04 January 2009

Ayn Rand and Greenspan: a few articles on the melt down.

Newsweek Dec 10: Who is to Blame?

Capitalism Magazine Nov 7: Blackening Rand with Greenspan's Sins

WOWOWOW (blog): Greenspan Shrugged

New Internationalist: Alan (the Undertaker, as called by Rand) Greenspan

Slog (blog): Objectivism eats itself


Shalom P. Hamou said...

Sorry, Chairman Ben S. Bernanke, But Quantitative Easing Won't Work.

In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.

Hence, the Keynesian paradigm I = S is not verified.

The purpose of Quantitative Easing being to lower the yield on long-term savings and increase liquidity it doesn't create $1 of investment.

In a Liquidity Trap the last thing the Market needs is liquidity.

Quantitative Easing does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on long-term savings.

This and other issues are explored in my tract:

A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order


This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.

It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.

It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Under Development, Trade Deficits, International Division of Labour, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap...

It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.

A Credit Free, Free Market Economy will correct all of those dysfunctions.

The alternative would be, on the long run, to wait for the physical destruction (through war or rust) of most of our productive assets. It will be at a cost none of us can afford to pay.

A Specific Application of Employment, Interest and Money

Press releas of my open letter to Chairman Ben S. Bernanke:

Sorry, Chairman Ben S. Bernanke, But Quantitative Easing Won't Work.

Yours Sincerely,

Shalom P. Hamou
Chief Economist & Master Conductor

Richard said...

If a lie is repeated often enough, some people will always believe it to be true. The lie began when Greenspan pretended to be an advocate of free markets in accordance with Ayn Rand, whilst imposing interventionist policies. Anti-capitalists, and many capitalists, have fallen for and promoted his deception.

This financial crisis was neither a failure of laissez-faire capitalism nor of Ayn Rand's ideas, it was a failure of intensive regulation —with Greenspan's hypocritical contributions. From The American Competitive Enterprise Institute:
While the Dow collapses, we have a bull market in government regulations. The 50-plus departments, agencies and commissions are now at work on 3,882 rules; 757 will affect small businesses. More than 51,000 final rules were issued from 1995 to 2007.

That’s nearly 54,000 NEW regulations, added to what was there before, in only 12 years!

That is hardly Rand's laissez-faire capitalism; that’s massive socialist/fascist government interference! At root, those are the very ideologies Rand spent her lifetime hoping to save Americans and America from. Now, when the effects of those destructive ideologies from Washington hit the fan, everyone is blaming laissez-faire capitalism instead. They are ridiculous, uninformed, or dishonest.

Greenspan dropped any pretense of understanding Rand's arguments well before he became head of the Fed., and he then became a major part of the problem. His monetary policy and suppression of interest rates (1%!!), when Rand would have said “let the market decide”, were an appalling government intervention. Add in the HUD, CRA, CDS, Fannie Mae, Freddie Mac, Sarbanes-Oxley and the recipe for a catastrophically distorted market, including the trading of derivatives, was complete. Those who suggest the cause was deregulation, or lack of regulation enforcement, are not looking at facts.

Edward Cline wrote, "Reason and rationality flee when force becomes a factor in men’s decisions, to be replaced with the pragmatism of punishment-avoidance or a risk-free shot at easy money."

So imagine YOU are the CEO of a large financial organization. Your competitors are complying with the regulations and appear to be making good for their shareholders, while things are getting tight for your firm. What do you do?

You want to buy a house, and the government directly or indirectly tells your lender they will protect him from default so long as he keeps the mortgage interest low. What do you do?

You do the pragmatic thing, join in, and trusting in the state's easy money guarantee. As a CEO, if you are able to understand the fraud in the government’s game, you build yourself some protection for when the government's house of cards collapses. Most people believe the "government is here to help" (say by regulation), so they don't protect themselves.

You would not have dared to engage in the risky lending or buying that lead to the crisis, were it not for the handful of people in the US government who believed they were smarter than the free market and installed legislation to distort it. Without those people, lending rates would have adjusted themselves years ago, paper money would not have been printed like it grew on trees (e.g. “helicopter Bernanke”) and the present crisis would never have materialized.

Capitalism is the only *moral* system because it let's a man keep what he produces; it was the American system, though flawed from the start. An historical and geopolitical look at nations shows that those which are more free have citizens who prosper more by their own effort, and live more peacefully. Free markets made America great, from 1776 to the late 1800's, and then serious regulations began. Even America's poor were wealthy compared with the middle class of other nations. Ayn Rand was right, and should not be blamed for a protegé's failures.

Let's put an end to the Big Lie: that only more regulation will solve the economic problems caused by regulation.

headbang8 said...

G, the choice of articles for your post is so evenly balanced, that it's a little difficult to work out if you are an objectivist sympathiser, or the opposite.

From our brief conversations, I'll assume you are the opposite, or at least swing that way. Apologies if that tars you with teh wrong brush.

How shall we judge a philosophy?

By the company it keeps? The most appalling political figures have used Rand as a crutch.

Example: Malcolm Fraser, one time Prime Minister of Australia, a confessed Rand fan. Fraser, when confronted with the fact that his policies were causing hardship, famously told the Australian public that "Life wasn't meant to be easy." (He left off the second half of the GBS quote "but with courage, it can be delightful."--he just stuck with the misery-bit)

Rand's Objectivism has been welded deeper into life in English-speaking democracies than many acknowledge. To most Americans, it's almost transparent. More nearly, an article of faith.

It will take much effort, discussion, and more than the current financial crisis to dislodge it--if, indeed, we want to do so.

I love the first two commenters. The Kool-Aid is only poisoinous because you haven't drunk enough of it.

Kudos to you for shining a little light on this philosophy, and identifying it as rather more important than it first seems.


P.S. I love how the Objectivists talk about the 50K plus regulations enacted in the last three terms. I wasn't able to scare up a proper list on the internet, but it dseems that most of those regulations have to do with environmental legislation (largely unenforced since Reagan) and the regulations which surround the new Medicare rules to shaft the poor.

Does the 50K figure apply only to financial regulations? Are they all bad?; disclosure regulations seem pretty good to me. And with such a huge behemoth of a financial sector, are 1000 regulations (i.e. rules to tell you how to apply a law) truly enough?

Besides, do not most of these regulations simply tear loopholes in the law to let the free-marketeers do what they damn well please?

headbang8 said...

Correction--5000 regulations per annum, not 1000. Point still stands.

Richard said...

Headbang (meh!), the 50K regulations were applied to the financial sector alone. Many were enforced, particularly Sarbanes-Oxley. Ask yourself how one could comply with, or enforce, 50K regulations!

As for Rand, the boat is sailing without you.

There are now some thirty Universities with Objectivism trained professors. There are numerous serious publications, and at least one, by Tara Smith, is now being quoted in Introductory Economics texts.

That is, Rand's ideas have merit in spite of entrenched, though uninformed, academic antipathy towards them.

Hardly a week goes by where cogent Objectivist Letters-to-the-Editor are not published in The New York Times or The Wall Street Journal.

Spokesmen from the ARI appear on radio and television with the same frequency, because the hosts see value in their arguments, if only to provoke controversy.

The Association for Objective Law has had its amicus briefs quoted by the Nation's Supreme Court Judges.

There is a growing plethora of bloggers interpreting American culture, foreign & domestic policy, and even diets, in terms of Objective analysis.

In ten years the ARI has ballooned from measuring annual donations received in $10K, to some $8Meg. Certainly, more popular causes, running with the present cultural zeitgeist receive more, but this growth is a growth against that zeitgeist!

None of this is because Objectivism is irrational "Kool Aid" (a term bandied about with no understanding as to what it denigrates). The progress of Objectivism is because its logic, once understood, is unassailable.


Yes, I believe all the regulations are bad.

Some regulations are viewed as 'good' because they take responsibility from the investor, lender etc. The regulations allow them the false security that the government is taking care of things so they do not have to. When they screw up, they can just say, "It wasn't my fault, it was all legal." Meh!

Would you have laws that establish 'standards' for condoms, for lawn mowers or the length of your driveway (too much snow shoveling might mean hospitalization!), or are you capable of thinking through such things for yourself?

To see the point more fully, watch "The Wizard of Oz". It is a paean against FDR's New Deal; the lion, the tin man and the scarecrow, are actually the farmers at Dorothy's farm. They discover that the Wizard had nothing real to offer that they did not already have! Sadly, the message it projects was not learned culturally, so Americans continue to turn to Oz (Washington) to save them.

In contrast to the bailout banks, prudent banks such as BB&T survived the mortgage meltdown. Which bank would you rather have caring for your wealth, the prudent or the imprudent?

The government 'twisted the arms' of the surviving banks to accept bailout money, for the sole purpose of creating the appearance that no particular bank was better than the others. That is, they not only rewarded the failures, but sought to paint the successes as failures too.

BB&T is run by uncompromising Objectivist, John Allison. His bank's survival is no coincidence. Visit their values page, or examine their pdf's explicating the ethics of their Executives, Senior Financial Officers and Employees. If you can understand their ethics, you will wonder why other banks have no such code, at least no code that holds any meaning. Such character, in a business, is what the farmers of Oz should look for, not Washington! That means, in essence, trust your money with moral men, not necessarily with the best short term deal, and certainly not with the ever compromising government.

The real "Kool Aid" is what you have been fed by modern academics and/or philosophers, and the media men they taught. These 'intellectuals' (they are only intellectuals because they tell you they are) can no longer discern up from down, let alone right from wrong. Explaining that, to those who believe the academics, would take a lot of examples and pages of explication. Save me the trouble, and read Rand with considerable care, especially her non-fiction. If you do, and if you read with enormous care and self-analysis/introspection constantly re-examining the ideas/premises you casually accepted in school and from the media, you will be glad you did.