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Is greed good?

I’m a very successful Wall Street investor, and I’ve always told my shareholders that “Greed is good.” I think it’s a pretty cool thing to say…but it’s also true, right?  Sincerely, Gordon G.

No, Gordon.

Greed is not good. Or at least not in the way you seem to think.

What I suspect you’re trying to do is say something profound about capitalism, the free market, and, even more specifically, the concept of self-interest.

This idea—which you mistake for ‘greed’—does indeed have its place in the competitive marketplace. Many consider it to be so fundamental as to border on economic dogma. As the father of economic theory Adam Smith writes in The Wealth of Nations (1776):

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.

In other words, it is in their own best interest for producers (like butchers, brewers, or bakers) to charge as much as demand will allow for their offerings. They are, after all, motivated to turn a profit. Similarly, consumers are just motivated to pay as little as possible in return for those products (or services). Assuming that they have limited resources, this too makes sense. And indeed it is the interplay of these two opposing motivations that is responsible for any and all efficiencies markets have to offer. That much is true.

But not all acts of self-interest are necessarily ‘good’. Organizational psychologist Adam Grant offers insight as to why.

In Give and Take (2013), Grant distinguishes between the various types of actions or behaviors in which a human being might engage. The first he defines as the selfish act, which is behavior motivated by an individual’s own self-interest, and benefits them alone. The consequences for others—be they good or bad—are not considered. So, for example, a selfish act would be to acquire, and then break up a successful airline after deceiving its union in order to raid its pension fund. You (and your investors) stand to profit, but that is at the expense of the workers who lose both their jobs and retirement savings.

The second type behavior Grant characterizes as the selfless act. This is an action or behavior that is to everyone else’s benefit, except your own. It may even be engaged in at your expense. For instance, a selfless act would be to re-purchase the airline in the previous example from the soulless corporate raider who initiated the takeover, and then re-hire those same workers and make the company whole again. Indeed, it would be especially selfless if, in order to execute this plan, you had to violate insider trading laws and therefore risk going to jail.

But Mr. Grant also identifies a third type of behavior which is of relevance here. He defines this as an action which benefits others—just like a selfless act—but is to one’s own advantage as well. Kind of an ‘everybody wins’ scenario. Grant refers to these acts as otherish.

So, in the previous example, rescuing that airline from a hostile takeover would qualify as ‘otherish’ if the company were to commit to hiring you once you are released from prison. Now both you and the company benefit from your actions (at least eventually). But it might still qualify if doing so simply allowed you to sleep better at night.[1]

Anyway, I trust you see what I’m getting at. Self-interest—aka, greed—is not always good. Some acts of self-interest are otherish – that is, they benefit you and everyone around you.

Others are just plain selfish, and to no one’s advantage but your own.

 


[1]  [SPOILER ALERT] You could also come up with a scheme to buy back the company and bankrupt the Wall Street investor who executed the takeover in the process. Then, maybe later, you could secretly wear a wire so that when he berates you in Central Park for screwing up his illegal scheme, this could be used this as evidence to put him in behind bars as well, or in exchange for a lighter sentence for you. Or something like that.

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