Updated: May 3, 2019
Teddy Roosevelt is credited with this notion to "speak softly and carry a big stick" with respect to foreign policy. He was also a "trust buster", however, that used a big stick when talking softly failed with respect to tempering excesses of the business conglomerates of the day. Also, Franklin D. Roosevelt ended up using a big stick (lots of banking and wall street restrictions put into place) when greed again drove economic upheaval in the Great Depression of the 1930s. A lot of "speak softly" was used by Barack Obama during the Financial Crisis of 2008 (a crisis attributable in large part due to the 1930s restrictions having been dropped); perhaps a "big stick" was needed? Also, there are plentiful examples when business and industry have been engaged in Taking rather than Making wealth, lacking the self-discipline to temper the primal tendency to extreme greed: So, what do? Let it run its course, not speaking at all? Speaking softly to nudge better economic choice? Or, have a big stick ready in the background as represented in law and regulation, and use the stick when necessary?
We know from experience, and from behavioral science research, there is a primal tendency to act on prudence-only, to seek individual self-interest with its tendency to extreme greed, which is 1 of the 7 virtues. Yet, we also need to have the self-discipline represented in the other 6 virtues (temperance, courage, justice, faith, hope and love), represented in our other(internalized yet shared with others)-interest. It is especially crucial to temper the extreme greed tendency, and, while individual liberty and freedom to choose must be paramount, as long as it works, what is to be done, if anything, when it does not work?
Intriguingly, Neoclassical Economics with the Microeconomics Framework (MF) and Dual Interest Theory (SIT) does not see an issue. Like Milton Friedman said it, from the perspective of MF and SIT: “Social responsibility is a fundamentally subversive doctrine" in a free society, and have said that in such a society, "there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” The problem with this framing is that the status quo comes to play in ensuring the rules of the game serving the current self-interest is not changed. So, this framing makes Metaeconomic sense only if the current rules are good rules.
For example, the rules of the game regarding slavery in the US, for over 400 years (first slaves were introduced in the Virginia economy in 1619), favored bondage at first and then segregation, with some remnants of that past still affecting the economy. So, does current business and industry have any social responsibility (i.e. shared other-interest) to move even further away from that set of rules? At the time the US first started pumping crude oil, in Pennsylvania in the 1800s, the rules of the game regarding carbon releases facilitated the self-interest expression in developing and selling carbon fuels. In light of the fact that releasing so much carbon so fast is creating issues with weather, sea rise, and ecosystem function, does this mean that business and industry has no social responsibility (i.e. not need to act on the shared other-interest in a stable Spaceship Earth system) to start down the path to a low(er) carbon economy? Metaeconomics at least raises the question, while Friedman styled Microeconomics seemingly encourages profit maximization without consideration for how the shared other-interest in the outcomes has changed, or needs to change?
Specific to this Greed Blog: In what sense were the derivatives trading schemes leading leading up to the 2008 banking and financial crisis operating under good rules? Also, what assurances can Friedman-like thinking, that denies any social responsibility (i.e. ignoring shared other-interest, ignoring the moral dimension), really assure there will not be fraud and deception? Who is watching, with the big stick in the background? There was plenty of deception, and perhaps even some fraud, leading up to the 2008 crisis, as represented especially in bad derivative trading rules, as documented in Tett (2009; see the story below). Some business, in this case banking and wall street business bordered on the criminal, but rather than using the big stick, the Government wrote checks out of the federal treasury in the form of "bail-outs" and rewarded those who did not take the social responsibility, themselves, for fixing the rules and at least not deceive buyers of derivatives. Seems we could have used a huge dose of social responsibility, especially by bankers .... expressions of shared other-interest... at that time.
Now, we also need to clarify that Friedman and many in the Chicago School, Neoclassical Economist types, also believe the Market is better able to deal with the Moral Dimension, that Government is prone to being captured by less than ethical influence from business and consumers who use Government in devious ways, using political power. The notion has merit; the idea is that producers and consumers will sell and buy product to and from the firms operating on a higher moral plain, driving the bad actors out of business. So, if these four meat packing companies in the Minnesota class action lawsuit (see below) are not acting on good moral grounds, then producers will sell to other packers, and buyers will be buying meat coming through those same moral packers, so the market ensures the moral dimension influences, brings good outcomes. The intriguing empirical question then is this: Just who are the producers going to sell animals to, and where are the consumers going to get their meat, when there are only four packers, who may be colluding against both producers and consumers? Going back to the slave markets, and the cotton markets of the day, we might suppose those buying cotton could have tried to buy cotton from producers that did not use slaves to produce it, but just where would one have found such producers at that time? It seems some outside nudge, intervention, control was essential in order to turn the cotton market into a moral market? Could the Market itself have eliminated the slave market? I guess we say, yes, there is that statistical possibility that some mega-billionaire could have come along and purchased all the slaves, and freed them? It this what Friedman and the Chicago School means when they say Markets self-correct for the Moral Dimension, the Moral Participants in the Market spending their money in Moral Ways? Do corporations have social and environmental responsibility?
As Rafineja(2018) points out, Friedman believed that social responsibility is the business of governments, "... which safeguard the commons by enacting laws and regulations. This minimalist view is workable only if governments are not subjugated to corporations and if they assume ownership of the common good and responsibility for its protection. Both conditions are lacking in the current monopoly capitalist system." This is the problem: We have not only accepted Friedman's contention that business does not have social responsibility, but also another famous commentator in economics, Nobel Prize winning James M. Buchanan, who claimed government always gets it wrong, has also had huge influence in recent years, pointing to setting government aside (MacLean, 2017). So, following both Friedman and Buchanan, noone takes social responsibility, noone is adequately considering the Other(shared with others)-interest in doing the right thing.
Indeed, it took a civil war to make that cotton and related slave market a moral (do the right thing, in this case eliminate it) market. It may take a huge payoff in a class action suit to make the meat market a moral market? Also, the question of whether a Market Forum is more moral than an Other Forum as used for making decisions in Government is, in Metaeconomics framing, an empirical question. It seems that Friedman-like framing, and its Buchanan partner in Public Choice Economics, both of which rests in Neoclassical and Microeconomics, needs to demonstrate this contention that the Market Forum is Inherently Moral, while the Other (Government) Forum is Not Moral, or incapable of reflecting the Moral Community, with empirical evidence, not just ideological based contention.
Knight, F. and Friedman, M. The Ethics of Competition and Other Essays. Books for Libraries, 1969.
MacLean, Nancy. Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for a Merica. Penguin Books, 2017.
Rafinejad, Dariush. Milton Friedman was wrong: Corporations do have social responsibility. Greenbiz.com (December 19, 2018)
Tett, G. Fools Gold: How the Bold Dream at J.P. Morgan was Corrupted by Wall Street Greed and Unleashed a Catastrophe. New York: Free Press, 2009
"Consumers Sue Packers, Allege 'Price Fixing" Article here
"R-CALF Sues Tyson, Cargill, JBS, and National" Article here
This may be a case in point about rules, fraud, and deception (albeit recalling that innocent until proven guilty is also in our shared other-interest) on how the tendency to extreme greed is almost inherent in the system of a self-interest only system. Minnesota consumers, in a class action lawsuit, are claiming four large meat packers in effect colluded to keep prices at the meat counter higher than what a competitive market (the kind claimed by Friedman-like framing) would have produced. The claim is that that the packers “have been bilking consumers since 2015 by artificially limiting the amount of beef they purchase, process and sell to retail operations.... Families nationwide have been overpaying for years for beef products they buy routinely, unknowingly paying inflated prices fixed by a scheme to limit beef supplies...”
The packers are also facing a lawsuit claiming violation of "U.S. antitrust laws, the Packers and Stockyards Act, and the Commodity Exchange Act by unlawfully depressing the prices paid to American ranchers (see Henderson, 2019)" The packers deny it, as represented in the comment by Tyson representative Gary Mickelson: "Contrary to the assertions in this lawsuit, Tyson wants its suppliers to succeed. Tyson will vigorously defend itself and its proud heritage of supporting America’s farmers and ranchers." So, Tyson claims a shared Other-interest with the suppliers of cattle; the litigants claim not. So, Metaeconomics points the need to sort out just was is the Other-interest(s) at work here, and are they indeed shared, or at odds? What is the empirical reality here?
In a nutshell, the packers are accused of increasing their margins by paying ranchers/producers less and charging consumers more. So, how would this play in the Friedman-like frame?
Again, Metaeconomics suggests the empirical evidence needs to tell us what is going on here, focusing on whether there is an actual shared Other-interest at work, with empathy (walking in the shoes of others on both sides) the focus. The litigants claim the price is not moving with real supply and demand, but rather is being fixed, otherwise manipulated by a few larger players (the four packing firms) in the middle of thousands of cattle producers and millions of consumers. Metaeconomics calls for empirical assessment of the Friedman-like game that is actually being played by what rules. The article claims, based on the message from an industry insider, who apparently said: “meat works like the mafia.” Executives at companies in the meatpacking industry all know each other, according to the insider, and someone may be a competitor but also a customer. So, are these the Friedman-like rules of the game, rules without social responsibility, rules not conditioned by empathy (other than within the packing industry, for each other) but rather by ego? Or, are the rules of the game something preferred in the shared other-interest between producers and consumers, with reasonable prices for each, as well as reasonable margins for the packers? Is empathy going every direction, or only between and among themselves and focused only on widening the margins, not empathy with producers and consumers? Friedman-like, Microeconomics framing does not ask the moral dimension questions in any explicit way, rather framing social responsibility... the shared other-interest... as a non-economic question. Metaeconomics immediately asks the moral question, due to seeing the fundamental need for the other(shared, moral, ethical)-interest to temper the more primal self-interest in "taking it all when when we have the power to do so." It is in our nature!
As stated at the outset, the shared other-interest is in "innocent until proven guilty," so a lot more empirical work needs to be done. It also, however, is likely that there is a shared other-interest in tempered and just (as in justice) price for producers, consumers and also a reasonable, tempered, and just level of the profit margins in meat packing. It is not all about self-interest only, but it is about balance in self&other-interest, like Metaeconomics proposes. For more on how Metaeconomics thinks about such issues, click here.
Henderson, Greg. R-Calf Sues Tyson, Cargill, JBS and National. Drovers Newsletters. (April 23, 2019).
In the News: “Capitalism in Crisis: U.S. Billionaires Worry About the Survival of the System That Made Them Rich”
Jaffe (2019) points to how US Billionaires, speaking especially to those in the Tech Industries as represented in Silicon Valley, have been stirred to consideration of how entrepreneurs might fare in a future capitalism as it is unwinding in the US. Jaffe (2019) notes " the growing unpopularity of billionaires and their giant tech companies ... For decades, Democrats and Republicans have hailed America’s business elite, especially in Silicon Valley, as the country’s salvation. The government might be gridlocked, the electorate angry and divided, but America’s innovators seemed to promise a relatively pain-free way out of the mess. Their companies produced an endless series of products that kept the U.S. economy churning and its gross domestic product climbing. Their philanthropic efforts were aimed at fixing some of the country’s most vexing problems. Government’s role was to stay out of the way... Now that consensus is shattering. For the first time in decades, capitalism’s future is a subject of debate among presidential hopefuls and a source of growing angst for America’s business elite... there is a sense that the kind of capitalism that once made America an economic envy is responsible for the growing inequality and anger that is tearing the country apart. " So, what is going on? Metaeconomics gives a frame and theory for framing the questions, and finding the answer.
Metaeconomics always asks: Whose other-interest is being served? What is the nature of that other-interest? While self-interest if appropriately tempered can produce wealth that could benefit many is the other-interest at play ensuring the self-interest of many is being facilitated? If there is more than one other-interest at play, which might explain discord and discontent, "tearing the country apart", is there some way to find common ground?
The conversation between Representative Ro Khanna (D-Calif.) and billionaire, entrepreneur Chris Larsen provides some clues. Khanna, using the empathy side of dual interest theory to explain what he is saying, points to how many in the US feel left out, speculating (through his act of empathy) they are concerned with “What happened to us?”, imagining what people in these left-behind places might be asking, dealing with such realities that Larsen's wealth, due to "a cryptocurrency spike last year, Larsen’s net worth had briefly hit $59 billion, making him the fifth-richest person in the world before the currency’s value fell. Without an intervention, ... wealth would continue to pile up in Silicon Valley and anger in the country would continue to grow... blob is getting bigger.... At some point, Larsen and Khanna worried, something was going to break.,,,, 2008 financial crisis may have revealed the weaknesses of American capitalism. But it was Donald Trump’s election and the pent-up anger it exposed that left America’s billionaire class fearful for capitalism’s future. "
Jaffe (2019) goes on to point out these conversations about the need to fix capitalism... in Metaeconomic terms, to build a Good Capitalism.. are also ongoing in some of the best business schools. He mentions a presentation at Harvard University, by Seth Klarman, a highly influential billionaire investor, commenting on a large donation his family had made to build the new Klarman Hall: "It's a choice to pay people as little as you can or work them as hard as you can... a choice to maintain pleasant working conditions . . . or harsh ones; to offer good benefits or paltry ones.... If business leaders didn’t 'ask hard questions about capitalism, he warned that they would be asked by 'ideologues seeking to point fingers, assign blame and make reckless changes to the system.'” Khanna's diagnosis is this: We have Bad Capitalism ( Meteconomics Framing) due to "inequality and the failures of unrestrained capitalism."
Also, although some would blame racial divides, instead Metaeconomics sees, as does Khanna, "the country’s divisions primarily through the prism of capitalism’s shortcomings and the economy, not race." We simply have severe distortion in the wage, salary and compensation plans from the lowliest laborer through the CEOs, bankers and those on Wall Street. We fix this problem, like Klarman says, by choice in how much we pay people. This is all about empathy based other-interest... the act of walking in the shoes of others regarding their compensation package leading to tempering the current tendency to accumulate huge amounts of wealth in the hands of a very few. Also, Metaeconomics would not suggest this is about taxing the wealth, and taking it away for purposes of redistribution, per se, albeit paying a fair share of the costs is also essential; rather it is about how the gains from making wealth are paid in reasonable shares to those who contributed to making it.
It is not like this is anything new. Henry Ford increased the wage from $1/day to $5/day on his factory line for the Model-T Ford. As a result, said workers could move into what would become the middle-class, with decent homes, health care, plentiful money to purchase food and clothing, and, yes, to buy a Model-T Ford, too! This is not rocket science: Higher wages and salaries for everyone, and less extreme compensation at the very top, would go a long way to resolving the Bad Capitalism we are experiencing. Another clearly needed arena is improved educational systems and opportunities in the high tech age; it seems public education needs more support. Perhaps most importantly, we need more empathic efforts to asking how we would wish to be treated if our livelihoods are taken away by a new technology, or shifting production overseas. Empathy is the key to putting us on a Metaeconomics path to a Good Capitalism.
Jaffe, Greg. “Capitalism in Crisis: U.S. Billionaires Worry About the Survival of the System That Made Them Rich.” Washington Post (April 20, 2019)
“The Capitalist Comeback: The Trump Boom and the Left’s Plot to Stop It”
Puzder (2019) elaborates on the Amazon decision to not build a new facility in New York. Former CEO Andy Puzder of CKE Restaurants and author of the book by this title speaks from the perspective of largely the extreme elements in the Right Isle. Puzder (2019) makes the claim that Progressives on the Left Isle cheered the Amazon decision as a “great victory over ‘corporate greed’, ‘worker exploitation,’ and ‘the richest man in the world,’ ” claiming that Amazon workers, now distributed around to other Amazon facilities are better off, in part due to paying less taxes in places like Virginia and Tennessee.
So, he first presumes that the wages and salaries paid by Amazon will be identical whether in New York, Virginia or Tennessee, which generally is not the case. Second, the goal of everyone is always to not pay taxes, not pay for the Price of supporting Government in any form, from the infrastructure represented in the airports and roads to haul Amazon goods or to provide police and fire protection for Amazon properties, and not paying for the Public Educations to educate the workers. Not paying Tax, not paying the Price of Government, is good. Also, New York has labor unions focused on the richest man in the world paying reasonable wages and salaries, while Virginia and Tennessee, also being right to work states, and many other locations which Amazon favors are similar, so lower wages and salaries are the rule.
Intriguingly, there is a quite different Other-interest at work here: Puzder seems to share (albeit we would have to ask, watch for revealed preferences: this is an empirical question) an Other-interest with those who want to reduce the power of labor to increase wage and balance compensation in general. This Other-interest also seems to be that one is to do everything possible to not pay the Price/Taxes of Government. So, companies who reap tremendous benefits from public schools, public roads, public airports, higher quality environment, among other things Government produces, see no obligation to help Pay for these services and products? Metaeconomics points to the need to look explicitly at the Moral Dimension of these kinds of shared Other-interests. Is this the Moral Community, the shared Other-interest, we want?
Puzder (2019) claims that, regarding labor unions, “their popularity is waning.” Metaeconomics would ask: Is that true of the Moral Community, when it thinks about labor unions? Where is this coming from? What empirically based research is this based on? Metaeconomics requires empirical data to back up such conjectures. It is likely more empirically defensible, as MacLean(2017) documents, that labor unions are not waning because labor does not want them, but instead are being eliminated by politicians bought by the dark money of very wealthy individuals with a vested interest in keeping wages and salaries as low as possible, as was accomplished in Wisconsin. Again, an empirical question, one that needs to be asked; and, is this kind of behavior consistent with an empathy based Moral Community take on what is the right thing to do?.
Puzder also claims the average Amazon pay level is $150,000, which “goes a lot further in Virginia or Tennessee than it would in high-tax New York City”; again, Metaeconomics would ask: Where is this number coming from, and, what does one actually get for the Price in New York City as compared to Virginia and Tennessee? The answer to the first question is: The actual average for Amazon is closer to $100,000, with a range in the mid-$20,000 to mid-$200,000 (www.payscale.com). Looking at the Price (Taxes) for Government as it varies among states is a complex issue, that cannot just be brushed over with statements like “high-tax New York City.” Leonhardt (2019) adds to the facts with the April 15 article pointing to how Amazon also paid no federal taxes for the tax year 2018.
Metaeconomics wants the facts, not the opinions, and a clear indication of what interest is at work in proclamations of this kind. What Moral Community is at work in the way Amazon operates? Why does Amazon expect, and often get, huge tax incentives, when paying the Price of Government is as much a duty of Amazon as hiring labor? Even if it is legal to not help pay the Price of all the products and services Amazon receives from Government, does this make it the right thing to do? It seems we need to be asking for the rationalization about these kinds of economic choices, which on the surface at least looks more like Bad than Good Capitalism... at least that is the empirical question we need to be exploring.
Leonhardt, David. 2019. "Their Tax Rate is 0%." New York Times, April 15.
MacLean, Nancy. Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America: Penguin Books, 2017.
Puzder, Andy. "How to Liberate Amazon Workers." Wall Street Journal (February 20. 2019).
In the News: The Capitalist Manifesto, and, Fools Gold
An article in an issue of Newsweek shortly after the 2008 Crisis, with the cover page The Capitalist Manifesto, proclaimed (Zakaria, 2009, p. 41): “Greed is Good (To a Point).” The task after the 2008 Crisis became one of finding the new “Point,” which really says it was time to search for a new ethic, bring a new Moral Community, into banking and finance, and to Wall Street. It also became apparent the longer term task was to develop a new economic and business paradigm framework, and theory, which will keep the search for the “Point” an active element in a changing, truly resilient, and moral, financial and economic system. The new way of framing, and new theory, needs to facilitate the explicit, continuing evolution of ways to temper, condition, and, if necessary, to restrain, Greed. Metaeconomics... with the Metaeconomics Framework (MEF) and the analytical machinery represented in Dual Interest Theory (DIT)... give specific insights on how to temper the more primal Greed, and thus reform and produce more stability in the banking and financial system, and thus avoid economic depression.
Moving toward an empathy economy is to move toward good capitalism. An ego economy, in contrast, almost assuredly leads to crisis and depression. What can be done to bring about an empathy economy?
A well-known columnist, who represents the traditional way of Microeconomics, with Microeconomic Framing (MF) and Single Interest Theory (SIT), proclaimed (Will, 2009):
Greed is worse than a moral defect; it is a cause of foolish pricing. That is why markets know it when they see it. And when markets are allowed to operate, Greed generates its own punishment.
So, according to Will (2009), it would be better, at least more “restful” as he puts it (referring to the turmoil around the 2008 crash) “ …to give moral reasoning a rest and give economic reasoning a chance.” This perspective leaves it all to magic, to the invisible hand of the Market, to do the moral reasoning, evolve the new ethic, and solve the problem of Greed in the Market. Using MEF and DIT, this MF and SIT based reasoning is easily shown as fundamentally flawed. At best, by the time Market sees it, if the Market ever sees it at all, it can easily be too late, as in the 2008 crash.
The book by Financial Times journalist Gillian Tett (2009, p. x) points to the fundamental role played by Greed, and other related human weaknesses:
The story of the great credit boom and bust is not a saga that can be neatly blamed on a few Greedy or evil individuals. It is a story of how an entire financial system went wrong as a result of flawed incentives within banks and investment funds as well as the ratings agencies; warped regulatory structures; and a lack of oversight. It is a tale best understood through the observation of human foibles…
While excessive Greed as a main foible combined with a lack of oversight played a substantive role, Tett also makes it clear that a great deal of good has evolved out of the events leading to the 2008 (and ongoing) crisis, empirical evidence there is an interplay and jointness of the Greed&Good, and, real possibilities for bringing better in Market&Government. Like my grandmother always used to say, “there is nothing so bad that it is isn’t good for something.” Even this grand… actually 30-something years old, starting in the early-1980s…. experiment in unleashed excessive Greed, culminating in the financial and economic meltdown starting in 2008, could eventually lead to many good outcomes assuming we learn from it.
A good way to stir conversation in this Blog is to point to the Epilogue in Tett (2009, p. 254), wherein it is concluded we need:
…a wider rethinking of the culture of finance. For too many years, bankers have treated ‘credit’ as merely an isolated game of numbers. The roots of the word, though, come from the Latin credere, meaning ‘to believe.’ It is a concept centered on wider social relations, which financiers forget at their peril. For if there is one element, above all, that is now needed to restore sanity to banking, it is that policymakers, bankers, and politicians must adopt a more holistic vision of finance. In essence, what is needed is a return to the seemingly dull virtues of prudence, moderation, balance, and common sense.
The MEF and DIT also lead to supporting this holistic vision and point to this same need for balance in due consideration of all the virtues, which acknowledges a role for culture, especially in the tempering of Prudence-only (Self-interest only) choices. Culture and its role in tempering behavior is represented in the Empathy-Sympathy driven Other(shared)-interest. The focus shifts from a complete emphasis on the strong version of Prudence (prudence-only, maximum Greed, maximum profit/wealth and what it can buy, max Self-interest, resulting in “max U” as McCloskey, 2006, characterizes it), to the balanced, tempered version of Prudence called for by Tett (2009), and suggested by the MEF. The Other(shared)-interest reflects the Other virtues; their common sense integration with prudence gives a tempered and balanced, empathy economy influenced, Ego&Empathy, Self&Other-interest path.
McCloskey, D. N. The Bourgeois Virtues: Ethics for An Age of Commerce. Chicago: The University of Chicago Press, 2006.
Tett, G. Fools Gold: How the Bold Dream at J.P. Morgan was Corrupted by Wall Street Greed and Unleashed a Catastrophe. New York: Free Press, 2009.
Will, George F. "Greed's Saving Graces." The Washington Post ( May 17, 2009)
Zakaria, F. The Capitalist Manifesto: Greed Is Good (to a Point). Newsweek ( June 22, 2009): 41 – 45.