Greed Is Good or Is It? Quote and Meaning
Does Greed "Capture the Essence of the Evolutionary Spirit?"
In the 1987 movie Wall Street, Michael Douglas as Gordon Gekko gave an insightful speech where he said, "Greed, for lack of a better word, is good." He went on to make the point that greed is a clean drive that "captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind."
He then compared the United States to a "malfunctioning corporation" that greed could still save. His next point said, "America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions."
Both of these points are truer now than in the 1980s. First the European Union (in 2007), and then China (in 2014), surpassed the United States as the world's largest economy. The U.S. debt is now larger than the country's entire economic output. The trade deficit has only gotten worse in the last twenty-five years.
Greed Is Bad
Is greed bad? Can you trace the financial crisis of 2008 back to the greed of Michael Milkin, Ivan Boesky, and Carl Icahn. These are the Wall Street traders upon whom the movie was based. Greed causes the inevitable irrational exuberance that creates asset bubbles. Then still more greed blinds investors to the warning signs of collapse. In 2005, they ignored the inverted yield curve that signals recessions.
That's certainly true of the 2008 financial crisis when traders created, bought and sold sophisticated derivatives. The most damaging were mortgage-backed securities. They were based on underlying real mortgages. They were guaranteed by an insurance derivative called a credit default swap. These worked great until 2006. That's when housing prices started falling. The Fed had started increasing interest rates in 2004. Mortgage holders soon owed more than they could sell the house for. They defaulted.
As a result, no one knew the value of the mortgage-backed securities. Companies like AIG that wrote the credit default swaps ran out of cash. The Federal Reserve and the U.S. Treasury Department had to bail out AIG, along with Fannie Mae, Freddie Mac, and the major banks.
Greed Is Good
Or is greed, as Gordon Gekko pointed out, good? Perhaps, if the first cave man didn't greedily want cooked meat and a warm cave, he never would have bothered to figure out how to start a fire. Perhaps Milton Friedman and Friedrich Hayek were right. They claim that the free market forces, if left to themselves without government interference, unleashes the good qualities of greed. Capitalism itself is also based on a healthy form of greed.
Could Wall Street, the center of American capitalism, function without greed? Probably not, since it depends on the profit motive. The banks, hedge funds and securities traders that drive the American financial system buy and sell stocks. The prices depend on the underlying earnings, which is another word for profit. Without profit, there is no stock market, no Wall Street and no financial system.
Greed Is Good in History
President Ronald Reagan's policies matched the "greed is good" mood of 1980s America. Reagan was an advocate of laissez-faire economics. He believed the free market and capitalism would solve the nation's woes. Reaganomics focused on reducing government spending, taxes, and regulation. The goal was to allow the forces of supply and demand to rule the market unfettered.
In 1982, Reagan deregulated banking. It led to the savings and loan crisis of 1989. He deregulated the airline industry, creating today's low-cost and low-comfort airline industry. In all, he reduced regulations at a slower pace than the Carter administration.
Reagan also used Keynesian economics to end the recession of 1981. He doubled the national debt. During his terms, government spending increased 2.5 percent annually. Reagan expanded Medicare. He also increased the payroll tax to insure the solvency of Social Security.
President Herbert Hoover also believed greed was good. He resisted intervening to stop the Great Depression. He worried that economic assistance would make people stop working. He wanted the market to work itself out after the 1929 stock market crash.
Even after Congress pressured Hoover to take action, he would only help businesses. He believed their prosperity would trickle down to the average person. Despite his desire for a balanced budget, Hoover added $6 billion to the debt.
Why hasn't the "Greed is good" philosophy worked in real life? The United States has never had a true free market. The government has always intervened through its spending and tax policies. Treasury Secretary Alexander Hamilton imposed tariffs and taxes to pay for debt incurred from the Revolutionary War. It incurred debt to pay for the War of 1812 and the Civil War. Even at such a minimal level, the government restricted the free market by taxing some goods and not others. We may never know if greed, left to its own devices, could truly bring about good.