BUSINESS
03/18/2010 05:12 am ET | Updated May 25, 2011

Alan Blinder: Why Serious Financial Reform Hasn't Happened Yet

When economists first heard Gekko's now-famous dictum, "Greed is good," they thought it a crude expression of Adam Smith's "Invisible Hand" -- which is one of history's great ideas. But in Smith's vision, greed is socially beneficial only when properly harnessed and channeled. The necessary conditions include, among other things: appropriate incentives (for risk taking, etc.), effective competition, safeguards against exploitation of what economists call "asymmetric information" (as when a deceitful seller unloads junk on an unsuspecting buyer), regulators to enforce the rules and keep participants honest, and -- when relevant -- protection of taxpayers against pilferage or malfeasance by others. When these conditions fail to hold, greed is not good.

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