The evil of economics

A new study shows that free markets don't make for free minds

It takes a big man to admit he's wrong.

There are few men bigger than Alan Greenspan. And there are few men who have gone wrong in such a big way.

Although he stands shy of six feet tall, the former Federal Reserve Chairman was the colossus of the business world as he oversaw the longest economic boom in American history. But when financial collapse swallowed up the bulls of Wall Street like the cows in Pharaoh's dream, Mr. Greenspan's reputation deflated along with the economy.

To his credit, the erstwhile guru humbled himself and confessed the error of his ways. In October, 2008, Mr. Greenspan gave testimony on Capitol Hill before the House Oversight Committee concerning the economic meltdown that ravaged the country. This was the takeaway:

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms."

In other words, despite all logic to the contrary, people cannot be trusted to do what is in their own best interest.

The question is: why not?

ALL FOR ONE AND NONE FOR ALL

A recent study may shed light on the discomfiting answer.

In experiments conducted at Barnard College, economists Homa Zarghamee and John Ifcher asked students to play something called the ultimatum game. It goes like this:

One subject – let's call him Fred – is given $20 to share with another subject, Barney. Fred decides how to split the money. If Barney agrees with Fred's division, each one gets his share; if not, neither one gets anything.

The researchers found that Fred was likely to tilt the split in his own favor, but only a little. On average, Fred would keep $11.50 for himself and offer $8.50 to Barney.

However, after subjects were given a basic lesson in economics, the results changed dramatically, with Fred's split averaging $15.50 for himself and only $4.50 to Barney. Once subjects learned how fair-market economics operate on the foundation of self-interest, they eagerly put their new-found wisdom into practice by exploiting their position of power for all it might be worth.

History proves that capitalism is the only system that can produce prosperity by fueling the engine of productivity. But when the rules of the marketplace become the values of the street, then the law of the jungle waits right around the corner.

DOWN THE RABBIT HOLE

So what defines our best interest: fostering a morally healthy society or grabbing all we can before someone else grabs it first? The answer should be obvious. But we know it isn't so.

People only do what is in their own best interest when they recognize what that best interest truly is. Objectively, we all want to live in a world built on kindness and justice. But human beings are not objective creatures, and our base impulses incline us toward self-indulgence. Only with discipline and wisdom can we harness our appetites.

America's Founding Fathers knew this all too well when they designed the legal infrastructure of our country. They recognized that the Constitution would only ensure freedom in the hands of responsible custodians and judicious practitioners. Here are just a few of their insights:

John Adams: Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.

Benjamin Rush: Without [religion] there can be no virtue, and without virtue there can be no liberty, and liberty is the object and life of all republican governments.

Noah Webster: All the miseries and evils which men suffer from vice, crime, ambition, injustice, oppression, slavery, and war, proceed from their despising or neglecting the precepts contained in the Bible.

George Washington: Religion and morality are the essential pillars of civil society.

James Wilson: Human law must rest its authority ultimately upon the authority of that law which is divine. . . . Far from being rivals or enemies, religion and law are twin sisters, friends, and mutual assistants.

Benjamin Franklin: [O]nly a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.

Of course, it was the study of religious philosophy that enlightened these men of wisdom, even one as irreligious as Ben Franklin. They didn't merely point to scripture; they studied it and allowed its teachings to inform their reasoning and shape their opinions.

Most certainly, they knew and took to heart the warnings of King Solomon when he said, Like an open, unwalled city is a man who cannot restrain his desire. It's not hard to imagine what these wise men would say about a modern world in which everything has become acceptable in the name of tolerance, where accountability is repudiated in the name of charity, and where traditional boundaries of virtue are torn down in pursuit of utopian egalitarianism. They knew that moral anarchy would be the inevitable outcome of unbridled freedom.

Even if we recognize that economic pragmatism must govern the marketplace, we've also seen what happens when the impulses of human avarice are given free rein. True freedom can only survive if we remember that there are some things worth more than money, and that our own best interest can never be served at the expense of others.

Rabbi Yonason Goldson is a professional speaker and trainer.  Drawing upon his experiences as a hitchhiker, circumnavigator, newspaper columnist, high school teacher, and talmudic scholar, he teaches practical strategies for enhancing communication, ethical conduct, and personal achievement. He is the author of Proverbial Beauty: Secrets for Success and Happiness from the Wisdom of the Ages is available on Amazon.