On the Need for Greed

Greed is not good. There, I said it.

At least, it's not good alone. Greed, in combination with a strong sense of fair play, can be very good. It's the latter part that was and is missing from the Madoffs of this world.

We learn early in microeconomics that individual agents acting in their strict self-interest will under certain conditions produce Pareto-efficient outcomes. Among the necessary conditions are a lack of force or fraud in the exchange relationships; eliminating those factors is a serious problem for real-world governments.

But there is a deeper issue: Pareto-efficiency is not equal to welfare-maximization. This has long been an open question in ethics, whether decreases in some people's welfare can be traded for a larger increase distributed across the population. Utilitarians say yes; Lockeans say no. I think both could agree, however, that we would be willing to set the laws such that those whose greed leads them to attempt to circumvent the system will be stymied.

If people believe in fair play (or if laws induce people to act as if they believe in fair play), then pure, unadulterated greed could actually cause the world's Madoffs to produce useful things for society in order to fulfill their desires. Otherwise, we are rewarding cleverness for its own sake-- at our own expense.