As a matter of public relations, no one has ever gone wrong blaming financial disasters on “greed.” But we all know that greed is the basic engine of capitalism. Greed may not be “good,” but it’s there, and we rely on it to power our modern economy. So the problem isn’t greed: greed, like the poor, will always be with us. The key to a thriving capitalist economy is channeling that greed in productive directions.
(That channeling, by the way, is called regulation.)
So when Alan Greenspan argues that the current meltdown is due to “greed” (Taking Hard New Look at a Greenspan Legacy, NYT), warning bells should go off that this guy is trying to get himself off the hook.
The whole point of regulating markets is to manage systemically what we cannot count individuals to do wisely. Mr. Greenspan is no fool. He knows that, and he knew it at the time when he was unscrewing the safety latches that prevented Wall Street from venting all that red-hot greed into the unprotected sectors of our economy. And in deregulating exotic derivatives, he stood by while Wall Street created a risk-laundering scheme of epic proportions.
An economist is lying when he blames “greed”