I would tell him to shrug

I’m re-reading one of my all-time favorite novels.  I’ve read Atlas Shrugged probably five or six times; more than any novel besides On The Road. 

Ayn Rand fans have a certain habit of being completely insufferable, but this book is still important to me. It makes me question a lot of my thoughts about free markets and government intervention. She wants people to use their minds and think. Well Ms. Rand, you’ve done it. Every time I read this book I find myself questioning a lot of assumptions I have about the free market.

I like the world she presents (except for all the decay, destruction and starvation, of course). The book shows human potential for both good and ill, and concludes that we are powerful creatures, capable of much.

I like that. Far too often we succumb to our own feelings of powerlessness. How often do you hear “Well, nothing’s gonna change anyway so why bother?” Ms. Rand’s answer to that is a screaming NO. Humans can remake the world with amazing efficiency, and one person can change the world. Henry Ford, FDR, Steve Jobs, John Lennon, Mao are just a few that come to mind.

Anyway, getting back to the book. On paper, I agree with almost everything she says. Religion is bad, capitalism is good, the mind is not impotent. Regarding capitalism, I find her arguments very persuasive. After all, isn’t in the best interest of a businessman to produce a good product and sell it at competitive prices? If you sell a defective product, consumers will not buy it in the future and you will be out of business. Just some basic Adam Smith at work.

My problem is that I see so little of that. If Smith and Rand are correct we wouldn’t have toxic toys, beef that kills people, cars that explode or operating systems that don’t work at all. If the free market was really free we wouldn’t see million dollar payouts to failed CEOs.

So why? Why all the market failures? I think the answer can be found with another economist. John Maynard Keynes famously said “In the long run we are all dead.” Meaning that government should try to cushion the shocks of the market to provide the greatest happiness for the greatest number of people. If we wait until all of the market failures to solve themselves (see housing crises), people will simply suffer needlessly. The government should intervene to assist.

This theory applies at both ends of the business cycle. Government should assist in the low points, and try to cool the market when it’s overheating. Basically, the same principle that the Federal Reserve operates under.

I think there is a dark side to this idea as well. Since we are all dead in the long run, humans have an incentive to maximize wealth in the short term, and the time value of money teaches us the shorter term the better. After all, who wouldn’t rather win the lotto today instead of working for 40 years?

Short term thinking seems to be an immutable part of the human condition.

That’s where my argument with Rand and other free market disciples begins and ends. There is a different between self-interest and enlightened self-interest. One of them works and one of them doesn’t. It requires us to see beyond the horizon of the immediate, which requires discipline. It’s not automatic, and that’s where Rand’s philosophy falls short.

It’s still a really good book. Read it.

Who is John Galt?

 

If your Glass heart should crack.

Meaganoff and I were discussing our mutual loathing of Hillary last night and I found myself nearly screaming “and another thing. That son-of-a-bitch husband of hers signed the law that overturned Glass-Steagall”!!!!!

Poor Meaganoff was caught off-guard by my outburst. Not her fault, so let me explain…

The 2nd Glass-Steagall act of 1933 was passed to ease the depression and ideally, prevent something it from happening again. Among other things, the law separated banks by type (commercial & investment) and explicitly said “You there, Mr. Banker, you can be a commercial bank or an investment bank, but ya can’t be both.”

To oversimplify to an embarrassing degree, commercial banks are for the little guys (me and you) and investment banks are for the big guys (General Motors, Exxon-Mobile). If you want to buy a house, you used to go to a commercial bank. If you wanted to buy an entire company, you went to an investment bank.

The idea behind this separation was to (somewhat) insulate these two sectors of the economy from each other. Ya know, if there was say…a problem in the housing market it wouldn’t affect the ability of large companies to get credit for their acquisitions, mergers, operations and divestitures…oh wait…yeah… That’s kinda exactly what’s going on RIGHT NOW.

Why? Well, among many other reasons, our friend President Clinton I signed a law that removed this regulation. A bunch of banks bought each other up in a mad frenzy; lo and behold, we have a bunch of banks that won’t loan companies money because they’re scared shitless about all the bad mortgages they are holding. It’s called a credit crunch people. Fun, isn’t it?

(One caveat, TeemKuntz himself is a homeowner, and every month he watches his hard-earned equity disappear as the value of his house tanks. Again, salt and pepper this entry to taste.)

If the sub-prime mess had occurred under Glass-Steagall (and there’s good reason to think it might not have), the debacle would still be kicking the shit out of the commercial banks, home values would probably still be tanking, but the entire economy wouldn’t be at risk because of a credit crunch. The problem would be contained. If Citibank had remained an investment bank, they wouldn’t be flipping the hell out right now. They would be continuing with their normal business.

In the real world, Citibank has no idea how bad this credit crunch will get. Some observers are suggesting we are just at the beginning of the mess. (Witness TeemKuntz hyperventilate).

I am not a closet socialist. I generally support free market principles, but we have to remember there are market failures, and those failures must be addressed, or we risk the entire economy.

FDR was forced to look at a lot of those failures and try to fix them. A lot of those fixes worked remarkably well. It took another democrat to undo this particular piece of legislation.

Remember kids, Hillary has got experience from working in Bill’s Administration. Maybe we should be asking what kind of experience that was.