Greed Is Good or Is It? Quote and Meaning

In the 1987 movie "Wall Street," Michael Douglas as Gordon Gekko gave an insightful speech where he said, "Greed, for lack of a better word, is good." He went on to make the point that greed is a clean drive that "captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind."

Gekko then compared the United States to a "malfunctioning corporation" that greed could still save. He then said, "America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions."

Both of these last two points are truer now than in the 1980s. China surpassed the United States as the world's largest economy, with the European Union following closely behind. The trade deficit has only gotten worse in the last thirty years. The U.S. debt is now larger than the country's entire economic output.

Greed Is Bad

Is greed bad? Can you trace the financial crisis of 2008 back to the greed of Michael Milkin, Ivan Boesky, and Carl Icahn? These are the Wall Street traders upon whom the movie was based. Greed causes the inevitable irrational exuberance that creates asset bubbles. Then still more greed blinds investors to the warning signs of collapse. In 2005, they ignored the inverted yield curve that signaled a recession.

That's certainly true of the 2008 financial crisis when traders created, bought, and sold sophisticated derivatives. The most damaging were mortgage-backed securities. They were based on underlying real mortgages. They were guaranteed by an insurance derivative called a credit default swap.

The Fed began raising interest rates in 2004. Mortgage holders, especially those with adjustable rates, soon owed more than they could sell the house for. They began defaulting.

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As a result, no one knew the underlying values of the mortgage-backed securities. Companies like American International Group (AIG) that wrote the credit default swaps ran out of cash to pay swap holders.

The Federal Reserve and the U.S. Treasury Department had to bail out AIG, along with Fannie Mae, Freddie Mac, and the major banks. 

Greed Is Good

Or is greed, as Gordon Gekko pointed out, good? Perhaps, if the first caveman didn't greedily want cooked meat and a warm cave, he never would have bothered to figure out how to start a fire.

Economists claim that the free market forces if left to themselves without government interference, unleashes the good qualities of greed. Capitalism itself is also based on a healthy form of greed. 

Could Wall Street, the center of American capitalism, function without greed? Probably not, since it depends on the profit motive. The banks, hedge funds, and securities traders that drive the American financial system buy and sell stocks. The prices depend on the underlying earnings, which is another word for profit.

Greed Is Good in U.S. History

President Ronald Reagan's policies matched the "greed is good" mood of 1980s America. He promised to reduce government spending, taxes, and regulation.  He wanted to get government out of the way to allow the forces of supply and demand to rule the market unfettered.

In 1982, Reagan kept his promise by deregulating banking. It led to the savings and loan crisis of 1989.  

Reagan went against his promise of reduced government spending. Instead, he used Keynesian economics to end the recession of 1981. He tripled the national debt. 

He both cut and raised taxes. In 1982, he cut income taxes to combat the recession. In 1988, he cut the corporate tax rate. He also expanded Medicare and increased payroll taxes to ensure the solvency of Social Security. 

President Herbert Hoover also believed greed was good. He was an advocate of laissez-faire economics. He believed the free market and capitalism would stop the Great Depression. Hoover argued that economic assistance would make people stop working. He wanted the market to work itself out after the 1929 stock market crash. 

Even after Congress pressured Hoover to take action, he would only help businesses. He believed their prosperity would trickle down to the average person. Despite his desire for a balanced budget, Hoover still added $6 billion to the debt. 

Why Greed Is Good Hasn't Worked in Real Life

Why hasn't the "Greed is good" philosophy worked in real life? The United States has never had a truly free market. The government has always intervened through its spending and tax policies.

Treasury Secretary Alexander Hamilton imposed tariffs and taxes to pay for debt incurred from the Revolutionary War. Debt, and taxes to pay for it, increased with every subsequent war and economic crisis.

Since its beginning, the American government has restricted the free market by taxing some goods and not others. We may never know if greed, left to its own devices, could truly bring about good.