Princeton economist Alan S. Blinder recently wrote a notable op-ed at the Wall Street Journal. It was notable because Blinder’s theme runs counter to the mantra of the many free market fundamentalists who got us into the big mess we are in. In his hard-hitting piece, Blinder argues that greed is not necessarily good:
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.
Blinder’s article is not optimistic that we will be able to seize the moment by “slamming the door on the lobbyists” and enacting strong financial reform.