The recession has made it politically expedient for people to vilify bankers and CEOs while blaming “unbridled capitalism” for the income gap, said Harvey Golub, chairman of Miller Buckfire and retired chairman and chief executive officer of the American Express Co.
“Unbridled capitalism evokes an image of some Hobbesian, jungle-like world,” he told students at the Tepper School of Business as part of the W.L. Mellon Speaker Series on Sept. 5.
Golub’s defense of capitalism echoed the sentiments of famed economist Milton Friedman. Throughout history, he said, only free markets have allowed large numbers of people to escape a subsistence-level existence. “Why this continual, virulent attack on the system that has allowed our people to create the wealthiest society in human history and the best-off poor people in the world?” he asked.
While the recession has focused attention on the income gap between rich and poor, Golub said we should be more concerned with creating a climate that allows hard-working people to climb the socioeconomic ladder. “What concerns me more is whether an individual can start at the bottom and through mobility move to the top 10 percent,” he said.
The subprime mortgage crisis precipitated an outcry for increased regulation of the banking industry, an approach that Golub criticized. “Most people believe that the current economic problems come from a bubble in our housing markets caused by greedy bankers who persuaded innocent people to buy homes they couldn’t afford,” he told students. “Congress believes that. The Dodd-Frank Act is the most far reaching act in history.”
Golub stated that government regulation actually helped cause the mortgage crisis. The trouble, he said, dates back to a 1992 government requirement that Fanny Mae and Freddie Mac, two government-sponsored mortgage lenders, increase the number dollars they loaned to people whose annual income fell below the national median.
He argued that Congress’ response to the crisis — the 4,500-page Dodd-Frank Wall Street Reform and Consumer Protection Act — is a draconian response that will drive banks out of business and reduce the availability of capital. “Banks are shrinking now, and we will continue to have fewer banks,” he said.
A simpler and more effective solution, Golub said, would be to require homebuyers to put 20 percent down and to ensure they have sufficient income to make their payments. “But we write 4,500-pages instead of one rule,” he said.
Golub also criticized taxpayer-supported exploration of alternative energy sources, arguing that natural gas and even untapped oil reserves are plentiful and cheaper.
“I have no problem whatsoever if you decide to take your own money and invest it in a windmill,” he said. “You can do that every day as long as you want. If your neighbor wants to build a solar panel, I have no problem with that.
“My problem is when my money is taken by a benevolent government that says solar power is the way to go and windmills are even better. The logic astounds me.”
He said that progressive efforts to address social problems through regulation often backfire by creating “crony capitalism.”
“Citizen organizations try to achieve an advantage by influencing government policy rather than through good ideas and marketing good products,” he said. “Crony capitalism is the biggest threat to our free enterprise system. More and more, we have government trying to solve problems that it creates.”