Wealth and Free Market Capitalism

In the late 50s, Michael Anthony, the executive secretary for John Beresford Tipton, gave an unsuspecting person one million dollars. The taxes were pre-paid. There was but one restriction, they couldn’t tell anyone the source of their new wealth. This was television of course, and that fantasy kept audiences entertained for five years. The show was called, The Millionaire.

Given a cumulative inflation rate of 1,146%, that 1955 gift would be worth over $12 million today. For most of us, that would be an influential sum. The television recipients of that largess dealt with the dilemmas of greed vs. generosity, and justice vs. revenge.

This brings us to real world wealth, that rarified atmosphere where money is not a major consideration in decision making, but may be an objective. I write this as a sometime observer of the truly wealthy. I define the “truly wealthy” as anyone for whom a doubling of their wealth or a halving of their wealth would not require any lifestyle adjustment.

I have, during my eight decades of life, had occasional contact with true wealth. My one observation is that, beyond a certain point, there is no point. There is no need for more, but it is still a driving force in their lives. The truly wealthy take great pleasure in the acquisition process, even when it no longer has any impact on their lives.

Wealth is at the center of their universe and often dominates conversations. When the wealthy gather, discussions are regularly about how their money has made them happy. They talk about the opulence of their travels and acquisitions. Name dropping of people and luxury brands is common. For some, thankfully not all, wealth is about power and how that power may be wielded either to gather more wealth or to have an impact on others. It is that latter concept where good versus evil comes in.

To quote from the movie Wall Street’s Gordon Gekko, “Greed, for lack of a better word, is good. Greed is right. Greed works.” In traditional Catholic theology, greed or avarice is ranked as the second of the seven deadly sins. Pride holds the number one slot. In Dante’s Inferno, greed is in the Fourth Circle of Hell.

However you view greed as a trait, it is essential to understanding free market capitalism. This powerful and essential engine for economic growth allows supply and demand to dictate prices and allocate resources. It rewards initiative and promotes efficiency. However, left unchecked or unregulated, greed will “put pedal to the metal” and the whole economy can overheat and run off the road to the detriment of all.

Left unregulated, successful firms seek to eliminate competition and form monopolies that drive up prices, stifle innovation, and exploit consumers. Without some government regulation, secondary costs like pollution are borne by society and not the producer. There is no financial incentive to protect the public health or shared natural resources.

There is also a tendency toward risk taking when some of that risk may be forced on others. We all remember the “too big to fail” mentality where a company is so large that its failure will have a ripple effect risking financial disaster for the economy. The 2008 financial crisis featured a collapse of the U.S. housing market and the failure of several major financial institutions.

Key to this crisis were policies initiated two decades earlier during the Ronald Reagan administration. It was his aggressive philosophy that less government intervention would spur growth, that set the stage. In 1982, he signed into law the Garn-St. Germain Depository Institutions Act that established ARMs, or Adjustable-Rate Mortgages and removed caps on loan-to-value ratios. He also signed the Alternative Mortgage Transaction Parity Act establishing non-federally chartered creditors who could write interest-only loans with balloon payments.

The deregulation stage was set, so let the high-risk gambling begin. Because, on the S&L corporate side, deposits were federally insured, the high-profit junk bond market became too attractive. It took until 2008 for that bubble to burst. Both corporate and consumer greed reared their ugly heads, and everybody paid. I watched a friend and neighbor who had taken out one of these risky loans, buy a new car, a new boat, and make expensive alterations to his home. He went bankrupt, was forced out of his home, and he moved in with in-laws.

Today, the Trump administration has once again targeted post-2008 financial oversight, to scale back agency enforcement, cut regulatory staffing, roll back bank merger scrutiny, and order a relaxation on mortgage and lending compliance. He has cut key elements of the Dodd-Frank Act and the Consumer Financial Protection Bureau.

These rollbacks and changes are now fueling the rapid expansion of artificial intelligence. While the banking changes are playing a minor role in all of this, the further deregulation of the tech-sector, relaxation of environmental rules, and a wild-west attitude toward digital financial oversight are now fueling the AI bubble. The Trump AI Action Plan is shifting the industry toward self-regulation.

This is what happens when capitalism is allowed to run through the candy shop like a toddler on a sugar binge. Greed is the motivator. Some government regulations of capitalism is not communism. Don’t let the far-right tell you otherwise. Good regulation of corporate greed is necessary for a healthy economy. When we let the uber-wealthy make all the rules without oversight, we risk financial ruin.

To quote my favorite Greek philosopher, Anonymous, "History repeats itself, because no one was listening the first time."