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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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Commentary Of The Month

May 10, 2011

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Would the "Atlas Shrugged" Strategy Work?

The publicity surrounding the Atlas Shrugged movie got me to thinking again about the central premise in the book. For those who have not read it, Ayn Rand's book postulates that all the entrepreneurs and people of great ability withdraw their services from the U.S. economy, retreating to an undiscovered mountain valley in the Rockies (this being before the days of satellites and Google Maps.) We are given to understand that the U.S. economy then collapses altogether, after which the entrepreneurs expect to emerge to general joy and re-establish the United States on a sounder constitutional basis. As a general sympathizer with Atlas Shrugged's libertarian ideals, but with a skeptical turn of mind, I am forced to wonder: would this strategy work in real life?
 
The question is even more interesting because of the Atlas Shrugged strategy's fun-house-mirror resemblance to the Cloward-Piven strategy, a favorite of the left, outlined in a 1966 paper by Richard Cloward and Frances Fox Piven. Under Cloward-Piven, which is applicable only in a period like 1964-68 and 2008-10, when liberal Democrats control the Presidency and both Houses of Congress, the indigent are encouraged to make every possible claim upon welfare schemes, Medicaid and other expensive government programs. The objective of this (apart from its short-term benefit in increasing the incomes of the poor) is to cause a financial collapse after which the liberals who control government will be forced to move to much more radically redistributionist policies such as a nationwide minimum income. Presumably under Cloward-Piven taxes are expected to be increased commensurately, probably by all three methods of increasing top rates of income tax, removing tax loopholes and instituting a value-added-tax. After all, even radicals in 1966 would not have dared postulate the current strategy of running gigantic budget deficits for as long as possible until the People's Bank of China cries "uncle."
 
While Glenn Beck and other conspiracy theorists have accused the Obama administration of running a secret Cloward-Piven strategy (but without bothering with the tax increases), the principal effect of the strategy appears to have been to produce spiraling welfare costs from 1966 until about 1980. Presumably it was partly responsible for the famous Medicare cost overrun, whereby a 1966 House Ways and Means Committee estimate that it would cost $12 billion by 1990, including an allowance for inflation, turned out to be hugely short of the actual 1990 cost of $107 billion. The Cloward-Piven strategy thus succeeded in its secondary goal of vastly increasing wealth transfers to welfare recipients, while failing to produce the economic collapse that would have allowed its true objective to kick in. We are thus forced to ask: if Cloward-Piven's well-thought-out strategy failed to produce economic collapse, would Atlas Shrugged's method have worked any better?
 
Atlas Shrugged postulates a world in which there are relatively few creators of wealth and achievement, who are opposed by a malign government of looters. (In many ways the novel's goodies are less realistic than its baddies, whose petulant speeches and economically insane impositions are instantly recognizable from real life.) The novel's antagonism between the creative and the destructive does not bear much resemblance to the prosperous consensus-driven politics of Eisenhower's 1957, when it was published, but fits much more into the class warfare years of the Second New Deal in 1936-38. Its atmosphere of economic decline punctuated only by individual efforts of transcendent brilliance that are immediately suppressed by the surrounding malaise is also that of the middle 1930s, when U.S. capitalism seemed to have suddenly failed, and statist nostrums had gained spurious credibility. Its world in which only the United States offers economic hope with every other country reduced to an impoverished "People's State" is also from the 1930s rather than 1950s, or better still from the late 1940s, as the 1930s possessed one shining example that had not succumbed to People's Statism in Neville Chamberlain's successful if temporary British economic renaissance.  Indeed the entire book has a doomed Art Deco flavor that gives it much of its charm -- it's the world of the Chrysler Building not the Seagram Building.
 
There's no question that some of the politics and economics of Atlas Shrugged appear more relevant today than in the past half century. Again we are in deep recession, with unemployment high and economic recovery elusive. Certainly the Obama/Pelosi rhetoric of 2008-10 bore a strong resemblance to the anti-capitalist outpourings of the book's Wesley Mouch. Yet the central Atlas Shrugged strategy of withdrawal of the mind seems far-fetched. Who, precisely would withdraw, in today's world? Bill Gates, Warren Buffett and Mark Zuckerberg? – all three are major Obama donors. The greatest leap forward in mankind's capabilities in the last generation was probably that of Sir Timothy Berners-Lee, inventor of the World Wide Web – a man of only modest wealth. The withdrawal of say Jamie Dimon of JP Morgan Chase and Lloyd Blankfein of Goldman Sachs would damage those august institutions' stock prices for a week or two, but would by itself not precipitate a financial collapse as did the removal of Atlas Shrugged's Midas Mulligan – both men have capable deputies and tens of thousands of hard-working well-paid employees, who would carry on very much as before.
 
That is the central fallacy of Atlas Shrugged, in a modern world. No one individual is important enough for his removal to cause the collapse of a major industrial enterprise, and if an enterprise does collapse, there are a multitude of others ready to take its place. Even if General Motors and Chrysler had gone bankrupt, Ford would have remained, and the U.S. factories of Toyota, Nissan, Honda and Hyundai would have continued producing automobiles of an admirable quality. Maybe in 1897, if William Jennings Bryan had won the 1896 election and John D. Rockefeller, Andrew Carnegie and J.P. Morgan had decided to take off for the Colorado mountains in protest against Bryanism, the U.S. economy might have wobbled, but even by the 1930s the complexity of the system and the education and training of a professional management cadre were such that any small group of geniuses withdrawing would have caused only a minor economic downturn.
 
Atlas Shrugged thus gets wrong the nature of innovation in modern capitalism. Major scientific advances, like those of Einstein, Crick/Watson and Berners-Lee, by and large don't make their innovators rich. Conversely, the great fortunes are made by people who are not that innovative. If Zuckerberg had not existed, MySpace would have occupied approximately the same ecological niche as Facebook; if Sergey Brin and Larry Page had not existed, thus leaving us without Google, the world would have been happier for the developers of AskJeeves.
 
There is not a single group of innovators whose absence would cause the U.S. global economy to come to a halt; the removal of any such group would simply cause its replacement by a similar group of people prospering through the development of almost identical products. Innovation can be turbocharged by the assembly of large numbers of very able people in one place, like the staff of Google or Goldman Sachs. However by definition it is their mutual interaction and not the unique contributions of any one of them that produces the myriad of tiny innovations and process improvements that make those companies so successful. What's more, even the team of innovators is neither infallible nor irreplaceable; IBM in the 1980s had the best 300,000 employees in its business, as does Microsoft today, and yet IBM and perhaps Microsoft lost their market dominance to competitors who were no more capable, but were better attuned to the era's technological zeitgeist.
 
Famously, Atlas Shrugged grants uniqueness to its goodies that it does not grant to its baddies. At no point does anyone suggest grabbing a machine gun and wiping out Wesley Mouch, Cuffy Meigs and Mr. Thompson, since they would only be replaced by equally faceless, equally evil looters. Yet in reality political leaders with charisma appear more irreplaceable than business leaders – the world would have been very different if Ronald Reagan, Hitler or Stalin had never existed. Indeed the outcome of the coming 2012 Presidential election seems likely to depend entirely on the Republicans' ability to find a candidate who is both capable and charismatic, and it is by no means certain that they will succeed.
 
The Cloward-Piven strategy, given appropriate charismatic and economically illiterate political leadership at the time it is applied, thus has a considerable chance of success, much more so than the Atlas Shrugged strategy. However Ayn Rand can have one consolation: while individual geniuses appear to have little effect in economic life, and would not be much missed if they withdrew, they can make an immeasurable difference to the world in another field – that of literature and philosophy. Ayn Rand never built a business empire, and would not be remembered today if she had, but the effect on politics, policy and the economy of her works remains substantial and, thirty years after her death, shows no sign of diminishing.
 
The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of "sell" recommendations put out by Wall Street houses remains far below that of "buy" recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.
By Martin Hutchinson