Dictionary.com says greed is “excessive or rapacious desire, especially for wealth or possessions.” Gordon Gekko says, “greed is good.” Many other people say greed is bad. Commenters on Facebook and elsewhere, for example, often say greed is the reason companies do not sufficiently pay their employees. In fact, they blame greed for many of the country’s societal and economic ills. Sometimes they are right, but usually, they are wrong. Let’s see if we can sort this out.
First, let’s focus on greed as the “excessive” desire for wealth or possessions. (I’m willing to stipulate that ““rapacious” desires for wealth or possessions are unalloyed evil.) In particular, let’s focus on the word “excessive” in the context of greed. Because I explored how things appear differently depending on an observer’s economic status in my blog on “Wealth,” I will not belabor the point here that a person in the bottom billion could perceive a person on welfare in the United States as greedy if he or she desired more wealth or possessions. It is worth noting, however, that the additional amount of wealth one must desire for it to be considered “excessive” varies significantly depending on whether one has $20, $20,000, or $20 billion in savings.
I doubt that greed has ever been the sole motivation for a person to create and pursue wealth. And even if a person who was only motivated by greed existed, how could anyone but that person tell? Outward appearances would be the same whether the motivation was greed or something else, such as the desire for fame or the interest in inventing, developing, and selling something which is valued or useful to her fellow man. Motivation could also come from the desire to discover, create, work, or lead, to make jobs available for people in need, or to build up a nest egg for family security or charity. People can become wealthy because billions of people love their products (think Steve Jobs) or because they win lotteries, but there is no indication that reason to believe that greed was necessarily the motivation.
Despite this, many people believe greed is the cause of much human suffering. Not only is that belief based on little or no evidence, but it also makes no sense economically because for greed to be a material motivation for wealth creation.
Before I proceed, please know I believe greed is very bad. (It’s a sin for God’s sake!) I also think, however, that 1) people falsely assume greed causes already-wealthy people to seek more money and that 2) people see others with great excesses of wealth while there are still poor people in need. From this evidence alone they conclude that greed must be keeping wealthy people from sharing more with the poor, but they are wrong to jump to this conclusion.
Do you consider middle-income Americans wealthy? In a very real and relevant sense, they are. According to Wikipedia, John D. Rockefeller is the richest person in modern history. Rockefeller lived the first 74 of his 98 years before 1914, the year the first air conditioner was installed in a home. If he ever flew in a plane, it was very late in life; he did not go far, and the plane was relatively uncomfortable, dangerous, and unreliable. He never took his kids or grandkids to anything like Disneyland. His doctor and dentist had a tiny fraction of the knowledge, tools, procedures, pain relievers, and drugs available to middle-income people today. And he had fewer options for entertainment, as opportunities just weren’t the same back then. Was Rockefeller rich? You bet! Could he enjoy a lifestyle as good as a middle-income American today? In most respects, no. My guess is that very few, if any, middle-income people in America today would want to switch places with the richest man in modern history.[i]
Despite being rich in this sense, many middle-income people do not consider themselves rich. This is mostly because they see people who are vastly richer than them when they look around, and this makes them feel poorer than they are in terms of their absolute wealth. (They are rich compared to 99% of all humans who have ever lived. Yes, all Americans are in the top 1% by this standard.) Today people on welfare, people with middle incomes, and people with executive salaries perceive themselves as poor relative to others they see on a regular basis and on TV. They feel poor because feeling rich is not a function of absolute wealth. While individuals with larger incomes may have more security, people are going to see others with more money than them until they get to the wealth level of Bill Gates. It is normal to feel poor by comparison no matter where one falls on the income distribution curve. And it’s important to realize that the 540th billionaire in the U.S. sees most of the other 539 billionaires as having many multiples of his or her wealth (rightfully so). That person cannot be happy when his or her foundation cannot do nearly the amount of good works as the Gates Foundation because billionaire number 540 is a pauper by comparison.
The upshot is that essentially no individuals on the income curve consider themselves to be greedy because they want more than what they already have. There is no inherent correlation between absolute levels of wealth and greediness, so it is just as unfair for a poor American to call a wealthier American greedy as it is for a poor Pakistani to call a poor American greedy for wanting more. Some poor and rich Americans may be greedy, but their income levels have nothing to do with it.
The poorest U.S. billionaire, or the 540th person who wants to move up to the 539th spot, is not necessarily greedier than the middle manager who wants to be an executive manager or the mail clerk who wants to be a middle manager. Some people are greedy, and some people are not, irrespective of their income or status.
Having set the stage, let’s get back to a discussion of greed itself. Pretend you are a middle-income person in America. You post an ad to sell your car, which is worth $10,000. A person much poorer than you comes to your door and says she wants to buy the car, but she can only afford to pay $3,000 for it. Are you greedy if you say, “Thanks, but no thanks,” for the offer? What if she then gives you a truly heart-wrenching and believable story about how financially desperate she and her family are and how with your car she could start an Uber business to make ends meet? If you turn down her offer again, would it be fair to consider you even greedier because you’ve heard her tale of woe?
The answer to the above questions is “no.” You are not greedy or greedier based on the above facts alone. (You may actually be greedy for some other reason, but turning down the offer is not evidence of greed.) The existence of financially desperate people is a real and important societal problem, especially for those who have had unfair disadvantages or bad luck. Each of us has societal obligations to do our part in addressing these problems, such as paying a fair share of taxes. Choosing to help the people who happen to knock on your door would be kind and good, but with few exceptions, you are not morally obligated to help everyone in need before you. One reason for this is that it would be an astounding coincidence if the need of the person standing before you happens to be the most worthy candidate for the money you could spare for charity. Chances are, you would accomplish less total good by giving money to the person knocking on your door than to someone else, e.g., someone in even greater need.
Let’s take this to the next level. Say you are the owner of a janitorial service company. Your company makes enough profit for you to draw a salary of about $52,000 per year (the U.S. median income in 2016). The company’s janitorial jobs require relatively low skills, and although you only pay janitors the minimum wage, you routinely have three or more applicants for every job opening you have. What if an applicant for a janitorial job tells you a tragic story about why she needs a job and a wage of $2 per hour more than the minimum wage?
You would realize that the extra money would come out of your own pocket. If only one employee received an extra $2 per hour, that might not be so bad. But if word got out that someone was getting a higher wage (and it is hard to keep this kind of secret), you would have to deal with a bunch of angry employees demanding the same raise. Giving more employees a higher pay could put you out of business. Think about all the factors in this situation: 1) the local property, school, state, and federal income tax you pay, 2) the jobs you have created and how bad it would be for your employees if those jobs went away, 3) the charitable contributions you would not be able to make if the business went down, 4) the legality of paying minimum wage, and 5) your employees’ ability to improve their skills and establish a good work record and earning the good feeling of not being dependent on welfare. You might conclude that you are doing more than many other people to address societal problems. You might also say to yourself, “I had nothing to do with the applicant not having the skills to justify the wage she desires.” Could anyone fairly call you greedy if you decided to hire the next person in line? I, for one, cannot see how paying the minimum wage or hiring the next person in line could fairly be described as an “excessive . . . desire . . . for wealth or possessions.”
When it comes to employee pay in larger companies, the number of dollars and people involved are greater. Usually, there is a smaller percentage of employees who earn minimum wage, but everyone in the company wants to be paid more. In short, the same dynamics and issues confronting the janitorial service company are at play in large companies as well. The factors considered when it comes to employee pay in all companies rarely has anything to do with greed.
The Golden State Warriors basketball team pays its star player, Kevin Durant, $65 million a year. Do you think the team owners would not prefer to pay him $64 million or $32 million (or minimum wage)? Do you think the McDonald’s franchise owners want to pay their store managers more than the minimum wage? Do you think the board of directors (who usually own stock in the company) of any company wants to pay the CEO a penny more than it must to hire and keep him or her? If you do, please think again. It is not an overstatement to say that all employers pay their employees more than they would prefer.
Obviously, owners would make more money if they paid their employees less. This is true of both greedy employers and employers who are not greedy. The reason employers do not pay less is that in a free market employers cannot pay much less than the value of the products of an employee’s labor. If an employer were to attempt to pay much less than that amount, an employee would likely find another employer willing to pay the value of his or her labor—i.e., the employee on whom the employer makes too much money will soon be working at another company. This is because an underpaid employee in one company is an opportunity for profit for another company. If an employer pays its employees more than their labor is worth, the company must charge more for the products it sells to earn enough profit to stay in business. So if companies pay employees substantially more than the value of their labor, their prices will be higher than their competitors’ prices for the same products. (Surely you know how that story ends.)
When the Warriors hired Durant, the owners must have believed that the value of him being on the team was worth more than his pay (otherwise they wouldn’t have offered to pay that much). If Durant was worth $66 million a year to the team, but the owners thought no other team would offer to pay him more than $64.9 million, it would have made sense for the owners to offer him $65 million. (That owners desire to make a profit on a $65 million investment should not be a surprise or something to be alarmed about. If owners do not expect to make money on an investment, they will not make the investment.) If Durant believed $65 million a year was the best offer he could get, he would agree to be exploited to the tune of $1 million per year (his other choice being to accept a $64.9 million offer from another team). Note that this describes a voluntary transaction in which both parties believe they will be better off after the deal—a win-win situation.
(Here is also a quick side note on whether Durant is greedy: The team charges prices for tickets, TV concessions, and everything else it sells at a price that maximizes team revenue. Both the team owners and Durant believe the team revenue would be greater if Durant was a part of it. The team revenue (what the public would pay) would be the same whether Durant was paid $1 or $65 million. How could Durant be greedy for wanting a cut of the value he would bring rather than letting the team owners keep all the money?)
The main point is this: If one team does not offer Durant a salary near the value he would bring, some other team will. The same is true for franchise managers and every other job in the company. It should be obvious that the greediness of the employer is irrelevant to how much an employer pays its employees.
People often say employers exploit their employees by paying them too little. As noted above, employers do try to make a little money off of every employee because the whole point of a business is to make a profit, and a business that does not make a profit will not be in business for long. Also, as mentioned above, an unreasonably high profit on an employee creates a profit opportunity for other companies, i.e., other employers can hire that employee at a higher wage and make a reasonable profit on that employee. In this sense, in my example above Durant was exploited by $1 million per year.
Many of you may think that using the word “exploit” as I did above is crazy. Perhaps it is, but people talk about employers exploiting employees all the time. The only employee exploitation that can exist is the kind I described, and it is small (less than 2% of a salary in the Durant example). Paying people the market value of their labor should not be called exploitation. In a free and robust market, no other kind of employee exploitation can survive the incessant competition for valuable employees. (There are some exceptions, such as in tiny towns with few businesses, but the hue and cry about employee exploitation usually relate to large companies, such as Walmart, McDonald’s and the like, which are mostly in highly-populated areas.)
To many, exploitation is afoot anytime an employee is not paid “a living wage” or some other amount they consider to be fair. These people do not consider that their preferred wage may be far above the value of the employee’s labor. Ignoring the labor value when discussing the price for the labor is preposterous. If the value of an employee’s work is $0 (e.g., she dig holes and then buries them all day), then the entire amount paid by the employer to the employee is a gift from the employer to the employee. Any law that forces employers to pay more for something than that something is worth is an exploitation of the purchaser, not the seller. So when people demand purchasers of labor (employers) pay sellers of labor (employees) more than the value of their labor, they are mistaken even if they think they are calling for the elimination of greed and exploitation. In fact, they are calling for the creation of or an increase in the exploitation of employers for the benefit of employees.
A person who is disproportionately suffering from societal ills may deserve to receive more money than the value of what he or she can produce. In those cases, it may be the responsibility of society to fund appropriate supplemental payments, but it certainly should not be the responsibility of the employer. The employer has given the employee a source of income and job training that may not have otherwise been available. Exploiting employers of low-skilled workers by forcing them to pay to redress problems caused by society—problems that are already ameliorated by the employer—is fundamentally unfair. To label an employer greedy for not wanting to be singled out and exploited in this fashion is akin to something out of the pages of Alice in Wonderland.
So while there is some truth in Gordon Gekko’s take on greed, it is not the whole story. More important, greed plays a much smaller role than people think it does in economic deals, especially with respect to wages.
i [Edit 05/08/17: I just realized I did not give credit to my inspiration for the Rockefeller discussion. HERE it is. George Will was even more inspired than I. See George F. Will: You’re richer than Rockefeller.
See also THIS comment on Will’s commentary.]