The American way of life is based on broad individual freedom combined with a capitalistic “free-market” economic model. We choose our professions and achieve material success through open competition. Society benefits from the efforts of the individual, not only economically but also through advances in science and industry fueled by the ingenuity and hard work of motivated competitors.

So what’s gone wrong?

A Darwinian metaphor
In Origin of the Species, Charles Darwin characterized the diversity of life as the result of natural selection – a process by which individuals in a population prevail over others by virtue of superior genetics, combined with the instinctual drive to propagate. The implication is that competition and self-interest are basic forces of nature, essential and necessary to the existence of life.

Competition is obvious among bull elephant seals or chimpanzees battling for mating rights. In humans, competition and self-interest are evident in social behavior, including sex, athletics, our jobs and recreation. Some say that competition and self-interest are key success factors of the American Way – that our unique blend of individual freedom and capitalism, along with our bounty of natural resources, has enabled us to become the great economic power we are today.

All that glitters is not gold
But taken to excess, competition and self-interest become greed, a reprehensible attribute that creeps into our system and manifests itself in such catastrophes as the $3 billion failure of Lincoln Savings and Loan Association in the 1980s, and the collapse of Enron in 2001 that cost governments, pension funds and shareholders more than $100 billion. Upping the ante, the home mortgage fiasco stemming from risky lending practices and creative financial products such as “credit default swaps” has cost the US and world economies over $1 trillion, with far-reaching ramifications yet to be fully realized.

Each of these calamities can be seen as a consequence of greed – ambitious individuals “seizing the moment” to further their financial interests recklessly and at the expense of others.

These egregious examples also demonstrate how the role of government can be compromised even after regulations are put in place to prevent abuses. Lincoln Savings took advantage of the deregulation of the savings and loan industry of the early 1980s, and even received an exemption to a bank board rule forbidding substantial amounts of some investments. Enron’s opaque and incestuous corporate governance and complex “special purpose entities” (shell companies) formed solely for the purpose of masking financial risks, enabled management to engage in unscrupulous business practices that left their shareholders and thousands of employees penniless. And the financial chicanery of Wall Street investment bankers during the home mortgage crisis was expressly prohibited by the Banking Act of 1933 (the Glass-Steagall Act) – originally intended to prevent commercial banks from engaging in speculative securities activities.

The recent loss by JP Morgan of $2 billion (and counting) resulting from such risky trading shows how the perils of unrestrained greed are ongoing, and suggests the need for appropriate regulation – especially of such institutions deemed “too big to fail.”

The Darwinian metaphor breaks down
In other species, populations are contained by the availability of food and water, competition from other species, climate change, disease, or cataclysmic disaster. Humans appear to have overcome these natural limits, owing to our physical and mental attributes and social nature. We also exhibit behaviors not typically observed in other species – like killing for pleasure and over-consumption to the point of obesity.

Ultimately, we seem to be the only species capable of abject greed, resulting in elite ruling classes, immense fortunes amassed by aristocrats and ambitious capitalists, and opulence flaunted in the faces of often hungry workers. The connection between the natural forces of evolution and the role of government was foretold in 1816 by Abigail Adams in a letter she wrote to her son, President John Quincy Adams:

Remember, all men would be tyrants if they could.

Balancing liberty and regulation
We believe a key to resolving our economic challenges lies in preserving individual freedoms and free-market capitalism while recognizing the potential for competition to be taken to perilous extremes. The direct implication is that an essential role of government is to create and maintain effective regulations to protect our economy from the destructive force of greed.

Are these threats not caused by competition and self-interest taken to extreme?