IIf the past week presents a single lesson, it is the social cost of greed. Capitalism is based on greed, but also on safeguards – laws and norms – that prevent greed from becoming so excessive that it threatens the system as a whole.
Yet the guardrail cannot last when avarice becomes the defining feature of an era as it is now. Laws and norms can’t match the possibility of raking in billions if you’re sufficiently ruthless and unprincipled.
Donald Trump’s tax returns, just released, reveal that he took false deductions to reduce his tax liability to zero in 2020. In all, he reported $60 million in losses during his presidency while continuing to pull in big bucks.
Every other president since Nixon has released his tax returns. Trump told America he couldn’t because he was in the middle of an IRS audit. But we now learn that the IRS never got around to auditing Trump during his first two years in office, despite the fact that he was required to do so by law goes back to Watergate, stating that “individual tax returns of the President and Vice President are subject to mandatory review”.
Of course, Trump is already synonymous with greed and the aggressive violation of laws and norms in the pursuit of money and power. Even worse, when a president of the United States exemplifies—even celebrates—these qualities, they seep into society like underground poison.
Meanwhile, the SEC last week charged Sam Bankman-Fried with illegally using client money from FTX from the beginning to finance his crypto-empire.
“From the beginning, contrary to what FTX investors and trading customers were told, Bankman-Fried, actively supported by Defendants, constantly diverted FTX customer funds … and then used those funds to continue to grow his empire by using billions of dollars to covert private venture investments, political contributions and real estate purchases.”
If the charge sticks, it represents one of the biggest frauds in American history. Until recently, Bankman-Fried was regarded as a capitalist hero whose philanthropy was a model for aspiring billionaires (he and his business partner also donated generously to politicians).
But like the IRS and Trump, the SEC cannot possibly remedy the social costs that Bankman-Fried has unleashed—not just losses to customers and investors, but a deeper distrust and cynicism of the system as a whole, the implicit assumption that these are just what billionaires do, that the way to make a fortune is by blatantly flouting norms and laws, and that only wimps care about the common good.
Which brings us to Elon Musk, whose slash-and-burn maneuvers on Twitter can make even the most rabid capitalist cringe. They also raise questions about Musk’s other endeavor, Tesla. Shares in the electric car maker fell nearly 9% on Thursday as analysts grew increasingly worried about its fate. Not only is Musk neglecting the automaker, he’s also acquiring executive talent from Tesla to help him on Twitter. (Tesla stock is down over 64% year-to-date.)
Musk has never been overly concerned about laws and regulations (you’ll recall that he kept Tesla’s factory in Freemont, California, running during the pandemic, even when public health authorities denied him permission to do so, resulting in a spike in Covid- infections among workers). For him, it’s about imposing his gigantic will on others.
Trump, Bankman-Fried, and Musk are the monsters of American capitalism—as much products of this publicly-be-damned era as they are contributors to it. To them, and to all who still regard them as heroes, there is no morality in business or economics. The prize goes to the most reckless. Principles are for wimps.
But without any moral code, greed is a public danger. Its poison cannot be contained by laws or accepted norms. Everyone is forced to guard against the next con (or pull an even bigger con). Laws are broken when the gains from breaking them exceed the penalties (multiplied by the odds of getting caught). Social trust is eroded.
Adam Smith, the so-called father of modern capitalism, never called himself an economist. He called himself a “moral philosopher”, engaged in discovering the characteristics of a good society. He believed that his best book was not The Wealth of Nations, the bible of modern capitalist apologists, but The Theory of Moral Sentiments, in which he argued that the ethical foundation of society lies in compassion for other people.
Presumably, Adam Smith would have lamented the growing inequality, corruption and cynicism spawned by modern capitalism and three of its role models – Trump, Bankman-Fried and Musk.
