GREED
We have heard much about “greed” in connection with the current financial crisis and recession. It seems that “greedy” lenders and financial intermediaries granted sub-prime mortgages to persons of low credit-worthiness and then infected the financial system by securitizing those risky mortgages and peddling them around to investors.
Why don’t we hear about the “greed” of the borrowers who entered into those sub-prime mortgages, and who enjoyed (and still enjoy, in most cases) better housing than they would otherwise have occupied. Why don’t we hear about the “greed” of the politicians who (seeking to curry favor and votes from certain groups) pressured Fannie Mae and Freddie Mac (and through them, mortgage lenders) to make mortgages more readily available to low-income borrowers (i.e., to make riskier loans)?
When does the desire to have more (e.g., a bigger house, a higher income) stop being the “American Dream” and become “greed”? Why is it good for a low-income person to inhabit a house that he can’t really afford but bad for a high-income person to inhabit a house that he can afford, and whose investments and entrepreneurship have helped the low-income person strive toward the “American Dream”?
The answer, of course, is that “greed” is whatever a politician, pundit, or other purveyor of economic envy says it is. “Greed” is invoked not to explain financial success but to denigrate those who have attained it (only to lose it, in some cases), as if they had attained it at the expense of those who have failed to attain it (thus far, at least). Except in the (relatively rare) cases of outright theft and fraud, financial success is not attained at anyone else’s expense; economics is not a zero-sum game.
COSMIC JUSTICE
The habit of castigating the motives of the financially successful and then penalizing their success by taxing them disproportionately appeals not only to envy and economic ignorance but also to what Thomas Sowell calls cosmic justice. The seekers of cosmic justice are not content to allow individuals to accomplish what they can, given their genes, their acquired traits, their parents’ wealth (or lack of it), where they were born, when they live, and so on. Rather, those who seek cosmic justice cling to the Rawlsian notion that no one “deserves” better “luck” than anyone else. But “deserves” and “luck” (like “greed”) are emotive, value-laden terms. Those terms suggest (as they are meant to) that there is some kind of great lottery in the sky, in which each of us participates, and that some of us hold winning tickets — which equally “deserving” others might just have well held, were it not for “luck.”
This is not what happens, of course. Humankind simply is varied in its genetic composition, personality traits, accumulated wealth, geographic distribution, etc. Consider a person who is born in the United States of brilliant, wealthy parents — and who inherits their brilliance, cultivates his inheritance (genetic and financial), and goes on to live a life of accomplishment and wealth, while doing no harm and great good to others. Such a person is neither “lucky” nor less “deserving” than anyone else. He merely is who he is, and he does what he does. There is no question of desert or luck.
Such reasoning does not dissuade those who seek cosmic justice. Many of the seekers are found among the “80 percent,” and it is their chosen lot to envy the other “20 percent,” that is, those persons whose brains, talent, money, and/or drive yield them a disproportionate — but not undeserved — degree of fortune, fame, and power. The influential seekers of cosmic justice are to be found among the “20 percent.” It is they who use their wealth, fame, and position to enforce cosmic justice in the service (variously) of misplaced guilt, economic ignorance, and power-lust. (Altruism — another emotive, value-laden term — does not come into play, for reasons discussed here and here.)
Some combination of misplaced guilt, economic ignorance, and power-lust motivates our law-makers. (Their self-proclaimed “compassion” is bought on the cheap, with taxpayers’ money.) They accrue power by pandering to their fellow seekers of cosmic justice. Thus they have saddled us with progressive taxation, affirmative action, and a plethora of other disincentivizing, relationship-shattering, market-distorting policies. It is supremely ironic that those policies have made all of us (except perhaps politicians, bureaucrats, and thieves) far worse off than we would be if government were to get out of the cosmic-justice business. (See this, for example.)
SOCIAL WELFARE
Some proponents of cosmic justice appeal to the notion of social welfare (even some economists, who should know better) . Their appeal rests on two mistaken beliefs:
- There is such a thing as social welfare.
- Transferring income and wealth from the richer to the poorer enhances social welfare because redistribution helps the poorer more than it hurts the richer.
Having disposed elsewhere of the second belief, I now address the first one. I begin with a question posed by Arnold Kling:
Does the usefulness of the concept of a social welfare function stand or fall on its mathematical properties?
My answer: One can write equations until kingdom come, but no equation can make one person’s happiness cancel another person’s unhappiness.
The notion of a social welfare function arises from John Stuart Mill’s utilitarianism, which is best captured in the phrase “the greatest good for the greatest number” or, more precisely “the greatest amount of happiness altogether.” (See “Adler on Mill’s Utilitarianism” at the Adler Archive of The Radical Academy.)
From this facile philosophy (not Mill’s only one) grew the ludicrous idea that it might be possible to quantify each person’s happiness and, then, to arrive at an aggregate measure of total happiness for everyone (or at least everyone in England). Utilitarianism, as a philosophy, has gone the way of Communism: It is discredited but many people still cling to it, under other names.
Today’s usual name for utilitarianism is cost-benefit analysis. Governments often subject proposed projects and regulations (e.g., new highway construction, automobile safety requirements) to cost-benefit analysis. The theory of cost-benefit analysis is simple: If the expected benefits from a government project or regulation are greater than its expected costs, the project or regulation is economically justified.
Here is the problem with cost-benefit analysis — which is the problem with utilitarianism: One person’s benefit cannot be compared with another person’s cost. Suppose, for example, the City of Los Angeles were to conduct a cost-benefit analysis that “proved” the wisdom of constructing yet another freeway through the city in order to reduce the commuting time of workers who drive into the city from the suburbs. In order to construct the freeway, the city must exercise its power of eminent domain and take residential and commercial property, paying “just compensation,” of course. But “just compensation” for a forced taking cannot be “just” — not when property is being wrenched from often-unwilling “sellers” at prices they would not accept voluntarily. Not when those “sellers” (or their lessees) must face the additional financial and psychic costs of relocating their homes and businesses, of losing (in some cases) decades-old connections with friends, neighbors, customers, and suppliers.
How can a supposedly rational economist, politician, pundit, or “liberal” imagine that the benefits accruing to some persons (commuters, welfare recipients, etc.) somehow cancel the losses of other persons (taxpayers, property owners, etc.)? There is no valid mathematics in which A’s greater happiness cancels B’s greater unhappiness.
Yet, that is how cost-benefit analysis (utilitarianism) works, if not explcitly then implicitly. It is the spirit of utilitarianism (not to mention power-lust, arrogance, and ignorance) which enables Barack Obama and his ilk throughout the land to impose their will upon us — to our lasting detriment.
Politics and Prosperity 