Capitalism and Moral Sentiments
In recent days, both Tom Friedman and David Brooks urged us to take our attention away from the trivialities of the AIG bonuses (just 0.001 percent of GDP, sniffed Brooks), to focus on truly weighty macroeconomic matters. Friedman bade us to look forward to, and support, the next mega-bailout of the banks, and Brooks applauded the leadership of Mssrs. Geithner and Summers in leading the G20 to macroeconomic stimulus and a rejuvenation of the International Monetary Fund.
Both pieces had the feel of planted stories, with insider tips about what's coming next and praise for the economics team as it battles against little minds in Europe and populist sentiments at home. Whether or not the stories came from Washington, both stories are wrong. There is no tradeoff of great macroeconomic themes and attention to little details like AIG and Merrill bonuses. We can focus on both the bonuses and the macro-economy. Indeed, we must. Nor is the concern over the bonuses mere populism. It is, rather, woefully overdue attention to the core issues of reckless greed and arrogance that did so much to get us into the current fix.
During the last 20 years Wall Street has had its way with us. On a bipartisan basis it provided the Treasury Secretaries, filled the regulatory agencies, paid itself unconscionable bonuses, and stuffed the campaign coffers. The greed knew no bounds. The distortions of public policy -- right up to Greenspan's infamous decision to leave financial regulation up to the firms themselves -- have wrecked the world economy.
The fascinating thing about this greed is that it is so deeply ingrained that neither the bankers themselves nor our economic leadership understands just how disgusting and dangerous it is. Even after the music stopped, to use Chuck Prince's now famous simile, the bankers keep dancing - with our money. They continue to grab billions of taxpayer dollars (in Merrill's case) or at least hundreds of millions of dollars (in AIG's case) with giddy abandon, in full view and with a straight face. And our economics officials declare that this is unavoidable or too dangerous to curb. Contracts are sacred, unless of course it is union contracts, in which case we should demand that wages and benefits be cut as conditions for government help.
The great scholars of capitalism, from Adam Smith to John Maynard Keynes, understood full well that a functioning economic system depends not on greed, but on moral sentiments and an acceptable social contract between the rich and the rest of society. The rich can make money, of course, but they must not flaunt it or consume it frivolously. Instead, they must invest their wealth for social benefit, whether in business or in philanthropy, or in both as in the case of history's most celebrated capitalist-philanthropists, from Andrew Carnegie and John D. Rockefeller to Bill Gates and Warren Buffett. It is only the dangerously arrogant rich or the servants of the rich who believe that morals don't matter in the great matters of finance.
Here is how Keynes famously described the "psychology" that propelled the first successful era of global capitalism in the late 19th century and early 20th century.
Herein lay, in fact, the main justification of the capitalist system. If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a régime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect . . . The capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. The duty of 'saving' became nine-tenths of virtue and the growth of the cake the object of true religion.Understanding the need for a moral code in the economy will enormously help the economics leadership not only to weather the storm of outrage that has rightly hit Washington and Wall Street over Wall Street's rampant and continuing abuses, but also to fashion -- finally -- a successful solution to the tottering banking system. The stalemate over banking has arisen because the economics team has been unwilling to take on the bank shareholders and management. It now reportedly plans to clean up the banks' assets through a new alliance of hedge funds and taxpayer dollars. That simply won't happen. The public won't tolerate such games for another round. The public won't accept more money going into financial bailouts until the banks are clearly being run for public benefit, not for the private gain of undeserving shareholders, management, and traders. America will not right itself until it regains a moral compass in economic affairs. That will require a new generation of financial leaders who will forswear the abuses of the past generation of Wall Street leaders. The faster that the economics team and Congress heed the public call for simple justice and decency in financial matters, and the more rapidly that translates into a true Wall Street clean up, the faster will come the economic recovery.
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AH FREIDMAN - MAN OF THE FAMOUS ' FRIEDMAN UNIT ' as in
The Iraq war will be over in 6 months he said over and over again all thru the Iraq war years-
is he still saying it ?
quote:
The great scholars of capitalism, from Adam Smith to John Maynard Keynes, understood full well that a functioning economic system depends not on greed, but on moral sentiments and an acceptable social contract between the rich and the rest of society. The rich can make money, of course, but they must not flaunt it or consume it frivolously.
/quote
It is not about how the wealthy pursue their happiness once they have their wealth, it is about how they acquire that wealth. If one producer is 10,000 more efficient than the median, then such a person rightfully deserves $5,000,000,000 per annum. Credit default swappers, on the other hand, acquired their wealth trading in abstractions which _they_knew_ have no underlying value, ie through a textbook Pyramid Scheme. The "credit crisis" is totally falsified, as Sundialsvc4 pointed out two days ago. The "debts" and " are simply nullified by treating them as what they are: evidence of the crime "fraud" and absolutely nothing else, neither "debt" nor "toxic asset."
The stock market economy that America is trapped in is now perfectly corrupt. Some very big people at the top have arranged things so they will get bigger and bigger. The way this all gets financed is other people have to take a very big hit. Investors and taxpayers and employees are the saps at the table. There can be no more vivid illustration of this than the China Syndrome called AIG, in which we see a direct transfer of wealth from the public to the people that made the mess, to be distributed at their sole discretion.
No more money should be spent to benefit the creators, enablers, and participants of this ghastly mess, no more sacrifices made on their behalf, no more of their lies listened to. A dangerous broad-based resistance may already be forming. Maybe not citizens throwing bricks down the street yet, or setting parked cars on fire, but something not far removed. Perhaps a taxpayer revolt, peaceful to start, organized by perfectly respectable citizens, just saying they have had enough. So far, bailouts have been explained by claiming that not doing them would have brought the economic house down. Some skepticism about those claims might crop up, since there was never much justification for them. Let something like that get started, and there are real problems.
Wow! You produced quite a collection of well thought out comments today.
Do you blog, too?
Anyway if you get the revolt started, there are a lot of us who would follow you....
or Get the SEC to do it's job, but if it won't perhaps a chat about what we do with all our moneies after the market recovers.
The rich somehow figured out how to turn into a religion the economic system of Capitalism, i.e., a mindless mechanism that happened to provide them the advantage. In so many words they've made it a sacrilege to suggest that Capitalism needs to be tampered with. Until the propaganda gets dismantled, they'll be trying to attach accusations of "Blasphemer!" to anyone who registers serious criticism of this mindless mechanism.
They have been calling our President a "secret socialist" since he won the nomination of the Democratic Party, at least. It's blasphemy to the over-privileged, and taboo to the brainless dittoheads who trust Limbaugh, O'Reilly, Ingram, Beck, Hannity et al to identify their best interests for them.
Thats not capitalism, thats capitalizing. Capitalism is producing a product in competition with similar products head to head and winning over a share of the consumer market. What we see today is individuals who steal, lie, cheat and extort money because others have done the same. It's not capitalism it's the wanton destruction of the people and the nation by little small minded greed infested germs, and like all disease the nation should be working to eradicate the world of their presence.
Yes, "greed" is an individual problem, not endemic to any economic policy, such as Capitalism. Surely there must have been more than a few "greedy" types among the Communists? -- and they built their whole system upon the "undeniable" fact that Capitalism encouraged anti-social greed. No, some people are simply greedy, some are also vain, slothful, etc. The greedy have always been among us. I'd rather have them about than to hand over our world to be policed by the "anti-greed" gang. We have seen the results in Mao's China and Stalin's Russia.
In other words... "stop stealing."
"Call a crime what it really is." And the criminals, and the HIGH criminals, who wove such fraud into our financial system ... "bust 'em."
What we have right now is much, much worse than "paper roses." The assets have no value; they are referred-to as "toxic." The liabilities are impossible to enumerate, let alone to pay. But if both are simultaneously and properly identified to be the result of crime -- hence, null and void and unenforceable -- both disappear at once.
We have so much falsehood, so many worthless zeroes, clogging-up our financial system that nothing at all can proceed. Hence, the system has failed in its essential social purpose ... and it has done so by the direct result of crime.
Horrific damages are being done to millions of citizens of this country even as we speak. Again, as the result of high crime. These crimes are real.
I agree, but legislation sponsored by Phil Gramm provided cover for what is nevertheless, essentially, fraud and theft. Do you see a way to prosecute that does not depend on Glass-Steagall and other protections of the general welfare which have been systematically undermined or destroyed since the "de-regulation" fetish gained momentum?
Obviously, a system that indulges the worst instincts of the greedy, selfish and sociopathic will inevitably lead to progress, democracy and freedom for the masses! I will try harder!
Obama Economic Program Increases America's Bondage to Wall Street Billionaires
http://www.marketoracle.co.uk/Article9608.html
Did anyone watch Dateline last night? It spelled out who the housing boom and the mortgage-backed securities fraud worked. The entire system was facilitated by the political and financial establishment.
The American Monetary Act will be introduced. The Federal Reserve would remain as a processor and a clearing house, but not the bank of issue.
The AIG controversy reveals who is running our economic system, and to what end. None dare call it treason. Obama backed down against AIG before the pressure of the financial oligarchy.
Richard Cook spells out the reasons for this change in the system in his article so I will leave it to the reader to decide if the chocking we are feeling is the stranglehold placed on our carotids and windpipes by the benevolent bankers who call the shots.
Without these changes to our monetary system, there can be no change.
I am sitting here thinking about giving my dogs less expensive dog food to save a few bucks and these morons are taking home millions in bonuses after destroying our economy. I guess I should have gotten a degree in business rather than engineering. I was retired until my 401k became a 200.5k which has now forced me to look for a job in this economy.
Domestic solar and wind power are the future -- or else, we will all be dead.
I wonder if I should send the money I owe the IRS next month directly to JP Morgan to make the payments on their new jets. This will be more efficient by bypassing the middle man.
Capitalism and morality in the same sentence?
Try mixing oil with water and get back to me.
capitalism is the unequal sharing of blessings, Socialism is the equal sharing of miseries.
The only socialism I see around here is the socialism of the rich and well connected.
What is dangerous here derives from a simple fact of biology. Sometimes the parasites overfeed and kill the host. We are getting to that point. When that happens both the parasites and the hosts expire.
You failed to define greed.
greed:
[noun]
1. excessive desire to acquire or possess more (especially more material wealth) than one needs or deserves.
2. reprehensible acquisitiveness; insatiable desire for wealth.
Thank you, Professor Sachs.
Please consider also how "disgusting and dangerous" this is:
http://michaelfury.wordpress.com/2008/08/20/the-ghost-in-the-machines-the-mystery-of-the-wtc-hard-drive-recoveries/
The end of the Bush imperialist, oppressive regime means that we are now free. We are free to labor for nothing under the great Socialist regime of our dear L.eader Obama.
NOW..we Americans can be ONE with the WORLD. We too can be taxed unmercifully. We too can be part of the world and know the wonders of complete multiculturalism because now illegal invaders from everywhere will enter our land.
We can be one with the world and know the tranquility of want and abuse. We can now eat one meal a day. We can live in tree-houses with no electricity and be touted as "green" and 'native lovers of the land'.
actually the way of life you describe is more like the life of every poor worker in the south of this world: free to labor for nothing producing goods for the great capitalist north!
by the way...illegal invaders are in my opinion such countries which invade other countries without reason or proofs. people moving from one country to another are simply human beings doing what umanity has done forever!
eventually one meal a day would not be so unhealty for lot of americans, who eat on their own daily diet the amount of calories a whole family in the south may come to eat in a week!
You go to the creationist theme park and apply for a brain; I hear God makes an appreance on Sundays and is passing them out to those who missed out initially....
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