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Larry Summers Channels Gordon Gekko:

Obama economic adviser Larry Summers is sounding like Gordon Gekko these days, arguing that we need more "greed" to revive the economy (HT: Instapundit):

"In the past few years, we've seen too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying," Summers said Friday in a speech to the Brookings Institution. "Today, however, our problem is exactly the opposite."

In remarks to a private dinner at the U.S. Chamber of Commerce on Wednesday, Summers was even blunter, according to an attendee: "Before, we had too much greed and too little fear. Now, we have too much fear and too little greed."

It definitely reminds me of Gordon Gekko's famous "greed is good" speech from Wall Street, where he said that "greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the USA." However, Summers is wrong to suggest that American investors and corporations have lost too much of their greed. To the contrary, the constant lobbying of every interest group under the sun for more and more government bailout money suggests that they are just as greedy as ever. Even firms that have already received a hefty dose of handouts are lobbying for more. The problem, of course, is that their greedy impulses are being channeled into the unproductive activity of lobbying Congress for subsidies rather than into the development of more and better products for consumers.

In and of itself, greed is neither bad nor good. The key question is whether it is channeled towards socially beneficial activity that increases wealth and promotes economic growth or whether it is directed towards lobbying the government to take away money from one set of interest groups and direct it to another. At this point, it is often easier for corporations to satisfy their greed by lobbying for government funds than by engaging in productive activity. As Gordon Gekko put it in his speech, "[t]he new law of evolution in corporate America seems to be survival of the unfittest." Failing firms are using their very failures as justification for seeking bailouts.

It is also ironic that Summers cites an excess of "fear" as one of the main dangers facing the American economy. Ironic because the administration he serves has itself been stoking that fear in order to undercut opposition to its programs. As White House Chief of Staff Rahm Emanuel puts it, the crisis is "an opportunity to do things you could not do before . . . You never want a serious crisis to go to waste." An obvious corollary to this notion is that the "opportunity" will be even bigger the more "serious" people believe the crisis to be.

MarkField (mail):

In and of itself, greed is neither bad nor good.


Try telling that to St. Augustine.
3.13.2009 3:30pm
Chico's Bail Bonds (mail):
I had to read that extended set up, and what is my reward? A republican talking point more cliched than "beating a dead horse."
3.13.2009 3:33pm
MQuinn:
I disagree with this

It definitely reminds me of Gordon Gekko's famous "greed is good" speech from Wall Street, where he said that "greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the USA." However, Summers is wrong to suggest that American investors and corporations have lost their greed. To the contrary, the constant lobbying of every interest group under the sun for more and more government bailout money suggests that they are just as greedy as ever. Even firms that have already received a hefty dose of handouts are lobbying for more. The problem, of course, is that their greedy impulses are being channeled into the unproductive activity of lobbying Congress for subsidies rather than into the development of more and better products for consumers.

I took Summers as making an unremarkable point in a colorful manner--i.e., the problem with the economy is demand (or, the lack thereof). I do not think he means that, literally, those on Wall Street are no longer greedy.
3.13.2009 3:38pm
Ilya Somin:
I had to read that extended set up, and what is my reward? A republican talking point more cliched than "beating a dead horse."

If 2 short paragraphs is an extended set up by your standards, you've definitely been influenced by the age of sound bites a bit too much. You could also have noticed that the post makes two points, not just one (one about greed and the crisis, one about stoking fear).
3.13.2009 3:38pm
LN (mail):
Everyone knows that Larry Summers is just a politically correct ignoramus who knows nothing about economics or free markets.
3.13.2009 3:41pm
Ilya Somin:

I took Summers as making an unremarkable point in a colorful manner--i.e., the problem with the economy is demand (or, the lack thereof). I do not think he means that, literally, those on Wall Street are no longer greedy.

He doesn't say that they aren't greedy at all, but he does clearly say that we need them to be more greedy and less fearful than they currently are. Moreover, his statement refers not only to a shortage of demand but also to insufficient investment and profit-seeking.
3.13.2009 3:41pm
angrybostonian (mail):
"Greed is good" didn't come from Gordon Gekko. Gordon is a charachter that is supposed to be a combination of Ivan Boesky and Michel Milken. Boesky invented "greed is good."
3.13.2009 3:42pm
A question you can ask==== (mail) (www):
He also said: "While greed is no virtue, entrepreneurship and the search for opportunity is what we need today."

And, that explains why BHO is spending billions on road construction, something that's about as low-tech as you can get. Not only that, but some of the raw materials will have to be bought from China and other countries, and potentially hundreds of thousands of those who get construction stimulus jobs will be illegal aliens. Somehow I don't think the same libertarian types who'd say things like the post would have any issues with the latter two points.
3.13.2009 3:43pm
Ilya Somin:
Everyone knows that Larry Summers is just a politically correct ignoramus who knows nothing about economics or free markets.

One can be seriously wrong about economic issues without being an ignoramus. I never suggested that Summers was either ignorant or politically correct.
3.13.2009 3:45pm
GD:
In defense of Larry, he did try to reach beyond the bounds of political correctness at one point (before duly apologizing for his efforts at free thought).
3.13.2009 3:48pm
Chico's Bail Bonds (mail):
It's not really the number of paragraphs in and of itself that makes the setup too long, it's more the length of the setup in proportion to the connection it has to the punchline: i.e. extremely tenuous.

I do not need to read two paragraphs about whether greed is good to understand that you felt like making a cliched republican talking point about Obama a-scaring us into social-mal-ism.
3.13.2009 3:48pm
LN (mail):
Summers quite clearly talks about how markets are usually self-correcting mechanisms, but sometimes they can create vicious spirals. The connection to the fear that the administration is taking advantage of a crisis to push forward a more ambitious agenda is rather thin.
3.13.2009 3:57pm
LN (mail):
I mean, given this whole discussion of fear, it's ironic that Somin is stoking our fear that Obama is sneakily implementing socialist policies, just to create more support for his (Somin's) libertarian views. Isn't it ironic, don't you think?
3.13.2009 3:59pm
Desiderius:
LN,

"Isn't it ironic, don't you think?"

No. And there is nothing sneaky, or necessarily socialist (your characterization), about it.
3.13.2009 4:05pm
Ilya Somin:
it's ironic that Somin is stoking our fear that Obama is sneakily implementing socialist policies, just to create more support for his (Somin's) libertarian views.

I'm not the one claiming that our problems are due to an excess of fear. I also don't think you have to be a libertarian to be concerned about the truly gargantuan expansion of government (which, BTW, I don't think amounts to "socialism") we are witnessing. Even more to the point, I'm not the president of the United States or in any other comparable position of authority, so any fear I "stoke" won't increase my power or my political prospects.
3.13.2009 4:12pm
Anderson (mail):
I don't think the solution to a lack of confidence is telling the market, "Be confident!"

Near as I can figure, which isn't much, it seems that everyone knows that some banks are toast, the bullet has to be bitten, and until that happens, everyone's on pins and needles.
3.13.2009 4:14pm
jukeboxgrad's favorite YouTube video:
Hard to get anyone to be confident when we're all waiting for the next shoe to drop, even if the banks are sound.

Inflation? Deflation? GM/Chrysler failure? Oil back to $100 this summer? High interest rates? States running out of money? Bankrupt pensions? Capital gains tax hike?

Not all of those are going to happen. But the fact there's a good chance that one or more of them will happen doesn't make me want to do anything with my money other than stockpile it.
3.13.2009 4:29pm
MarkField (mail):

Near as I can figure, which isn't much, it seems that everyone knows that some banks are toast, the bullet has to be bitten, and until that happens, everyone's on pins and needles.


Need a few more metaphors for that mix?
3.13.2009 4:38pm
jukeboxgrad's favorite YouTube video:
Need a few more metaphors for that mix?

Tom Friedman, call your office.
3.13.2009 4:43pm
Anderson (mail):
I have to admit a complete lack of irony as I jotted that down.

I'll do penance by reading "Politics and the English Language" again ... aloud ... at least, until the priest in the confessional makes me leave.
3.13.2009 4:46pm
ykw (mail):
The problem, of course, is that their greedy impulses are being channeled into the unproductive activity of lobbying Congress for subsidies rather than into the development of more and better products for consumers.

You seem to be confusing greed, the motivation to go out and acquire goods, services, status or other items/stores of value, with avarice, the motivation to go out and seek to take by trickery, fraud or force (whether force of violence or force of law) those goods, services, status or other items/stores of value acquired lawfully by others.
3.13.2009 4:47pm
The Navigator (mail):
Ilya,

So, the president's top economic advisor has now said, in a prominent public statement, that there are signs that the crisis may be easing. Does that mean the Obama administration is now trying ally fears in order to bolster opposition to its programs? Or could it be that perhaps both before and now they were just stating facts and calling it as they saw it?
3.13.2009 4:54pm
pmorem (mail):
I don't think any of this is about "Socialism".
I think it's about kleptocracy, and I don't mean to apply that to just the party currently in power.
3.13.2009 5:06pm
JP22:
It seems to me (not just from reading this one post) that the administration is trying to steer a course between keeping people frightened enough to let the federal government spend lots more money, while not making them so frightened that they kill the recovery that will be needed before the majority starts blaming Obama instead of Bush.

The economic crisis is the WMD of this administration.
3.13.2009 5:07pm
A. Zarkov (mail):
"Gordon is a charachter that is supposed to be a combination of Ivan Boesky and Michel Milken."

Indeed Boesky was the source of "greed is good."
On May 18, 1986 Ivan Boesky gave the commencement address at Milkin's alma mater, the University of California at Berkeley's business school. "I think greed is healthy," he told his enthusiastic audience. "You can be greedy and still feel good about yourself."
I have never understood the fuss about "greed is good." Greed runs the world, and there is nothing greedier than universities.
3.13.2009 5:14pm
Interneta veikals (mail) (www):
"That's the irony of it all," says Smick. "But really, isn't that the job of a CEO--in addition to managing, to get a special deal? To get yourself protection? That's what you do, whether it's a monopoly, or the ultimate backstop, the ultimate hedge: the taxpayer."

Welcome to the hedge-fund racket, America.

Of course every people can tell is opinion, but not always you are right. But any way thanks for it!
3.13.2009 5:15pm
Ilya Somin:
So, the president's top economic advisor has now said, in a prominent public statement, that there are signs that the crisis may be easing. Does that mean the Obama administration is now trying ally fears in order to bolster opposition to its programs? Or could it be that perhaps both before and now they were just stating facts and calling it as they saw it?

The two are not mutually exclusive. People have a strong tendency to sincerely believe that which is in their political and economic self-interest. I have never suggested that the administration is consciously lying about the crisis and indeed suggested the opposite in one of the earlier posts in this chain.

As for why the administration is now saying the crisis is easing, it could be because they have already enacted a large proportion of their program and thus have less need of alarmism to promote its passage. However, Summers' statement is very equivocal about how much easing there has actually been, thereby leaving room for future alarmism should the administration consider such to be necessary.
3.13.2009 5:22pm
Harry Schell (mail):
I cannot see any reason for confidence in the economy with people like Obama and Geithner at the helm.

Greed is no solution: Maxie Waters, Bernie Madoff and other Democrats (and Reps) have and are proving that.

Nobody at the helm is doing much if anything to get the ship back on course. Obama is listening to neo-Marxist French economists, quoted in his books, when it comes to economics, and hard leftists for everything else. Geithner is way over his head...after all, he ran the NY Fed supvervising Citibank during its race to the bottom. Didn't act then, can't act now, and a liar to boot.

The same boobs in Congress at the heart of the credit crisis are still there and have done nothing to fix their mistakes. Indeed, they pose as saviors.

No reason for confidence I can see.
3.13.2009 5:31pm
cognitis:
An essay as insightful as it is brief. By defining "greed" as the principle stimulus of persons doing business while defining "fear" as the principle stimulus of citizenry's permitting increasing government budget, the blogger detects his Libertarian's precept that government should only defend the citizenry and not participate in the economy; but Obama official Summers used Fear and Greed" as stimuli of the same order: on one hand Greed as cause of buying or increasing economy and, on the other hand, Fear as cause of selling or decreasing economy. Bush presided over the total destruction of US banking system; this total destruction compelled both Bush and Obama to both participate in and govern the banking system; so bankers' Greed was the cause of the system's destruction, and Fear of this destruction caused the government to participate and govern the system, thus increasing government's budget; thus Greed not only caused Fear but Greed also created conditions that made necessary Fear's accommodating.
3.13.2009 5:35pm
cognitis:
An essay as insightful as it is brief. By defining "greed" as the principal stimulus of persons doing business while defining "fear" as the principal stimulus of citizenry's permitting increasing government budget, the blogger detects his Libertarian's precept that government should only defend the citizenry and not participate in the economy; but Obama official Summers used Fear and Greed" as stimuli of the same order: on one hand Greed as cause of buying or increasing economy and, on the other hand, Fear as cause of selling or decreasing economy. Bush presided over the total destruction of US banking system; this total destruction compelled both Bush and Obama to both participate in and govern the banking system; so bankers' Greed was the cause of the system's destruction, and Fear of this destruction caused the government to participate and govern the system, thus increasing government's budget; thus Greed not only caused Fear but Greed also created conditions that made necessary Fear's accommodating.
3.13.2009 5:39pm
MCM (mail):
http://en.wikipedia.org/wiki/Run-on_sentence
3.13.2009 5:43pm
rick.felt:
As for why the administration is now saying the crisis is easing, it could be because they have already enacted a large proportion of their program and thus have less need of alarmism to promote its passage.

The usefulness of alarmism is waning. Alarmism was necessary to pass the stimulus. But alarmism about the economy works against other administration goals. Take, for example, Obama's environmental and energy objectives. Reducing carbon emissions is a good idea, but it's expensive. The last thing the economy needs right now is a carbon tax. When we're all doing better we can afford to pay more for gasoline.

Other of the administration's goals, like universal health care, universal preschool, and universal college, may ultimately return profits on the money spent on them, but each has large upfront costs and deferred benefits. Again, we need to be doing pretty well before we can start pouring money into programs that won't pay off for many years.
3.13.2009 5:43pm
Chico's Bail Bonds (mail):
The economic crisis is the WMD of this administration.

In that vein, Above the Law can be the "Curveball" of the administration by spreading false rumors of massive layoffs.

. . . if only that were the case . . .
3.13.2009 5:54pm
cognitis:
MCM:

Where's the run-on sentence? Evidently MCM works as staff at Duke; what other possible association could he have?
3.13.2009 5:59pm
ShelbyC:

Everyone knows that Larry Summers is just a politically correct ignoramus who knows nothing about economics or free markets.




Didn't he get sh*tcanned from Harvard for being un-PC?
3.13.2009 6:09pm
LN (mail):
ShelbyC: he's also a well-respected economist who has been a strong advocate for free markets. Man, I got everything in that comment completely wrong!

(He didn't get shitcanned just for being un-PC; he also alienated a good chunk of the faculty by picking fights with popular deans and professors, and Harvard's legal defense of his buddy economist cost the school $25 million.)
3.13.2009 7:36pm
ShelbyC:

ShelbyC: he's also a well-respected economist who has been a strong advocate for free markets. Man, I got everything in that comment completely wrong!


Whoops. It's my density :-).
3.13.2009 7:41pm
pireader (mail):
Professor Somin --

I think Mr. Summers was commenting on the investment climate, not on greed as a human emotion or vice.

People often describe the prevailing mood in the capital market as "greed" or "fear"--i.e., as expecting boom or doom. Summers is saying that the market was too optimistic during the late bubble and is too pessimistic now. No judgments about human nature, or morality, implied.
3.13.2009 8:59pm
Perseus (mail):
I agree with pireader. I think that what Summers was trying to get at is risk aversion rather than greed per se (since greedy people can be quite fearful/risk averse).
3.13.2009 9:14pm
Andy Freeman (mail):
> Everyone knows that Larry Summers is just a politically correct ignoramus who knows nothing about economics or free markets.

He may be a heck of economist, but his advice to Harvard's endowment has them hurting more than most.

So, what relevant skill has he demonstrated?
3.13.2009 11:42pm
Alan K. Henderson (mail) (www):
Given the greed of the Pirates of the Potomac, Ali 'Bama and his thieves, whatever you want to call them...I think we have just the right amount of fear.
3.14.2009 12:13am
A. Zarkov (mail):
I think we need more Paul Volker and less Larry Summers. Nearly everyone respects Volker both for his integrity and ability. Bill Bradley agrees with me.
Former Senator Bill Bradley urged President Barack Obama to grant former Federal Reserve Chairman Paul Volcker "real authority" as part of his economic team.

Volcker, 81, has called for a two-tiered financial system that would limit risk-taking by the most systemically important firms, an idea that Summers and Geithner haven't embraced.
I think we should have never repealed Glass-Steagall and so does Volker.

Volcker is among the biggest critics of repeal of the Glass-Steagall Act, which allowed commercial banks to get into the investment business. Congress changed the law in 1999 with support from Summers, who was then Treasury secretary
Summers helped get us into this mess. Volker can help get us out. It's time to have a Chesley Sullenberger at the controls, not an AA pilot.
3.14.2009 1:23am
David M. Nieporent (www):
I think we should have never repealed Glass-Steagall and so does Volker.
Well, neither of you are making any sense then, since the repeal of Glass-Steagall had nothing to do with the current situation.
3.14.2009 6:31am
A. Zarkov (mail):
"Well, neither of you are making any sense then, since the repeal of Glass-Steagall had nothing to do with the current situation."

Then go read or listen to Volker and learn something. The separation of commercial and investment banking was done for a good reasons.
3.14.2009 11:54am
Leroy Hurt (mail) (www):
Via Instapundit, I found this comment on Larry Summers' speech about too much fear and not enough greed. Although he uses the word "greed," it's clear it's just a rhetorical device to make a point.

It does illustrate how we can understand the situation. It's all about what businesses do to differentiate themselves. Right now, government policy has given them incentives to differentiate themselves via value chain support activities like lobbying. Those are activities Michael Porter described in his writings about value chains that are indirect to the actual production of goods and services.

Porter also described value chain primary activities as those used to actually produce goods and services. Fields like quality management and marketing come to mind. When firms try to differentiate themselves by optimizing those activities, they produce better and cheaper products for buyers. If we continue to use the word "greed," this is where we might actually say "greed is good." In sum, this is the better activity to incentivize if government is going to influence the business environment with policy.

We can probably make a similar argument about consumer spending (especially via debt) and saving.

Sincerely,
Leroy Hurt
3.14.2009 12:43pm
David M. Nieporent (www):
Then go read or listen to Volker and learn something. The separation of commercial and investment banking was done for a good reasons.
It may or may not have been, but that still doesn't mean it has anything to do with the current situation.
3.14.2009 1:28pm
trad and anon (mail):
Obama is listening to neo-Marxist French economists, quoted in his books, when it comes to economics, and hard leftists for everything else.
Calling Bush a Nazi: crazy. Unhinged. A sign of BDS.

Calling Obama a Marxist: insightful. Accurate. A sign of clear thinking.
3.14.2009 2:25pm
Alan K. Henderson (mail) (www):
Volcker does have a record for solving financial crises. He ended the 70s hyperinflation with a tight money policy that Milton Friedman prescribed in his 1979 book Free to Choose. (Friedman foresaw correctly that such policy would cause a recession in the short term.)

Speaking of the Fed, anyone got an opinion on Greenspan's claim that the Fed didn't cause the current crisis? The (ahem) money quote:

[I]t was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages. Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate.
Greenspan says that his federal-funds policy is irrelevant to the unusually low mortgage rates. Is this really true? And what about the other side of the bubble? The crisis is about more than just risky mortgages - it's about risky mortgage-backed securities. Does the federal-funds rate have any relevance to the latter?

In the article, Greenspan makes the federal-funds rate the issue. But what about other Fed policies? Foes the Fed share any culpability elsewhere?
3.14.2009 2:44pm
A. Zarkov (mail):
"Calling Obama a Marxist: insightful. Accurate. A sign of clear thinking."

He did call Obama a Marxist-- at least not in that statement. He said "Obama is listening to neo-Marxist French economists." There's a difference between taking guidance and being one yourself.

I think Hyman Minsky has offered us valuable insights into the working of our banking system, yet he leaned towards socialism. Marx himself was right about some things too.
3.14.2009 5:18pm
sconzey (mail) (www):
"When men are greedy, be fearful; but when men are fearful, be greedy." -- Warren Buffet
3.15.2009 6:51pm

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