Artificial Constructs in the Economy

When I sit back and actually think about the artificial constructs in our economy, I’m not sure if the proper response is screaming or nausea.  You’re probably wondering what on earth is a “artificial construct.”  Well, to put it simply: an artificial construct is a segment of the economy which is not needed nor required in a truly free market.  In other words, an industry or segment which produces nothing of actual value– but yet is basically required by law to exist.

Allow me to start with an “easy” example…  Americans spend more than $300,000,000,000 to get their income tax returns prepared for them.  Can anyone really think that making a tax code so complex that it necessitates such expenditures just to fill in forms can be even vaguely rational?  Why not a flat tax?  No need to divert all those accounting minds away from things like discovering Enron’s malfeasance BEFORE it crashes…it’s more useful to use those minds to prepare 1040 forms….  Right?

Sticking with taxes… what about all the estate attorneys whose sole job it is to protect your wealth from inheritance taxes?  They would not be needed if we eliminate the Death Tax.  But, its not like we could use their help in things like advising prospective homeowners about the implications of 18% home loans or reviewing contracts to prevent bad corporate mergers and deals.  It’s much more useful to put brilliant legal minds to use working out creative ways to avoid paying taxes…  Right?

Think that airplanes are the best way to travel around the country?  Worried about carbon emissions?  Worried about travel safety?  Well, thanks to the Federally funded airport system, most people fly in airplanes…  But who cares that a train can move 1 Ton over 420 miles on a single gallon of diesel fuel (the average car can move 1 ton about 35 miles on a gallon of gas).  Of course, trains can’t be forced to knock down skyscrapers nor do they make appealing terrorist targets–not to even mention the whole thing about how the train simply stops if the engine goes wonky.  But, no one cares about that….  Right?

Then, what about the Federally funded highway system…  shall we even discuss the fuel required to move millions of tractor-trailers around the country since a single train can carry the load of hundreds and hundreds of trucks with a single engine? But, Washington knows that we’d prefer to have our roads full of trucks…. Right?

The list goes on and on, but I’ll stop here for now…  my point is this:  When Congress spends money, it creates artificial constructs in the economy which would not naturally exist–thus de-balancing the system.  Why is it so hard for people to understand that Congress and the President can do NOTHING to help the economy– they can only choose to get in the way or stay out of the way.  And the whole getting in the way thing hasn’t exactly been a success– just take a look at all the mortgages going bad because the CRE (community reinvestment act) encouraged/forced mortgage lenders to make bad loans all in the name of “equal access”.  Well, boys, the piper has come and its time to pay the bill!  What else could that money have been used for….?

“Just a few controls, to protect us!” they whine…

It is amazing to me to listen to people talk about how “just a few controls” are necessary and good.  Controls on what?  They say, “Well, you know those _______! They’d rip off the whole country if we let them!”  This is evidence of a complete lack of understanding of a variety of economic principles, not the least of which is “Supply and Demand.”

To think that a company can charge anything it wishes is ludicrous! How much would you pay for something you want? Only as much as you think it’s worth, right?  If Wal-Mart raised the price of a VCR to $900, would you buy one?  Heck no!  And if any company was stupid enough to charge above-market prices, a competitor will come who will charge a more reasonable price and the price will drop.

But, back to the cries for “good regulation”…

“There can be no compromise between freedom and government controls; to accept “just a few controls” is to surrender the principle of inalienable individual rights and to substitute for it the principle of the government’s unlimited, arbitrary power, thus delivering oneself into gradual enslavement. As an example of this process, observe the present domestic policy of the United States.”   –Ayn Rand

The sad part is that people actually believe the government is capable of regulating the markets.  Wake up, folks!  Only the market is capable of regulating the market!

“There is no way to legislate competition; there are no standards by which one could define who should compete with whom, how many competitors should exist in any given field, what should be their relative strength or their so-called “relevant markets,” what prices they should charge, what methods of competition are “fair” or “unfair.” None of these can be answered, because these precisely are the questions that can be answered only by the mechanism of a free market.” –Ayn Rand

“The concept of free competition enforced by law is a grotesque contradiction in terms. It means: forcing people to be free at the point of a gun. It means: protecting people’s freedom by the arbitrary rule of unanswerable bureaucratic edicts.” –Ayn Rand

Obama’s Pledge to Stop AIG Bonuses is Bonechillling

The headline in my local paper today declared that President Obama has pledged to stop the payment of bonuses to current and former AIG employees. As I sat looking at the headline, I was temporarily paralyzed with fear as to the implications…

“What’s the problem with stopping the bonuses, we gave them that bailout money!” is the cry we hear in the media.

The problem is that President Obama is pledging to VIOLATE A LEGITIMATE CONTRACT– contracts enforceable by Law.  See, the ironic part is that had the U.S. Government “bailed out AIG”, then AIG would have gone into bankruptcy protection (as it rightly should) and the bonus contracts would have been nullified as a primary obligation of the company.  BUT, since President Obama and the Demospenders said “But AIG is essential to preventing bank failures!”, here we are…  AIG is solvent (sort of) and so it is still obligated to pay the bonuses.

How would you feel if your employer owed you a bonus for work you did and then decided it was not good PR to pay you your bonus?  You’d go to Court and sue your employer, I’m quite sure.  You would never say, “Oh, well, it’s for the public good that I do not get my bonus, so that’s ok!”

Let me make my point crystal clear:

If President Obama and the Congress succeed in overturning LEGITIMATE CONTRACTS, then they have placed a massive nail of precedent in the coffin of the free market.

Our ENTIRE ECONOMY is dependent upon contracts being enforceable.  You want to see credit get tight, see what happens if contracts can be voided by Congress and the President just because they are not popular…

It’s simple: The U.S. Government invested in AIG and it has to be responsible for the legitimate obligations of AIG to the extent of their “investment” — just like any other investor.  They don’t get to change the rules just to suit their investment– at the expense of AIG’s employees.

Congress and the President cannot have their cake and eat it, too.  Either they bail out AIG and pay the bonuses, or they let AIG go bankrupt to avoid it (and deal with the consequences either way).

When will people realize that the Government should never, ever tinker in the economy?  The free market is self-regulating, but of course “reality” is not always politically correct.

The Road to Fascism

October 16, 2008

Washington, D.C.–The government has announced that it plans to use $250 billion to buy ownership stakes in various U.S. financial institutions. According to the New York Times, nine major U.S. banks have already been forced into the program. “The chief executives of the nine largest banks in the United States . . . were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left. . . . ‘It was a take it or take it offer,’ said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. ‘Everyone knew there was only one answer’”–even though at least one institution, the relatively healthy Wells Fargo, wanted to say no.

According to Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “In herding banking executives into a room and making them an offer they couldn’t refuse, the Paulson regime took its latest and most disturbing step yet on the path to state control of the economy.

“If fascism means coercive state control over nominally private property, then there is no more chilling sign of creeping fascism in America than government’s encroachment on the lifeblood of the U.S. economy–its financial institutions. While the government assures us it will be a ‘passive investor,’ merely funneling cash into the banking system rather than dictating how banks function, this is a lie. Not only does the money come with strings attached–such as restrictions on executive compensation, dividend payments, and the types of investments banks can make–but politicians are already promising a web of further controls. As John McCain recently noted, ‘We will not merely inject billions of dollars into companies and walk away hoping for the best. We will require that those companies be reformed and restructured until they are sound assets again, and can be sold at no loss–or perhaps even a profit–to the taxpayers of America.’

“The Paulson shakedown is the latest in a rapid-fire series of government bailouts and interventions over the last several months. Our leaders claim that this virtual takeover of markets is economically necessary. But it was government control of financial markets that spawned the financial meltdown in the first place: an inflationary boom brought on by the Fed’s easy-money policies, a campaign to promote home ownership that encouraged risky loans, regulations that pushed banks to become dangerously over-leveraged, etc., etc. The response to the crisis should be to restore freedom and to disentangle government from the economy. Instead, the same mentality and the same central planners that created the financial crisis are being given far wider reign to manipulate and distort markets. We must tell our government to reverse this fascist course–now.

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Yaron Brook is executive director of the Ayn Rand Center for Individual Rights. He is a regular contributor to Forbes.com and a contributing editor of The Objective Standard. His articles have been featured in major newspapers such as USA Today, the Houston Chronicle, the Chicago Sun-Times, the Providence Journal and the Orange County Register. Dr. Brook is often interviewed on radio and is a frequent guest on a variety of national TV shows, having appeared on the new Fox Business Network, FOX News Channel, CNN, CNBC, and C-SPAN. Dr. Brook, a former finance professor, lectures on Objectivism, capitalism, business and foreign policy at college campuses, community groups and corporations across America and throughout the world.

To interview Dr. Brook or book him for your show, please contact Larry Benson:
949-222-6550, ext. 213
media@aynrandcenter.org

For more information on Objectivism’s unique point of view, go to ARC’s Web site. The Ayn Rand Center is a division of the Ayn Rand Institute and promotes the philosophy of Ayn Rand, author of “Atlas Shrugged” and “The Fountainhead.”

Copyright © 2008 Ayn Rand® Center for Individual Rights. All rights reserved.

Ayn Rand Saw This Coming

Ayn Rand Saw This Coming
October 9, 2008

Washington, D.C.– “Despite overwhelming evidence that government policies caused the current financial crisis, Congress is blaming businessmen,” said Yaron Brook, executive director of the Ayn Rand Center for Individual Rights. “What’s worse, the capitalists who have been shackled with unprecedented regulatory burdens are unable to defend themselves morally. Though the events are different, this pattern of abuse and submission is straight out of Ayn Rand’s Atlas Shrugged.

“The cycle starts with government intervening into the economy and imposing regulations and controls on business. This distorts the free market, leading to economic dislocations. When the problems caused by these distortions inevitably follow, everyone blames the free market and its greedy capitalists. The proposed solution? More government controls. Over the years, conservative critics of creeping government have repeatedly exposed this illogic but have always been helpless to explain why the cycle keeps repeating, decade after decade.

“The pattern keeps recurring because businessmen are willing to take the blame. From capitalism’s inception, its defenders have been morally disarmed by the widespread view that self-interest is morally suspect, and disinterested service to others is a moral ideal. So each new spate of controls has been grudgingly accepted as a fair price to pay for society’s toleration of the selfish pursuit of profit.

“Atlas Shrugged depicted a society in economic collapse due to this recurring cycle, and today’s parallels are obvious. Government manipulation of money, credit, and lending standards over several decades caused the mess we’re in. Now, the offered solution is more of the poison that sickened the economy–more bailouts, more cheap money, more government-guaranteed loans, and above all, more regulations.

“This chronic cycle will not end until businessmen accept that their production of profit is neither immoral nor amoral–it is the capstone of moral virtue. Once they shrug off the role of scapegoat, businessmen can demand with moral certitude that government punish fraud and enforce contracts but refrain from interfering with voluntary trades among consenting adults.

“When America’s markets are finally free of all coercion–in other words, when laissez-faire is achieved–financial crises such as the one we’re experiencing will never happen again.”

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Yaron Brook is executive director of the Ayn Rand Center for Individual Rights. He is a regular contributor to Forbes.com and a contributing editor of The Objective Standard. His articles have been featured in major newspapers such as USA Today, the Houston Chronicle, the Chicago Sun-Times, the Providence Journal and the Orange County Register. Dr. Brook is often interviewed on radio and is a frequent guest on a variety of national TV shows, having appeared in the new Fox Business Network, FOX News Channel (The O’Reilly Factor, Your World with Neil Cavuto, At Large with Geraldo Rivera), CNN (Talkback Live and the Glenn Beck Program), CNBC (Closing Bell and On the Money), and C-SPAN. Dr. Brook, a former finance professor, lectures on Objectivism, capitalism, business and foreign policy at college campuses, community groups and corporations across America and throughout the world.

To interview Dr. Brook or book him for your show, please contact Larry Benson:
949-222-6550, ext. 213
media@aynrandcenter.org

For more information on Objectivism’s unique point of view, go to ARC’s Web site. The Ayn Rand Center is a division of the Ayn Rand Institute and promotes the philosophy of Ayn Rand, author of “Atlas Shrugged” and “The Fountainhead.”

Copyright © 2008 Ayn Rand® Center for Individual Rights. All rights reserved.

Your Choice: A Year or A Decade

The chickens are coming home to roost. The bad choices and all the living beyond our means are about to settle in a new reality–one where the market holds us all accountable for those bad choices.

From the people who bought homes far beyond their means to the folks who thought it was ok to keep refinancing over and over again to get every dime of the housing price bubble into their pocket.  From the people who saw credit cards as if they were cash to the credit card companies who think its ok to charge ridiculous interest rates and to mislead borrowers.

Alas, both Presidential candidates are on board with ideas that will lead to a DECADE of pain instead of a year or so.  If we let all these poorly run companies fail, sure it would be painful–but the pain will pass quickly.  By propping up a FAILED system of intervention and Big Government, we will elongate our pain just as FDR did when his supposed New Deal drastically lengthened the Great Depression.

Make no mistake: Depression is caused by GOVERNMENT meddling in the economy.  Recessions are part of a normal business cycle and represent market corrections to bad choices.  The point is that private companies cannot make enough bad decisions at the same time to cause a Depression.  Only through GOVERNMENT regulation can enough companies be FORCED to go down the same wrong path at the same time.

The answer is simple: Tell your elected officials to STAY OUT OF IT and let the market correct itself.  Thankfully, the market doesn’t really care about your politics–it cares about value and substance.  If a company becomes a useless empty shell with no real value (i.e., Fannie Mae and Freddie Mac) through government intervention, the market knows better than to go there.

As I’ve said before and I’ll say again, if you play in the market you’ve agreed to the risk of investing.  Don’t whine when your 401k goes down in value because you failed to research the companies you chose for investment.  The information is out there: read it.  And if its not there, act like an adult and accept the consequences of choosing an investment that went downhill.