The young graduate types hate it because it has devoured their means of livelihood. Investors hate it because it has caused their portfolios to shrink to insignificance. Wives hate it because husbands are now glued to CNBC TV-18. Well, I suppose you get the point. Recession is a prick.
That having been said, it is difficult not to marvel at how it has brought out the delicious duality that underscores life and all aspects of it. If we can latch on to the remnants of our sangfroid in these turbulent times and allow ourselves to absorb and put in perspective the blows heaped upon us, we may emerge from this social and economic quagmire wiser if not richer.
“Greed is all right; by the way I think greed is healthy”
--- Ivan F Boesky
“Ivan F Boesky has a point”
--- Saurabh C
For the uninitiated, it was undoubtedly greed that shoved us into the mess that we now find ourselves in - be it the greed of hedge fund managers who held highly leveraged positions in toxic mortgage backed securities, the greed of speculators in the housing market who bought homes not to live in but to seal a nifty profit in a booming real estate market or the greed of credit card holders who recklessly spent way beyond their means. Americans were castigated for their profligate ways and the subsequent fright induced paralysis in the markets ensured that they began to stuff cash under their mattresses instead of doing what they do best -- spending.
Asian economies and China in particular, who were, hitherto, busy patting their own backs while admiring the stark contrast that their frugal ways presented to the extravagant American approach, were now given a rude jolt. The world soon discovered that the export oriented Chinese economy was like a creeper plant growing on American wallets and that we were still living in a predominantly unipolar world. The Chinese realised that they have to stop relying on feeding the gluttony of others and start developing an apetite of their own. So far, so bad.
The remedy? Throw parsimony to the winds and start spending again.
If John Maynard Keynes, hailed by many as the most influential economists of the 20th century, is to be believed, saving in times of recession ceases to be an individual virtue and is transformed into a public vice. The reason? In times of recession safely tucking away more and more savings into institutions like banks does not translate into greater lending to industry because banks themselves are inclined to sit on their reserves. The result is even slower industrial growth, decline in wages,increase in unemployment figures and therefore, eventually, lower savings. This is the vicious circle we now find ourselves in. Keynes referred to it as “The Paradox of Thrift”. The practice of “saving for a rainy day” which was a virtue during the boom is now the bane of the global economy during the bust.
Who smells irony?
Which begs the following questions: How much of public consumption is actually greed and how much is bare necessity? Is there any such thing as an acceptable level of greed? If yes, then at what point does greed turn detrimental? These are questions which transcend economics. These are poignant questions which we need to ask of ourselves. It shouldn’t have taken an economic crisis as the present one to impel us to confront these questions. But therein lies the power of numbers. They quantify and provoke urgency. We are a generation obsessed by numerical figures. Figures like Rate of Inflation, GDP growth rate, Fiscal deficit, Currency value etc have the power to determine the psyche of an entire economy. Then again, as some would say, numbers don’t lie. So shouldn’t an optimum value of each of these figures theoretically ensure a happy and content populace? Ah, but therein lies the rub. Happiness and contentment very much like oil and water do not seem to mix in the present capitalistic world order. Discontent is the driving force of capitalism. Also if we are indeed someday a happy populace, would the ends have justified the greed -tainted means? After all Jesus Christ in a verse of the Bible says:
“…be on your guard against avarice of any kind, for a man’s life is not made secure by what he owns, even when he has more than he needs.”
This diffusion of the concepts of happiness and immorality may seem disturbing to many. In fact it is crucial to salvage from this turmoil the learning that it is absolutely critical for us to look inwards to assess, evaluate and re-evaluate our moral value system and appreciate the role that our collective behavioral patterns play in shaping the socio-economic order.
The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.
------ Milton Friedman
To use rather vivid imagery, a capitalist order may be likened to a situation where a number of people standing on unequal pedestals are reaching out for the same bowl of sugar on top of the cupboard in the larder. In plain words, capitalism unabashedly promotes and endorses greed.
Is greed so bad after all?
Adam Smith one of the first proponents of capitalism saw great merit in an economic system based on self- interest. In a famous passage in The Wealth of Nations he writes:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantage”
Smith recognized that the greatest motivating factor for an individual to produce optimum results was not the spirit of public service but greed. He believed that by promoting one’s own interests one would “promote the interests of society more effectively than when one really intends to promote it” .Therefore, it would not be too much of a stretch to say that capitalism in itself is a tacit admittance of inherent human selfishness. But instead of whining or sermonizing about the coarser fabric of human nature, Smith’s suggestion is to use it for the greater good of humankind. And so the delicious duality surfaces yet again: individual vice is now public virtue!
The battle lines have been drawn with religious preachers like Christ on the one side and Adam Smith on the other. We need to decide with whom we should throw in our lot with.
As I conclude, I am reminded of the movie A Beautiful Mind, and the ingenious way in which John Nash (played by Russell Crowe) explains to us how the best results are obtained “only when each member in the team does what is best for himself and the team”. I am convinced free market capitalism allows us to do what is best for us. But are we doing what is best for the team?
Time will tell.
That having been said, it is difficult not to marvel at how it has brought out the delicious duality that underscores life and all aspects of it. If we can latch on to the remnants of our sangfroid in these turbulent times and allow ourselves to absorb and put in perspective the blows heaped upon us, we may emerge from this social and economic quagmire wiser if not richer.
“Greed is all right; by the way I think greed is healthy”
--- Ivan F Boesky
“Ivan F Boesky has a point”
--- Saurabh C
For the uninitiated, it was undoubtedly greed that shoved us into the mess that we now find ourselves in - be it the greed of hedge fund managers who held highly leveraged positions in toxic mortgage backed securities, the greed of speculators in the housing market who bought homes not to live in but to seal a nifty profit in a booming real estate market or the greed of credit card holders who recklessly spent way beyond their means. Americans were castigated for their profligate ways and the subsequent fright induced paralysis in the markets ensured that they began to stuff cash under their mattresses instead of doing what they do best -- spending.
Asian economies and China in particular, who were, hitherto, busy patting their own backs while admiring the stark contrast that their frugal ways presented to the extravagant American approach, were now given a rude jolt. The world soon discovered that the export oriented Chinese economy was like a creeper plant growing on American wallets and that we were still living in a predominantly unipolar world. The Chinese realised that they have to stop relying on feeding the gluttony of others and start developing an apetite of their own. So far, so bad.
The remedy? Throw parsimony to the winds and start spending again.
If John Maynard Keynes, hailed by many as the most influential economists of the 20th century, is to be believed, saving in times of recession ceases to be an individual virtue and is transformed into a public vice. The reason? In times of recession safely tucking away more and more savings into institutions like banks does not translate into greater lending to industry because banks themselves are inclined to sit on their reserves. The result is even slower industrial growth, decline in wages,increase in unemployment figures and therefore, eventually, lower savings. This is the vicious circle we now find ourselves in. Keynes referred to it as “The Paradox of Thrift”. The practice of “saving for a rainy day” which was a virtue during the boom is now the bane of the global economy during the bust.
Who smells irony?
Which begs the following questions: How much of public consumption is actually greed and how much is bare necessity? Is there any such thing as an acceptable level of greed? If yes, then at what point does greed turn detrimental? These are questions which transcend economics. These are poignant questions which we need to ask of ourselves. It shouldn’t have taken an economic crisis as the present one to impel us to confront these questions. But therein lies the power of numbers. They quantify and provoke urgency. We are a generation obsessed by numerical figures. Figures like Rate of Inflation, GDP growth rate, Fiscal deficit, Currency value etc have the power to determine the psyche of an entire economy. Then again, as some would say, numbers don’t lie. So shouldn’t an optimum value of each of these figures theoretically ensure a happy and content populace? Ah, but therein lies the rub. Happiness and contentment very much like oil and water do not seem to mix in the present capitalistic world order. Discontent is the driving force of capitalism. Also if we are indeed someday a happy populace, would the ends have justified the greed -tainted means? After all Jesus Christ in a verse of the Bible says:
“…be on your guard against avarice of any kind, for a man’s life is not made secure by what he owns, even when he has more than he needs.”
This diffusion of the concepts of happiness and immorality may seem disturbing to many. In fact it is crucial to salvage from this turmoil the learning that it is absolutely critical for us to look inwards to assess, evaluate and re-evaluate our moral value system and appreciate the role that our collective behavioral patterns play in shaping the socio-economic order.
The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.
------ Milton Friedman
To use rather vivid imagery, a capitalist order may be likened to a situation where a number of people standing on unequal pedestals are reaching out for the same bowl of sugar on top of the cupboard in the larder. In plain words, capitalism unabashedly promotes and endorses greed.
Is greed so bad after all?
Adam Smith one of the first proponents of capitalism saw great merit in an economic system based on self- interest. In a famous passage in The Wealth of Nations he writes:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantage”
Smith recognized that the greatest motivating factor for an individual to produce optimum results was not the spirit of public service but greed. He believed that by promoting one’s own interests one would “promote the interests of society more effectively than when one really intends to promote it” .Therefore, it would not be too much of a stretch to say that capitalism in itself is a tacit admittance of inherent human selfishness. But instead of whining or sermonizing about the coarser fabric of human nature, Smith’s suggestion is to use it for the greater good of humankind. And so the delicious duality surfaces yet again: individual vice is now public virtue!
The battle lines have been drawn with religious preachers like Christ on the one side and Adam Smith on the other. We need to decide with whom we should throw in our lot with.
As I conclude, I am reminded of the movie A Beautiful Mind, and the ingenious way in which John Nash (played by Russell Crowe) explains to us how the best results are obtained “only when each member in the team does what is best for himself and the team”. I am convinced free market capitalism allows us to do what is best for us. But are we doing what is best for the team?
Time will tell.
Man! awesome ... u writing blogs too! what next?
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