Opinion: Atlas Wussed

Capitalism is in crisis, or so the enthusiastic chaps of the Occupy movement would have us believe. I find doing so somewhat difficult, as I work in central London, and am positively surrounded by capitalists with flashy cars, sharp suits and a taste for champagne. If this is a crisis, it’s difficult to see how it differs from Capitalism Triumphant.

However, the truth is that the classic right-wing Atlas Shrugged mode of capitalism is in crisis. The Government has cut corporation tax, is cutting back regulation and has just lowered the 50p income tax rate. This is the bit in the libertarian narrative when heroic John Galt-esque entrepreneurs leap forward to save the economic day, generating growth by sheer force of will.

This isn’t happening. Private sector investment is still at post-war lows, and corporations have shifted their money into low-risk low-yield products like Government bonds (whisper it, but this is part of the reason our gilt yields are low, not just market confidence in our austerity measures). Our capitalists are worried about future demand, and are playing it safe.

This point is made forcefully in a new report by the Grantham Research Institute. If everyone is worried about the future, their worries will come to pass, in a classic paradox of thrift. We need some way of generating more demand, but interest rates are already low and the Government has run out of money.

However, the Institute points out that the Government can get round these obstacles by effectively mandating demand for something that the market has confidence will remain a long-term policy objective. The low-carbon sector is the paradigm example of this; tackling climate change will be a constant of at least the next fifty years, and the various means of doing so – for example, low-carbon energy, more efficient appliances and electric cars – will be increasingly required. Bringing demand for these products forward through appropriate policy instruments will help provide our concerned capitalists with the confidence in future demand they require to start investing in other areas of the economy too.

It’s true that low-carbon technologies have cost implications for the rest of the economy, including marginally more expensive energy in the short-term until the cost of renewables comes down. Economics is about trade-offs, after all. But low-carbon investment doesn’t displace other investment, because that other investment isn’t happening – it’s additional spending, not instead of something else. Government-mandated private investment could yet be the key to unlocking the demand we need to avoid a decade of Japan-style stagnation.

Despite this, earlier this week we saw Conservative MPs work to block provisions in the Government’s Green Deal that could have helped unlock additional demand, presumably in the belief that the Government should be as afraid as everyone else of investing in these uncertain times. There is a real risk in handing the Government the authority to mandate that we invest in and buy certain types of product, as this may be a power that’s too tempting to abuse. However, when our capitalists are frit, and their fear of the riskiness of investment is likely to make the rest of us poorer, what else can we do?


* Adam Bell is a member of the Islington local party and works in the wind industry

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  • Matthew Huntbach 20th Apr '12 - 3:55pm

    Ms Rand’s view of capitalism is very quaint. Imagine – a world where money is made by people who make real things, engineers, artists, rather than just by money-shuffling and owning assets! Indeed, suppose we DID have a strike these days by the real creative workers of the world against the money shufflers and asset owners … How many of those “capitalists with flashy cars, sharp suits and a taste for champagne” you see, Adam, have made their money as John Galt did by being engineers?

    The propaganda line that this is what they are about is USED by the Tories, but one only need look at what really works them up to see that’s not what they are about at all. At heart, what the Tories are about is defending unearned wealth, income received by sitting doing nothing but owning things. That is why capital gains taxes and property taxes are guaranteed to get them frothing at the mouth. The two things that still mark the Tories out as supporters of populist capitalism are all about money for no effort – council house right-to-buy (encouraging us all to think wealth is made form owning houses) and “Tell Sid” privatisation (encouraging us all to think wealth is made through shares wheeler-dealing). What about the workers? Oh, they are all in China these days.

    BTW, Adam, you must lead a VERY sheltered life if you are unaware of the real poverty and despair in London which has become so much worse in recent years. For most people the atmosphere is grim, encouraging a “heads down” attitude in which no one dare take risks, better to stick to your safe job and do as you are told so you don’t get sacked than to try anything entrepreneurial. If you want to encourage ordinary people to become more entrepreneurial, give them a stronger safety net so they cam take the risk. Who is in a better position to spring up and try something new and entrepreneurial which may make money but may not – the person in the low rent council house, or the person with a big mortgage round his neck?

  • Alex Sabine 20th Apr '12 - 3:57pm

    The idea that the coalition’s policies are in the process of introducing some Ayn Rand style anarcho-capitalist society is as bizarre as the idea that any British government for at least 100 years (and arguably ever) has pursued an agenda of laissez-faire.

    Reducing the top rate of income tax to a level where it will be merely above-average for the G20 rather than right at the top; cutting corporation tax, the burden of which mainly falls on workers and consumers; and aiming to reduce government spending over a period of more than a whole Parliament back to its postwar average level of about 40% of GDP – these are hardly revolutionary libertarian ambitions!

    And the idea that regulation is being reduced to any appreciable degree will raise a wry smile of exasperation from anyone who runs a business, large or small. At best there are good intentions here but overall there hasn’t even been a standstill in the amount of regulation and the government is struggling to meet its ‘one in, one out’ rule which anyway only applies to domestically generated regulations.

    I do agree that the particular model of finance capitalism which relied on implicit state guarantees being offered to all financial institutions, allowing them to become ‘too big to fail’ while also paying insufficient attention to traditional prudential supervision, has been discredited – as has the policy of government encouragement for subprime lending and misguided attempts to turn the mortgage market into a tool for social engineering (although whether the current government has learned that lesson is open to question).

    I’m not sure I see a logical link between the failures of financial regulation on the one hand and the merits of the government “mandating” private companies to invest in this sector or that industry because that’s where the future growth is supposedly going to be. The nature of free economies is that we don’t know the composition and patterns of future growth. If these matters are not best decided by price signals, profit opportunities and the capital market then we might as well shut up shop and join the Socialist Workers Party.

    Clearly, one of the keys to the recovery is going to be for companies to start running down their strong cash reserves and investing, and yes this requires them to have confidence about future demand, which means the government has to get its overall macroeconomic stance right (recognising, however, that aggregate demand is affected by the interplay between fiscal and monetary policy and that there is a need for companies to have confidence in the sustainability of the public finances if they are to believe any recovery is sustainable). It also means the government should avoid doing things that make it harder, more expensive or less profitable to invest.

    But the fad for ‘industrial activism’ as some are pressing on the government looks suspiciously like a rebaked form of industrial iinterventionism that bases its superficial appeal on claims of nurturing ‘businesses of the future’. That was exactly what Harold Wilson and Ted Heath claimed they were doing, too: interventionists always claim they are only supporting good businesses and not bad ones, will only pick winners and not losers, and on no account will there be any bail-outs of lame ducks. Yet somehow it never turns out that way, not because the intentions are bad or the people are incompetent but because it is no substitute for the discovery process of the market.

    (I am not claiming that markets are perfect, perfectible, perfectly competitive or any other species of utopianism, merely that they are better than the alternatives and in particular better than politically directed markets in determining how much of what sorts of goods and services should be produced in which sectors. I do not deny that there are specific market failures which we can deal with through policy interventions – eg Pigouvian taxes on pollution – always bearing in mind the need for proportionate action and the possibilities of government failure. But the most economically efficient way to capture these externalities is through uniform non-discriminatory measures like a carbon tax that leaves the discovery process of which technologies to back as far as possible to the market.)

  • Richard Dean 20th Apr '12 - 6:47pm

    The Grantham Research Institute is putting forward an argument, not an unbiassed assessment. I’m not very clued up economically, but the “savings paradox” appears in the first proper chapter of a book on Macroeconomics with 25 chapters, so it can’t be that advanced! This chapter is about the short term goods market, not long term investment.

    I doubt that the market has confidence that a low carbon economy will remain a financially rewarding long-term policy objective. You can see this in the Conservative MPs’ behaviour this week. Governments may pay lip-service to it, but will they stick at it in times of trouble if there are other projects with shorter payback periods?

    According to the capital asset pricing model that those nice girls talk about on the ad, return increases with risk in such a way that risk-weighted returns are independent of risk. So firms investing in cash should be getting the same risk-weighted return as firms investing in business development. Which suggests that the long-term future is not what firms are worried about. Have the girls got it right?

    Perhaps firms are more worried by the short-term possibility of going bust if demand tails off while wage costs and contractual obligations remain more or less fixed? That would be more like the savings paradox at the start of the book. Would it not require a different solution? Long-term green investment does not seem to fit the problem.

  • If we invest in low carbon infrastructure this will risk raising the rate of interest charged by banks as they will be lending to the ‘low carbon businesses’. I would expect this to cause a decrease in business investment in other areas. Whether this policy succeeds or not will depend on whether the products demanded by the free market create more sustainable long term demand than those mandated/encouraged by the government. This is a risky premise. It may turn out that central government is mistaken and the products demanded by the market are the ones that create sustainable long term businesses. I is also likely that Grantham Institute for Climate Change is not a reliable source for politically neutral economic policy decisions.

    The author writes

    ‘Economics is about trade-offs, after all. But low-carbon investment doesn’t displace other investment, because that other investment isn’t happening – it’s additional spending, not instead of something else.’

    Surely other investment is happening. It may be running at only a stable 75% of the peak but it is taking place. It is possible that it could fall. The additional confidence in generating returns from low carbon infrastructure would be offset by fears in a rising cost of borrowing and rising energy costs. There is no clear evidence that this will boost confidence. My suspicion is that something that raises the cost of energy would be damanging to confidence.

    The author quotes the Japanese lost decade as an example of what was to be avoided. The problem was that there was massive investment in bridges, roads and other infrastructure. At the time this was the type of expansionary fiscal policy that was thought to drive growth. This drove business activity into these areas rather than those that could have created sustainable businesses such as new or growing technology companies. Whilst the Japanese were ‘investing’ in infrastructure South Korea’s Samsung quadrupled its turnover overtaking Panasonic, Sony, Toshiba and Fujitsu and becoming the worlds largest technology company (by turnover). In the US in the same period many .com businesses became major successes and drivers of future growth.

    If there is money for subsidies it should be diverted to reducing tax for low paid workers and limiting the effect of the poverty trap.I believe that the starting point should be to encourage small businesses by reducing the level of tax paid and simplifying/reducing the reporting requirements to government. Simply raising the tax threshold through the introduction of an (unimproved) land tax would help. Also making it easier to set up a business by sharply reducing reporting requirements for very small businesses (those with profits under the average income) would be more effective and more liberal than supporting a particular industry.

    Ed Joyce

  • Prateek Buch has recently published a pamphlet for the Social Liberal Forum Plan C.

    The pamphlet recognises the weaknesses of the neo-classical syntheses that has led to recurring economic and financial instability in recent decades; and makes a coherent economic argument for job creation, a fair and efficient financial system and making workplaces more liberal through greater workplace democracy and fair conditions of work.

    It is important to remember that Private sector investment depends on the financial services structures that are concentrated in the City of London. The financial services sector is an indispensable element in the matching of risk capital with productive investments. It’s not all flashy cars, sharp suits and champagne.

    Investment in low carbon technologies and electric cars has to be a long term ongoing partnership between the public and private sector to deal with the energy needs of the future. The short-term stimulus effects should be concentrated in bringing investment and jobs to areas of high unemployment e.g. conversion of shipyards for the building of wind turbines – rather then more dispersed efforts targeted at wider aggregate demand.

  • Matthew Huntbach 21st Apr '12 - 3:26am

    Joe Bourke

    The financial services sector is an indispensable element in the matching of risk capital with productive investments. It’s not all flashy cars, sharp suits and champagne.

    Yes, but is it doing it in an efficient way? It’s the equivalent to what we call “bureaucracy” when it’s in the public sector. Some level of bureaucracy is necessary, yes. But we all know how bureaucrats behave. They come to believe that they alone are responsible for all that happens. They use that argument to excuse paying themselves higher and higher incomes. They add layers of bureaucracy, bureaucrats to be the bureaucracy of the bureaucrats who are the bureaucracy to … They defend this all by developing an extensive mumbo-jumbo. They have flashy cars, sharp suits and champagne (or the equivalent) not just because they can afford it, but because it’s all part of the mumbo jumbo of making themselves seem indispensable and seem the most important people on the scene. They develop a culture of self-defence in which ultimately every bureaucrat will defend the position and rewards given to every other bureaucrat. The main qualification for becoming one of them is to accept and spout out their mumbo jumbo. And since we are reliant on them since they have wheedled in and taken control of everything, we have no choice but to go along with all of this.

  • @Matthew Huntbach Apr 20 – 3:55 pm
    ” Who is in a better position to spring up and try something new and entrepreneurial which may make money but may not – the person in the low rent council house, or the person with a big mortgage round his neck?”

    Based on the historical evidence from the IT sector, neither! The person best positioned would seem to be the University student living in the halls of residence …

  • Richard Dean 21st Apr '12 - 1:42pm

    Did we really bail out banks? I thought we acted to prevent companies collapsing that depended on the banks for the trsnsient cashflows and borrowings they had contracted to receive and needed to receive to stay in business.

  • “If we really wanted to bail out the companies that depend on bank finance, we’d have let the banks go to the wall and set up a government lending scheme as a transitional arrangement …”

    Pretty much exactly the same happened in the USA. Rather than provide (a relatively small amount of money) targeted aid/funding to help people with sub-prime mortgages in 2007 (remember the issue was more about the fact that borrowers were locked into agreements which they could afford until the low repayment period ended…), the US government waited until 2008 and then helped the banks, largely leaving the people (with sub-prime mortgages) to fend for themselves…

  • David Allen 21st Apr '12 - 5:08pm

    Good article.

    On the general question of picking winners, yes, politicians and governments often pick wrongly. So do markets. Governments tend on the whole to be better motivated, whereas markets are driven by greed and fear, but against that, the competitive mechanism does help markets to get it right, some of the time. It won’t do to take a simplistic ideological view, and put total faith in either the “free” market or in central government planning. That’s just lazy dogmatism.

    On the question of low carbon technology, we have a yo-yo situation. Every Monday, Wednesday and Friday, we wake up to the very valid fear that we will soon fry the planet, and we resolve to invest in expensive renewables. Every Tuesday, Thursday and Saturday, we get terrified of how poor we feel and how angry our voters might get, and we run back to burn some more of that good old cheap old coal. On Sunday, we should perhaps go out and pray for an end to yo-yo politics. But we won’t get there just by choosing between Keynesianism or a market-based control system.

  • Adam,

    I note you work in the wind industry in Central London and work in one of the pockets of poverty in the Islington area.

    It sounds like the perfect prescription for a budding low-carbon energy entrepreneur.

    You need to start with a Research and Development grant to develop your prototype technology R&D Grants.

    With grant in hand, the next step is to form a company, with a few angel investors, under the new Seed Enterprise Investment Scheme for small start-up companies SEIS and take-on your first employees.

    Once you have got a credible commercial proposition you will need to raise second stage finance by tapping -in to the wealthy Non-Dom investor network that profilates in your area of Central London. Non-domiciled investors are now entitled to remit offshore income to the UK for investment here without incurring any tax liability on their remitted income.

    SME’s are able to claim Research and Development tax relief of 225% on revenue expenditure and 100% capital allowances. These tax breaks will assist in you in developing the business without significant reliance on bank funding.

    Having developed and grown your company to a stage where it is generating recurring profits of £1m, you can sell out to one of the bigger energy companies for £10m to drive national expansion of the business. Entrepreneurs relief on your capital gains will limit your tax bill to 10%, so you pocket £9m for your contribution to societal improvement.

    These are just some of the supply-side incentives for entrepreneurial start-ups – others include loan guarantees for new businesses; regional policy assistance for entrepreneurs in depressed areas of the country and advice for new firms

    The small businesses of today can often become the larger businesses of tomorrow, adding to national output, employing more workers and contributing to innovative behaviour that can have positive spill-over effects in other industries.

    No need for the government to pick winners – with the right measures in place they will pick themselves.

  • Richard Swales 21st Apr '12 - 8:05pm

    The article totally misrepresents Ayn Rand’s views. The root of her philosophy (which she called objectivism) is the primacy of the mind (man’s means of survival upon which all other values depend), and the celebration of its use as opposed to the rejection of reason through activities such as lying ,the initiation of force or the use of fashion, faith or mysticism as means of determining the truth,

    Where this intersects with politics (and she became famous with a book called “The Fountainhead”, about how these ideas play out in architectural firms, marriages and a tabloid newspaper, containing almost no politicians and politics at all) it expresses itself in terms of support for abortion, a separation of church and state, the rejection of force-based solutions to problems and therefore the legalisation of drugs and pornography (although objectivism itself is against drugs and alcoholism, it doesn’t recognise the government or others’ right to use force to stop you from taking them -this is a good example of why it is a life philosophy more directly comparable to a religion than to a political position. Ayn Rand or Objectivism should not therefore be used a shorthand for libertarianism or right-wing politics in general). What Ayn Rand seems to be most well known for in internet forums is her rejection that charity is an obligation – translated into UK terms, the fact that someone’s income is at 39 percent of the UK average does not constitute a claim on your money – representing the products of your mind and interactions with others – and does not legitimate the use of force to take it from you (whether directly or with a compulsory tax system taking it for the benefit of third parties) – this makes her popular with the American right who seem so desperate for a bit of intellectual credibility that they celebrate her and just ignore the large swathes of her ideas they disagree with. Her ideal government would consist of courts, police (although not dealing with crimes of consent) and army – to protect the individual from violent individuals and to protect society from more violent ideologies.

    John Galt (like many of the heros in the Atlas Shruggedbook) wasn’t a businessman in his normal life, he was an inventor. Most of the bad guys in the book are businessmen in the normally used sense of the word (although Rand would argue that the hunting of legal monopolies, price agreements and subsidies is not business – using the normal definition of the word she is by no means uncritically pro-business altough she is often misrepresented that way – again by the pork barrel hunters in the American right). A better example of what you mean would be Hank Rearden who is a self-made businessman and self-taught inventor. People who use their minds to create products and form businesses from them actually exist today – most of the best known ones are in the US software industry although Dyson might also fit the bill (I don’t know much about him).

    The main place your analysis falls down is that Ayn Rand does not accept the public interest as a justification for or against her ideas. Purely hypothetically, if it were possible to make the economy grow much more quickly, by reducing freedom and making people work harder (that this was the original justification for the 11 o clock pub closure has jumped into my mind) she would reject that that the public interest is a winning argument over freedom. She rejects that people of ability have the duty to provide jobs or make the economy grow for the benefit of others on anything other than their own terms (to use myself as a slightly stretched example, I am a trained and experienced software engineer, however I teach English abroad – some would say I have an obligation to come home and get the economy moving but I reject this. I use software to make my own life easier but I don’t provide or sell it to anyone else nor do I consider myself to be obliged to even though that might be in the public interest).

    So basically, she would say that the fact that the economy is growing or not growing is not a reason to increase or decrease the percentage of our working time we are not freely working for ourselves (under threat of violence from the tax office).

    If one does however accept public interest justifications, one notes that central London’s bankers and protesters still seem better dressed and fed than North Korea’s komisars and peasants. When that position reverses then capitalism , meaning “freedom of economic choices” will be in crisis and you can attempt to draft me back to working in the industry I’m trained for. If you can find me.

  • Alex Sabine 21st Apr '12 - 8:17pm

    @ David Allen; “On the general question of picking winners, yes, politicians and governments often pick wrongly. So do markets.”

    Of course private sector enterprises often fail. Indeed for capitalism to work it is necessary that they should do so.

    The difference is that when politicians and governments pick winners they do so using the coercive power of the state to tap the public’s resources. And when their pet projects go wrong they have invested too much political capital to recognise their mistakes and extricate themselves before they do further damage.

    It isn’t simply that central planners – and companies they dispense favours to – lack the penalties for failure that competitive markets impose, and which is the essential means by which the pursuit of private interests is harnessed to the public good.

    It is that, in formulating targets for production and employment and deciding in which sectors, companies or regions to intervene and channel public money (whether through tax breaks, subsidies or other forms of corporate welfare), even the most intelligent and far-sighted planners lack the necessary knowledge information about the huge number and heterogeneity of variables on which timely decisions need to be made.

    As Hayek explained, the essential superiority of the market system over planned economies is that a combination of price signals and profit-maximising incentives produces an infinite and continuous process of optimising adjustments which no planned economy could ever conceivably replicate and which we can never precisely predict. Its superiority lies in the invisible rather than the visible hand.

    Or, as a distinguished former financial secretary of Hong Kong put it: “In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralised decisions of a government, and certainly the harm is likely to be counteracted faster.”

  • I could just as easily lay the charge of “lazy dogmatism” at the view that we must support some ill-defined halfway house between a decentralised market economy and a centrally planned economy – since it is presumably based on the lazy premise that, because no system of human organisation is perfect, market economies and planned economies are equally flawed.

    This ambivalence reminds me of the position of the Alliance in the 1980s on the question of privatised vs nationalised industry, which was basically that the boundary between the public and private sectors should be left undisturbed wherever it happened to be at that particular time. (This lack of clear thinking from first principles gave force to Ralf Dahrendorf’s jibe that the SDP stood for a ‘better yesterday’.)

    Geoffrey, to clarify my position once again, I am not saying that free markets are a necessary and sufficient condition for a free and good society. I am not a doctrinaire advocate of laissez-faire if that is taken to mean that the state should simply retreat from all responsibilities beyond defence, law and order and a legal framework for property rights. (As it happens I don’t think any serious politician in any political party stands for this prospectus, so it’s basically a straw man designed to shut down debate about the appropriate limits on state power.)

    I believe there is a legitimate and vital role for government in spreading opportunities and ensuring all citizens have access to high levels of health and education, and there are also such things as market failures which, in principle, the government can seek to correct. In relation to that last point, I agree with what Vince Cable wrote in the Orange Book (whether he still believes it is anyone’s guess):

    “The issue is more a practical one of whether the government failures associated with regulation, and the cost of regulation, outweigh market failures and, more fundamentally, destroy the entrepreneurial and competitive impulses on which the private enterprise system depends.”

    What I am saying is that the government should not usurp or distort essentially commercial decisions and operations which can be performed better and more efficiently by the market and the private enterprise system, on the misguided assumption that markets are ‘chaotic’ or immoral while governments are rational and moral.

    Such erroneous beliefs are, of course, always much in favour in France, where the Gaullist right is at least as keen on dirigisme as the socialist left, globalisation is a dirty word, and liberal voices are nowhere to be heard. To quote Vince Cable (2004 vintage) once again (in a chapter arguing with impressive clarity against interventionist industrial policy): “The temptation is to head off into the anti-capitalist, anti-globalisation fringes. But such territory is largely unoccupied for good reason; that the remedies are fundamentally implausible and, in any event, totally alien to Liberal Democrat traditions.”

    In a stinging critique of corporate welfare, he goes on to warn against “a misguided, non-economic belief that government salesmen and taxpayers’ money ‘save’ or ‘create’ jobs; the insatiable appetite of politicians to wrap themselves in national flags in trade no less than in sport or military conflict; the seductive potential of the word ‘security’ when used by ‘national champions’ to justify favours; and sometimes outright corruption or cronyism when the government help is a quid pro quo for past or expected political support. A more pragmatic reason is that other governments also ‘help’ their producers in different ways, generating calls for a ‘level playing field’. For a combination of the above reasons, some enterprises have been extraordinarily successful in persuading the British government to underwrite their shareholders’ risks and secure commercial advantages overseas. Economic liberals should look at these activities with a very jaundiced eye…”

    It would be good if the Business Department followed such sound advice and adopted a suitably self-denying ordinance.

  • Alex Sabine 22nd Apr '12 - 1:42am

    Geoffrey, on the environment, I remind you that the planned economies of the Soviet era bequeathed a legacy of widespread environmental destruction that dwarfed that in the free capitalist economies.

    Environmental damage is a by-product not of capitalism, but of growth and industrialisation. The challenge is to how the greater prosperity and innovation delivered by market economies can be harnessed to deliver environmental improvements, energy efficiency etc.

    It is a question of achieving this as cost-efficiently as possible, so that for example in personal transport, people can still drive or fly (and the personal freedom and mobility associated with this) but cars and planes become more fuel-efficient and less polluting.

    Fortunately, the market is an immensely powerful mechanism for minimising the long-term cost of environmental improvements. We need to get the legal and regulatory framework right to ensure the incentives are right, but as far as possible we should not try to second-guess the particular forms of technology that will emerge, but rather enable the myriad market-driven adjustments that will minimise the cost of adjustment.

    Conversely, if we do not use the price instrument, everything we know about economic logic tells us that the cost of adjustment will increase (and the political support will fall).

  • Richard Swales 22nd Apr '12 - 10:35am

    For more information, Ayn Rand explains her non-violent atheist individualist philosophy. It is much better to hear her speak about it than to get information from people who want to co opt her to their own ends

  • Interesting piece from George Monbiot last month:

  • Ayn Rand strikes me as one of those people destroyed by their own intellectualism. She seems comparable with those great mathematical minds that drive themselves to insanity through intensive and obsessive concentration on abstract concepts. Her obsession with individual rational objectivity ignores the evolutionary biology of human beings that has developed altruistic social and group structures as a survival mechanism.

    The same flawed thinking has led great economic thinkers, like Hayek, to the dogmatic view that any departure from classical orthodoxy was an irreversible step towards socialism. This dogma holds that Unemployment compensation, old-age pensions, public health services and help to the poor lead to socialist repression and the resulting degradation of the human spirit. Monopoly was an irrelevancy that did not justify government intervention although union restraint might be called for. Hayek’s mentor and teacher, Ludwig von Mises, suggested all national navies should be returned to private enterprise. A sentiment that Sir Francis Drake may have agreed with, but the thought of nuclear armed submarines, controlled by multinational corporations, roaming the ocean depths to protect their global trading interest, does not sit well with our hard won framework of a United Nations to protect the international peace.

    Keynes understood that institutions are man-made and at least in part the product of conscious decision. His message that our economic destiny is controllable is more valid today than ever. The question to be answered is “Who will benefit?”

    Economic policy must reflect an ideological vision;it must be inspired by the ideals of a good society. In 1926, Keynes defined the political problem as a need:

    “to combine three things: economic justice, social justice and individual liberty. The first needs criticism, precaution and technical knowledge; the second, an unselfish and enthusiastic spirit that loves the ordinary man; the third, tolerance, breadth, appreciation of the excellencies of variety and independence, which prefers, above everything, to give unhindered opportunity to the exceptional and to the aspiring.”

    Perhaps if Alan Greenspan had paid more attention to the liberal philosophy espoused by Keynes than the objectivism of Rand, he would not have been left disillusioned and bewildered as he surveyed the wreck of the financial system for which he had been responsible for so long.

  • Matthew Huntbach 22nd Apr '12 - 3:16pm

    Richard Swales

    So basically, she would say that the fact that the economy is growing or not growing is not a reason to increase or decrease the percentage of our working time we are not freely working for ourselves (under threat of violence from the tax office).

    The idea that the only restriction on freedom that exists is that which comes from tha tax office is ludicrous. My argument against Rand is not whether or nor she “accepts the public interest as a justification for or against her ideas”, it is that she is incredibly naive in her idea of what comprises “feeedom”, her work is very much of her time and place. I have hinted in my previous messages in this thread at various lines of criticism of it.

  • Richard Swales 22nd Apr '12 - 6:17pm

    @Lee Thacker – why is it interesting given it is completely false?

    I would have liked to have posted this on there, but for reasons which will become obvious Monbiot does not allow comments on the article.

    GM writes “The poor deserve to die; the rich deserve unmediated power. ” – this doesn’t appear anywhere in her work. The main hero of Atlas Shrugged, John Galt, spends most of the book employed as a railway track worker.
    GM writes “Rand was a Russian from a prosperous family who emigrated to the United States.” Her father was a pharmacist, whose shop was nationalised after the Russian revolution. The rest of the family were not able to leave, only Ayn Rand emigrated.
    GM writes “She described the poor and weak as “refuse” and “parasites”, and excoriated anyone seeking to assist them.” In fact the most common type of parasite featured in Atlas Shrugged are businessmen seeking special treatment. However it is true that she says that anyone who uses their poverty as a claim of right on others is a parasite (this is not so controversial as it sounds – which is why such claims are always presented in the third person even in the UK).
    GM writes “Atlas Shrugged, published in 1957, depicts a United States crippled by government intervention, in which heroic millionaires struggle against a nation of spongers.” In fact virtually all the government intervention taking place in the book is at the behest of villain businessmen characters and is for the actual benefit of those businessmen with claims of wider public interest used only as fig leaf. The “good guys” who drop out of society include inventors, university professors, a judge, an actress, a banker, a composer as well as several businessmen and (in the later stages) workers of all descriptions.
    “The poor die like flies as a result of government programmes and their own sloth and fecklessness. ” – I don’t remember the sloth and fecklessness example, but the book describes a time in which businesses, including those crucial to agriculture, are falling under government control and being nationalised. In the decades before it was written, exactly the same process had lead to mass deaths of the poor through starvation in Rand’s home country, the Soviet Union. The book is intended as a warning against this, written at a time when communism still had an intellectual cachet in the west.
    “In a notorious passage, she argues that all the passengers in a train filled with poisoned fumes deserved their fate(2,3). One, for example, was a teacher who taught children to be team players; one was a mother married to a civil servant, who cared for her children; one was a housewife “who believed that she had the right to elect politicians, of whom she knew nothing”. The old steam train is sent through the tunnel by political pressure (someone needs to get through to California for a speech), against the better advice of the thinking minds of railway workers, not millionaires . The passage makes difficult reading but the point is that the people one the train are supposed to have contributed to the state of affairs in which such a thing can happen. Actually the teacher is described as having “spent her life turning class after class of helpless children into miserable cowards, by teaching them that the will of majority is the only standard of good and evil … (and) that they must do what others are doing.” – I find it scary that Monbiot can paraphrase this as “being a team player” the full quote about the housewife is “who believed she had the right to elect politicians, of whom she knew nothing, to control giant industries, of which she had no knowledge”. The others listed on the train include a financier and a businessman – which Monbiot doesn’t tell us because it doesn’t suit his narrative – as well as no less than three university teachers.
    GM writes “Ignoring Rand’s evangelical atheism, the Tea Party movement has taken her to its heart. No rally of theirs is complete without placards reading “Who is John Galt?” and “Rand was right”. ” – Rand is long dead so it is impossible to know what she would have thought of the tea party but she thought the Right in her one time was obsessed with religion, and lacking in any kind of intellectual leadership. She didn’t self-describe as a conservative.
    GM writes “It is not hard to see why Rand appeals to billionaires. ” does she?
    GM writes “towards the end of her life she signed on for both Medicare and Social Security” I don’t know what the original source is for this claim, but in any case she had to pay for those schemes through her life – given that you can’t opt out of taxes. She was simply getting back money she’d paid in.
    GM writes “Once in government, (Alan) Greenspan applied his guru’s philosophy to the letter” in fact, Alan Greenspan was head of the federal reserve, an organisation which Ayn Rand believed should not even exist. It is debatable whether the crisis is the result of bankers being unregulated, or whether it is the result of politicians enabling them to make one-way bets, or whether it is the combination of the two that is lethal.

  • Richard,

    “It is debatable whether the crisis is the result of bankers being unregulated, or whether it is the result of politicians enabling them to make one-way bets, or whether it is the combination of the two that is lethal.”

    I think cyclical financial instability is an inherent feature of a modern capitalist debt financed economy, as China is about to find out.

  • Richard Swales 23rd Apr '12 - 7:03am

    Matthew Huntbach writes “The idea that the only restriction on freedom that exists is that which comes from tha tax office is ludicrous. My argument against Rand is not whether or nor she “accepts the public interest as a justification for or against her ideas”, it is that she is incredibly naive in her idea of what comprises freedom”

    This is why she also opposed bans on cannabis, homosexual sex (illegal in her time), pornography etc. etc. etc. Her basic principle (at least the one that is relevant to politics) is that no one may initiate violence against anyone else (whether to stop them smoking cannabis, get into their bedroom and stop them having sex, take their money etc.) they may only use violence when in response to someone initiating violence against themselves or a third party (part of the role of government). She would ask, if you have a problem with that then which of your policies do you feel require a suspension of the rule, and can actually justify such a suspension?

    I am defending her point of view here because she is no longer with us to defend it herself, and she is being terribly misrepresented. As for me, I have read her books and I would say they have influenced me, but they don’t define my own beliefs (perhaps similarly to you, Matthew, as a Catholic and Lib Dem I assume you have read the bible and it influences but doesn’t define your political beliefs). One practical example would be that I would oppose almost any kind of B2B redistribution of wealth. On the other hand, we need a state education system. Altas Shrugged features a railway company – in the real world though you can’t build a railway (or motorway) across a country or continent unless you have a government to exappropriate a thin straight line of land (or rights to it) for you, so if you follow her principles strictly then you would have no railways. On the other hand we are dealing with authorities in the UK who are willing to exappropriate property to build supermarkets – my local authority knocked down a traditional pub to add four carparking spaces to Morrisons in the public interest. Actually this is the result when property rights are arbitrary (and another illustration of the difference between “The rich have untrammelled power” and what Ayn Rand was really arguing for).

    By the way, it is a disappointment to learn that George Monbiot’s articles contain false citations and are therefore unreliable. He has done some good campaigning on climate change and the Iraq war.

  • Graeme,

    Hayek in “The Road to Serfdom (1944)”, grudgingly accepts the possibility that some “free” countries might find it necessary to set up a bare-minimum catastrophic social insurance program limited to the very neediest, so long as the benefits do not incentivize productive members of society to abandon free-market retirement savings or medical insurance.

    Hayek’s attitude toward social insurance hardened considerably by the time he published “The Constitution of Liberty (1960)”. He devoted an entire chapter—titled “Social Security”—to denouncing the modern welfare state as a gateway to tyranny and moral decay.

    In his preface to the later 1976 edition of “The Road to Serfdom”, he retracted his earlier limited concession that a social security safety net may be warranted stating – . “I had not wholly freed myself from all the current interventionist superstitions, and in consequence still made various concessions which I now think unwarranted.”

    Frederick Hayek was undoubtedly one of the great economic thinkers of the Twentieth Century and the Austrian School does much to explain the monetary causes of business cycles. The issue, however, is that economics as a science is useless unless it is applied in the wider context of Political economy. This is where the Austrian school fails as a practical aid to public policy development as compared with Keynes analysis of investment uncertaintity in his General theory and our subsequent understanding of demand management and business cycle theory.

  • Matthew Huntbach 23rd Apr '12 - 2:39pm

    Richard, what I find most ludicrous is quite well expressed in the words you used “the percentage of our working time we are not freely working for ourselves (under threat of violence from the tax office)”. Now, the idea that when I am working to pay that part of my taxes which finances the NHS I am a slave, but if there were no NHS and I was paying some sort of medical insurance I would be wholly free, is to me ludicrous. I don’t feel some whole new sense of freedom because I pay electricity and gas and water bills to private companies whereas when I was younger they were state owned.

    Now it would seem to me if I own nothing but my own body, I am almost a slave, particularly in this modern world when many of the avenues that were open for people who had nothing but their bodies to make use of them to earn money have gone. Rand’s stuff works better perhaps in the US, where they still have a folk memory of there being a wild wst frontier, so anyone squeezed out could go and grab a chunk of land for themselves beyond it. In England we know all our land was parcelled out in 1066. Rand completely ignores the huge impact on our real freedom of what we own – we are far more free if we own a lot than if we own nothing.

    I don’t particularly feel I am “freely working for myself” when I am working in my paid job. I am doing it because I have to do it to make enough money to get buy comfortably. Most people don’t have the luxury of a grat choice of job options. Many people carry on working in jobs they hate because they have to in order to earn money. To the extent that the state provides me with a safety net should I lose my job, it guarantees me some freedom. In Rand’s world, as it is now in many parts of the world, people have to sell themselves into slavery and degradation in order to get what is needed to stay alive. To suppose that is true “freedom” is, well let’s be kind and just say “nutty”.

  • Matthew Huntbach 23rd Apr '12 - 4:18pm

    (perhaps similarly to you, Matthew, as a Catholic and Lib Dem I assume you have read the bible and it influences but doesn’t define your political beliefs)

    I had meant to say something on this previously. Catholicism is not based on the Bible. So your question makes no sense. I’m not some frigging Protestant.

  • Richard Swales 23rd Apr '12 - 10:04pm

    About health and utilities I broadly agree. I would add that I don’t see why it is “private” if a foreign government owns a British utility through it’s sovereign wealth fund or its own nationalised utility, but “public” if the UK state owns it, or why it matters particularly. Raw calculations about the size of the state are pretty misleading anyway (a tax deduction and a benefit are equivalent in practice but the second looks like a bigger state) and aren’t the same as the amount of power the state has, which isn’t the same as the amount of power it uses. On the other hand I think a lot of government intervention is unjustified. When I started my first language school in Kosice, Slovakia, of the 30 schools odd one of the most expensive was being run at the expense of the British government for no reason at all.
    Health systems generally have the feature that you work and pay for other peoples’ treatment and when you get old and sick you later find out if the illness you get or the tablets you need are going to be covered or not. This applies equally to state and private systems (I disagree with Rand using this specifically as a criticism of state systems), the only difference is that if you are right-wing then you prefer to hear the bad news from an evil profit-motivated HMO, whereas if you are left-wing then you prefer to hear it from an Obama death-panel. Like most people in Europe I fall into the second camp, which makes me left-wing at least in terms of healthcare.

    You have computer skills, so you can do all kinds of work for other people – whether through employers or other agents or by offering your skills direct to the public. If you feel you need a safety net you can insure yourself against unemployment privately or save. In any case state unemployment benefits don’t last indefinitely and I’m sure that in your career you have already paid in far more than they would ever let you take out. If you had been allowed to whack the money into a savings account you would have a safety net worth talking about. I don’t see that you need to compel people. (Longer term poverty than the jobseekers system deals with is a different matter of course). Also as a Liberal Democrat, even if you own nothing, you still have leaflet delivering skills. Six years ago I was unemployed and owned nothing but instead of going to sign on I went to the printers and delivered 24000 leaflets, to get the first clients for the business I now run employing 10 people – so no, if you own nothing you are not a slave, and that you would rather sign on rather than make your own job is not a claim on the work of others – I am appalled when I see party leaders describing any kind of evening off my position with that of the guy who signed on 6 years ago as “fairer taxes”.

    On the Catholic thing – it wasn’t a question, my only point is that my politics cannot be described simply as “Objectivist” any more than yours can be described as “Catholic” – they are simply my own views as your views are also your own.

    About land and other resources, I don’t have a problem with land taxes at all. A society and/or a people occupy a territory because at some point some king, chief or government was able to clear the previous occupiers off it. What land has been given or sold to individuals was always “owned” on the basis that it was still part of the state and subject to later taxation. To suddenly say “things should not be taxed” would be effectively to give away as a freebee a kind of title to land which was never previously held by the “owners”. Land isn’t owned in the same way as I own a tooth that falls out of my mouth or a book I write.

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