One of my favorite economists, Daron Acemoglu of MIT, was interviewed by Russ Roberts on EconTalk today. Their discussion was based on an Acemoglu paper, "The Crisis of 2008: Structure Lessons for and from Economics," January 11, 2009. At 20:47 minutes, Roberts and Acemoglu discuss a quote on page five of the paper and provided below.
Acemoglu highlights the difference between economists' evaluation of the impact of greed on society and just about everybody else's. Greed is a constant and part of the nature of humankind. Societies create wealth by building sound laws, regulations, and institutions.
A deep and important contribution of the discipline of economics is the insight that greed is neither good nor bad in the abstract. When channeled into profit-maximizing, competitive and innovative behavior under the auspices of sound laws and regulations, greed can act as the engine of innovation and economic growth. But when unchecked by the appropriate institutions and regulations, it will degenerate into rent-seeking, corruption and crime. It is our collective choice to manage the greed that many in our society inevitably possess. Economic theory provides guidance in how to create the right incentive systems and reward structures to contain it and turn it into
a force towards progress.
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Starbucks chain is experiencing a classic example of the negative results of supply and demand. As the Demand for the richer more expensive good decreases the supply increases and the profit decreases. Not only does does it exemplify supply and demand but how inferior good profits from the drop in sales of the superior good.
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