Ayn Rants

Atlas Shrugged or Atlas Shrunken? -- Picture courtesy of Wikipedia

by blogSpotter
Today's Dallas Morning News has an editorial about Alan Greenspan -- "When His Bubble Burst". In it, they talk about how Reaganomics has gotten some serious bumps and bruises in the recent melt-down. The article recounts how Greenspan presided over a big Reaganomic expansion as our Federal Reserve chairman from 1988 thru 2006. He most notably opposed raising interest rates and opposed regulating the financial derivatives market. Greenspan is said to be a strong deregulation advocate and fan of Ayn Rand. Rand is the champion of "rational selfishness" for those unfamiliar with her writings.

In his deposition to Congress last week, Greenspan had to admit "Mistakes were made". He couldn't believe how foolish and greedy the Wall Street titans were, in retrospect. I myself have several observations to make -- the first one fairly trivial. Self-regulation never works. I only have to think of my 5th grade teacher saying, "You're on your honor not to cheat." That would be the cue, as she left the room, for the unscrupulous to get out their notes. Cynical? yes indeed. If the honor system worked across the board, we would need no police, store detectives or security systems. As it turns out, we do need the police. At higher echelons, we need police in the form of the Securities and Exchange Commission, Sarbanes Oxley audits, state Attorneys General and the Federal Reserve Board among other monitoring agencies. That every one of these recently failed us, in tandem, is remarkable.

Now lets get back to Ayn Rand’s concept of rational selfishness. I will be the first to agree that our capitalistic engine has produced remarkable results. Here are 3 of my personal favorites: Apple, Google and Starbucks. These companies innovated bold new products and markets – sometimes out-of-the-blue things new like internet search engines. Sometimes the innovation was a clever twist on something old like boutique, upscale coffee houses. These businesses could only happen in America. One of the primetime magazine shows (maybe 60 Minutes) recently had a special on what’s involved with setting up a hotdog stand in India. It isn’t pretty – dozens of forms, interviews, fees and applications will stand between you and hotdog profits. America has relatively unfettered markets where newbies can invest, create and make the world a better place.

How do we keep the genie under control, performing good magic (less the bad magic)? How can we stay dynamic without the necessity of $700 billion bail-outs? I have some general (dare I say Marxist-influenced) explanations that center around monetary value. Money represents more than anything, the value of labor (either human or machine). It represents the transformation of raw materials into useable goods or artistic renderings. Ideas and inspiration count as much as hard work if the end result is a human-or-machine produced commodity for which there is demand.

Financial instruments which tie immediately back to labor have “true value”. Financial instruments that tie back to other financial instruments become shaky and speculative. Their worth is a shadow worth, much like a lottery or raffle ticket. The purchaser is getting more of a chance than anything else and the odds can be very long on the purchased asset. Presidential candidate John McCain said something with which I heartily agree – “Wall Street has developed a casino mentality”. That may be our only agreement, but we have that.

Overall wealth accumulation should rely far more on actual work accomplished – not compounded interest or stock run-ups. In a healthy society, interest and dividends should reflect no more than the productivity increase of the society. Wealth accumulation that derives from paper asset manipulation (hedge funds, derivatives, credit default swaps) becomes a poker game where very few players come out ahead. To keep the game safe, sane and sensible we need the white collar police (SEC et al) to be involved. In coming years, Wall Street’s not cheating will no longer be about the honor system, it will be about a system of serious financial governance.

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