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Greed is still good, it just misbehaves.

October 7, 2009

I was going through my backlog of items I had meant to read while studying for the bar exam, and finally got around to reading Fareed Zakaria’s masterpiece of an essay “The Capitalist Manifesto: Greed Is Good (To a point), and absolute loved his typically reasoned take on the fate of capitalism.

As with his work drawing distinctions between liberal and illiberal democracies, Zakaria knows precisely where to draw lines and lay blame in metaphysical terms, while still putting it universally accessible language.  I love that someone this brilliant is in charge of Newsweek.

The essay is remarkably concise for its length and chock full of intelligent observations and examples, but I possibly couldn’t hope to reproduce all of its nuance in a short review.  So, instead, I’ve plucked some chestnut quotes from the essay and placed them after the jump for your perusing pleasure.

American capitalism is being rebalanced, reregulated and thus restored. In doing so it will have to face up to long-neglected problems, if this is to lead to a true recovery, not just a brief reprieve.

A few years from now, strange as it may sound, we might all find that we are hungry for more capitalism, not less. An economic crisis slows growth, and when countries need growth, they turn to markets.

The simple truth is that with all its flaws, capitalism remains the most productive economic engine we have yet invented. Like Churchill’s line about democracy, it is the worst of all economic systems, except for the others.

What we are experiencing is not a crisis of capitalism. It is a crisis of finance, of democracy, of globalization and ultimately of ethics.

To call banks casinos, as is often done, is actually unfair to casinos, which are required to hold certain levels of capital because they must be able to cash in a customer’s chips. Banks have not been required to do that for their key derivatives contract, credit default swaps.

But we are suffering from a moral crisis, too, one that may lie at the heart of our problems. Most of what happened over the past decade across the world was legal. Bankers did what they were allowed to do under the law. Politicians did what they thought the system asked of them. Bureaucrats were not exchanging cash for favors. But very few people acted responsibly, honorably or nobly (the very word sounds odd today). This might sound like a small point, but it is not. No system—capitalism, socialism, whatever—can work without a sense of ethics and values at its core. No matter what reforms we put in place, without common sense, judgment and an ethical standard, they will prove inadequate.

None of this has happened because businesspeople have suddenly become more immoral. It is part of the opening up and growing competitiveness of the business world. Many of the old banks and law firms operated as monopolies or cartels. They could afford to take the long view. They were also run by a WASP elite secure in its privilege. The members of today’s meritocratic elite are more anxious and insecure. They know that they are being judged quarter by quarter.

Throughout this essay, I have avoided treating this economic crisis as a grand morality play—a war between good and evil in which demon bankers destroyed all that is good and true about our socie-ties. Complex historical events can rarely be reduced to something so simple. But we are suffering from a moral crisis, too, one that may lie at the heart of our problems.

Most of what happened over the past decade across the world was legal. Bankers did what they were allowed to do under the law. Politicians did what they thought the system asked of them. Bureaucrats were not exchanging cash for favors. But very few people acted responsibly, honorably or nobly (the very word sounds odd today). This might sound like a small point, but it is not. No system—capitalism, socialism, whatever—can work without a sense of ethics and values at its core. No matter what reforms we put in place, without common sense, judgment and an ethical standard, they will prove inadequate.

None of this has happened because businesspeople have suddenly become more immoral. It is part of the opening up and growing competitiveness of the business world. Many of the old banks and law firms operated as monopolies or cartels. They could afford to take the long view. They were also run by a WASP elite secure in its privilege. The members of today’s meritocratic elite are more anxious and insecure. They know that they are being judged quarter by quarter.

There’s a need for greater self-regulation not simply on Wall Street but also on Pennsylvania Avenue. We get exercised about the immorality of politicians when they’re caught in sex scandals. Meanwhile they triple the national debt, enrich their lobbyist friends and write tax loopholes for specific corporations—all perfectly legal—and we regard this as normal. The revolving door between Washington government offices and lobbying firms is so lucrative and so established that anyone pointing out that it is—at base—institutionalized corruption is seen as baying at the moon. Not everything is written down, and not everything that is legally permissible is ethical.

Good stuff.

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