It’s been very disappointing, but not surprising, to hear Senator McCain’s voice joined with others in pointing to greed as the explanation for the “free falling” economy. One expects that from Democrats, for whom there is no argument for or against any policy better than some moral turpitude in one’s opponent. And greed is a big sin for Democrats, especially the richest of them. But I digress.

Anyone who can accept, “Greed” as an appropriate response to a question like, “Why did so many businessmen, who should really have known better, make such terrible investments?” ought to think a wife should accept, “Testosterone” as an appropriate response to the question, “Why did you cheat on me?”

I know not what course other men’s wives may take, but I know how my wife would respond to, “Testosterone” as an answer to that question: “Knife.”

It’s indicative of just how anti-intellectual so many people have become that an answer requiring no thought whatsoever would be acceptable as a basis for policy, especially a policy of nationalizing a significant portion of the economy.

If, however, we are interested in answer requiring some thought we can look to Murray Rothbard’s explanation of the causes of depressions. (Relevant because we are in the bust side of the boom-bust business cycle.) The entire article is worth the reading, but it comes to this. An explanation of the boom-bust cycle should answer two questions. First, paraphrasing Rothbard, a lot: Why is it that so many previously smart, successful business managers all seem to make the same exact sort of mistake at just about the same exact time? Second, Why is it that busts seem to have greater effect upon producers’ goods, rather than consumers’ goods. (The second question doesn’t really concern me just now, in relation to the “greed” argument.)

In the market economy, one of the most vital functions of the businessman is to be an "entrepreneur," a man who invests in productive methods, who buys equipment and hires labor to produce something which he is not sure will reap him any return. In short, the [businessman’s] function is the function of forecasting the uncertain future. Before embarking on any investment…the entrepreneur…must estimate present and future costs and future revenues and therefore estimate whether and how much profits he will earn from the investment. If he forecasts well and significantly better than his business competitors, he will reap profits from his investment. The better his forecasting, the higher the profits he will earn. If, on the other hand, he is a poor forecaster and overestimates the demand for his product, he will suffer losses and pretty soon be forced out of the business.

The market economy, then, is a profit-and-loss economy, in which the acumen and ability of business entrepreneurs is gauged by the profits and losses they reap. The market economy, moreover, contains a built-in mechanism, a kind of natural selection, that ensures the survival and the flourishing of the superior forecaster and the weeding-out of the inferior ones. For the more profits reaped by the better forecasters, the greater become their business responsibilities, and the more they will have available to invest in the productive system. On the other hand, a few years of making losses will drive the poorer forecasters and entrepreneurs out of business altogether and push them into the ranks of salaried employees.

If, then, the market economy has a built-in natural selection mechanism for good entrepreneurs, this means that, generally, we would expect not many business firms to be making losses. And, in fact, if we look around at the economy on an average day or year, we will find that losses are not very widespread. But, in that case, the odd fact that needs explaining is this: How is it that, periodically, in times of the onset of recessions and especially in steep depressions, the business world suddenly experiences a massive cluster of severe losses? A moment arrives when business firms, previously highly astute entrepreneurs in their ability to make profits and avoid losses, suddenly and dismayingly find themselves, almost all of them, suffering severe and unaccountable losses? How come? Here is a momentous fact that any theory of depressions must explain…. [W]hat needs to be explained is why businessmen, able to forecast all manner of previous economic changes and developments, proved themselves totally and catastrophically unable to forecast [an] alleged drop in…demand. Why this sudden failure in forecasting ability? (Emphases mine.)

That’s the question: Why the sudden, industry-wide, failure in forecasting ability?

Greed ought to have required businessmen to sharpen, not dull, their forecasting ability. The “greed” explanation, while suggesting a motivation for trying to make money, just doesn’t explain the same error in miscalculation in just about the entire mortgage industry.

But let’s not pursue that question. Let’s just start “regulating” again, and throwing money at the same people who perpetrated these miscalculations.

Don’t ask if it was the availability of relatively easy credit which contributed to this miscalculation.

It’s a brilliant strategy: bail fast enough and we don’t have to find and plug the leak in the boat. We don’t have to consider the possibility that ones doing the bailing had anything to do with creating the leak in the first place.

Don’t ask if one of the things delaying economic recovery is “regime uncertainty”, distress

that investors’ private property rights in their capital and the income it yields will be attenuated further by government action. Such attenuations can arise from many sources, ranging from simple tax-rate increases to the imposition of new kinds of taxes to outright confiscation of private property. Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights.

Nah. Let’s just keep blaming “greed”. Simpler that way. Easier to get the natives restless.