for one’s own compensation.
    • Courage – a willingness to forego immediate safety and satisfaction and to undertake risk for the potential of a future return.

    OK, that’s only seven and it’s all I’ve got. You might develop your own list or expand this one. Though, I’m not so interested in pursuing that myself. Still, all of these things are necessary to the success of enterprise.

    What is the #1 attribute of man that destroys wealth?
    • Greed – as distinguished from the wholesome desire to benefit in tandem from the creation of wealth; greed, being the voracious consumption of wealth beyond its benefit.


    Stage #1 Innovation & investment
    In parallel to the requirements of innovation described above comes investment in labor (both direct and indirect labor) and capital. Direct labor (R&D, testing, etc.) can be amortized over a finite period of time (as can debt). Indirect labor – the creative part of that innovation process – receives equity; last in line to share the benefits. It is the ambition of labor to provide and receive a lasting benefit. It is the expectation of capital to derive a lasting benefit. It’s an important distinction, but more important still is that the full value of innovation (wealth) comes as a series of flows that can only be realized over the lifetime of the benefit. To cut that lifetime short is to not realize full value. Maximum value is full value or final value (FV). Investment in risk deserves the full potential of that endeavor. Not to be cut short.

    Stage #2 Management & exploitation
    Almost anybody will tell you that there comes a time when it’s best to avoid the distractions of the innovators and bring in the managers to concentrate on exploiting the benefits. The forward momentum can be maintained more effectively and the long-term value (FV) enhanced. It’s this evolutionary period where the costs are amortized and benefits realized. It’s where cash cows graze. It’s what equity holders wait for, but it is a perilous time in a company’s evolution. It’s a time when management can become complacent. It’s also a time that attracts parasites. Disease.

    Stage #3 Parasitic investment & wealth destruction
    As an enterprise matures the risks become more well known. If it becomes sufficiently large and liquid it can attract a new kind of capital. Ownership can change. The enterprise can become dominated by institutional investors who’s interest are not aligned with the wealth creators that preceded them. It’s reflected as a difference in horizons. Wealth creators have a long-term full value (FV) view. Parasites see only the net present value (NPV). And NPV is FV discounted to some “discount factor”. Parasitism doesn’t require knowledge. It doesn’t require imagination or innovation. It doesn’t require courage – au contraire. Compassion? Not hardly. It only requires greed and a willingness to discount innovation and wealth creation and move those benefits forward. Much easier! Then managers are forced to accommodate the parasites. Why should we not expect them to become parasites themselves? Out with the managers, in with the greedy.

    Don’t be fooled to think parasites have the interests of equity holders at heart. Their interest is the attraction of equity holder capital – to themselves – by suggesting or emphasizing some surreptitious pseudo measure of “investment alpha”. But all “investment alpha” can do, all it can ever do, is to move future flows forward – at a discount. Investment alpha does not create wealth. It does not preserve wealth. It consumes wealth.

    Let’s be clear. If the discount factor were 0 then NPV = FV. In real terms there can never be any benefit to the intermediation of funds. Full value and wealth are destroyed in the process of discounting and front loading those flows. Also, one should not forget that money is considered the whole benefit. No intangibles. The hopes and dreams and sacrifices of innovation are sold off for cash. Therefore, it is innovation and wealth creation itself which is discounted and under-compensated.


    It’s your money they feed on. It’s your savings which you have entrusted them to manage. We’ve always had parasites. We’ve always had temptations. The terrible excesses began during the Reagan administration when “retirement accounts” were initiated and incentives were given to investment at the expense of savings. The resultant cash flows provided the basis for new business models and opportunist money managers to risk Other People’s Money (OPM) rather than to secure savings. It may have seemed like a good idea at the time.

    It hasn’t worked. We are making the wrong investments. Misallocating capital. Banks extend credit. They make loans to credit worthy borrowers who can make repayments. Their business is about finding borrowers who have that cash flow and the collateral to insure it. Most important (of paramount importance) is the collateral. They have been loaning money to anybody that would pretend to meet those requirements. (Liar loans, >/=100% loan/equity, etc.) And the “liquid capital markets” are about finding your way onto the S&P AAA list so that your debt can be “securitized” and marketed to 3rd parties. Over and over again. Same liar loans – different liars. And the parasites take a cut both ways. Nobody seems able to ascertain the value of a business proposal. On top of that our business models are bust. The world is changed. We must find a way to adapt our businesses to that changed world. None of these economic forces that we have been talking about illustrate anything other than the abject failure of our financial system to fund the right investments.

    The disease is now deep and endemic. A virulent and aggressive cancer. The infection has become so systemic within us that we accept the consequences without complaining. We assume that it’s right that “shareholders” demand companies be demolished short of their full life in the interest of “shareholder (present) value”. Our perma-growth conditioning of always positive interest rates (inflation) is so ingrained within us and our expectation of inflation so “normal” that we can’t even question it. We assume that our money should be worth less tomorrow. Therefore, we assume that NPV should contain some discount factor. We assume a yield curve. Some even assume it makes sense that taxpayers borrow money to give to banks so that it can be borrowed back at interest. Though I admit that last is a stretch for my limited intellect. And it’s all accompanied by a never ending 24/7 drivel of investment Pabulum from either complicit or ignorant media. We’ve all been infected. We need to question our assumptions. The fly in the ointment is that it doesn’t take 80 years for savers to know they are being pillaged and it sends the economy out on the risk ladder. With risk comes failure. When everybody is at high risk the failures get bigger. Eventually it gets too big to fail. Then the paradox.


    Reform cannot be allowed to end with a recapitalization of the very financial system which has squandered our savings. The more fundamental issue is the perverse incentives for investment and consequent misallocation of capital.

    The systemically important part of our economy is that which is going to pay the bills tomorrow. That which creates wealth and earnings. Not that which intermediates financial flows. And it is our savings which must be invested in productive endeavors to create that wealth. Ways must be found to circumvent today’s financial intermediaries and make those productive investments ourselves. There is quite frankly a lack of good options. No safe havens. We must create them. We must find ways to take greater control of our own production.

  5. The Underwriter

    One of the critical behavioral issues overlooked is the role greed has played in the UK in not only the collapse of banks but also its role in the furore surrounding MP’s expenses in the UK – those supposed to be our lawmakers. In the US I guess a similarity can be drawn between campaign contributions and banks near-collapse and bail-out.

    Which leads to my main point; when the revolving door between the public and private sector is constantly rotating,’corruption’-not of the ‘envelope-under-the-table’ variety but more the ‘book-advances-speaking-engagements-and-advisory-roles’ variety is easy to propogate. By ‘corruption’, I mean decision-making benefiting the decision-maker at long-term cost to the capital providers for whom the decision-makers (temporarily) work. This belief sticks despite the strongly-held protestations of elected representatives and regulators who passionately claim (and believe) that they are ‘serving their country’.

    It is time this elephant in the room was acknowledged. Until it is, we will simply continue to defer cost to the next generation for our own gain. That is greed.

  6. Hu Flung Pu

    I’m so glad this discussion of greed morphed into a religious discussion. Yeah, I’m gonna set my moral compass by a 2,000 year-old work of fiction… Uggh.

    1. Skippy

      DITTO, if that cat comes out of the bag or is used to leverage the Polly’s this time watch out. Totaly unstable.

      Skippy…makes me a nervier than a long tailed cat in a room full of rocking chairs.

  7. Seth

    Greed is neither good or bad. It is a fact. It’s the actions it motivates which have good/bad moral valence. If my greed induces me to steal your car, you probably will want me arrested. If I start a company and hire you at good wages, but greedily pay myself quite a lot more than you get, you probably would consider this a good alternative to unemployment.

    Capitalism’s strength is it’s capacity to harness greed to constructive ends. It’s weakness is it’s tendency to empower people who are greedy to the exclusion of other balancing character traits.

    1. Toby

      I don’t think greed is a fact, I think it is an observation. We have defined it as wanting more than you need, and yet we cannot be greedy for those things we really need, like air and water. No one wants more air than they need, nor greedily drinks more water than is needed. Why is this?

      I get the feeling pointing this out is irritating to people, or tedious, but I do it because we tend not to question our assumptions about things like greed. It’s a platitude: “humans are naturally greedy,” and yet the very word itself it problematic. We are greedy for things we don’t need, like power and wealth, yet the definition rests on need. Successfully measuring need is a precondition for measuring greed, but measuring need is close to impossible.

      Also, where does greed come from? From our genes? Has this been proven? Is there any research in this that has factored out cultural influence on behaviour? The people of St. Kilda were not greedy, even though they had a fixed society (were not roaming hunter-gatherers) lived in scarcity, and had no money. Why were they not greedy (or lazy) until they were introduced to money by visiting mainland Scots?

      Greed is poorly understood, and yet everyone has fixed ideas about it. Probably our overly biblical/christian upbringings are responsible for this. The best we can do is recognise how complex a term it is, that we don’t fully understand it, and study it without an agenda, and with an open mind.

  8. Haigh

    Blaming a financial crisis on greed is like blaming gravity for a plane crash. To prevent plane crashes engineers do not work on repealing gravity. Likewise, to minimize financial crackups market systems must strive through trial and error to build a better air-frame. Government systems, central banks and their ecosystems, including purchased politicians, have proven themselves unfit for the task.

  9. LeeAnne

    yes, societies need a legal process to restrain predatory behavior that’s flexible enough to shift as the vultures do their inevitable best to work around those limitations.

    Such a system requires loyal career government professionals for bureaucracies that can grow in expertise and size with budgets commiserate with changes in technology, societal growth and innovation. The opposite has occurred.

    The Bush administration greatly accelerated the destruction of key bureaucracies, replacing loyal career professionals with cronies loyal to Bush and undermining and underfunding as much of the regulatory apparatus and the people’s safety net as possible, not only during the administration but far beyond. They are traitors.

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