Recall, Atlas Shrugging from Washington Policy Hounds

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I recently found the following opinion piece that, although written two years ago, presents the case of Washington policy hounds in strikingly luminous and parallel fashion to Rand’s magnum opus.

“For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

The relevance of Rand’s masterpiece half a century after its entrance into the public forum is evident in two ways.  First and foremost, we are living its story.  Secondly and subsequently, the controversy over Rand’s ideas has grown to magnificent proportions since 2008.  Whether you are for or against Rand’s philosophy of Objectivism, one thing remains clear.  The more the government meddles, the more the government is called to meddle.  So the question is to examine whether such meddling has been more beneficial or harmful. What has such meddling produced beyond additional calls for government stimulus, bailouts, and tax reform?  Most recently and attributable to the heavy hand of government fiscal policy and the Federal Reserve’s perpetual devaluation of the dollar – the world’s reserve currency – is the S&P downgrade of U.S. credit.  While many mainstream Washington pundits attempt to rationalize S&P’s move, I suspect they do so in modest aspirations to avert potential panic among investors; this of course makes sense.  However, what they overlook is the more fundamental implications of such a downgrade, instead maintaining by a posteriori logic that U.S. credit is still good to foreign investors like China and Japan from the simple fact that they have nowhere else to invest.  But a credit downgrade of this type carries with it much deeper implications that cannot be shucked aside due to the dollar’s preeminent place in the global markets.  Indeed it is for this very reason why investors, foreign and domestic, should be concerned.  The implication is this: when the dollar fails due to government mismanagement, whether from loose fiscal or monetary policy, the entire global financial network, due to the dollar’s preeminent place in it, will surely follow.     There will be no “stimulus-effect,” no bailouts, nor any liquidity because to a large degree, global liquidity is furnished by the dollar.  To deny this, is to assume some other universal currency will provide a safe haven for investors.  Perhaps gold, but such a shift still necessitates the destruction of the dollar, U.S. Treasuries, and much of the wealth of our nation.

It should become quite clear at this stage that government interference in the economy – whether one calls it Keynesian economics, deficit financing, or stimulus spending – encroaches upon and binds up the free-market.  Such programs as the $700 billion Emergency Economic Stabilization Act of 2008 (H.R. 1424), the Auto Industry Financing and Restructuring Act of 2008 (H.R. 7321; note that this bill was never voted on in the Senate, but was passed in the House), the American Recovery and Reinvestment Act of 2009 (H.R. 1), and the most recent Budget Control Act of 2011 (S.365) with its 13-member ‘Super Congress’ have failed to generate adequate job growth.  Instead, the national debt has grown to proportions even Washington is unable to manage.  Much can be gleaned from the general descriptions of these bills.  For example, H.R. 1 is summed up as follows: “Making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization.”  Job creation and investment are primarily functions of the economy, not government, while assistance to the unemployed – when done in perpetuity – only exacerbates natural market fluctuations, which delays natural readjustment by the market.  Moreover, state fiscal stability, so long as it lies at the federal level negates the very core conception of statehood.  If I live in Georgia and decide I do not agree with its policies, I can move to Oregon.  But if both states depend too heavily on federal sustenance, where does one go?  Where has one’s choice gone?  The end result here is statism, whereby the State (i.e. the federal government) controls most aspects of private life.  Economic policy that negates market principles in place of political ideals inevitably fails because this is to replace principles grounded in reality (i.e., the market) with those conjured from the depths of human emotion.  While not the only avenue of statism, this is arguably its most far reaching.

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The ideological and practical implications of this are enormous for Republican government.  It is critical to realize that the more a people rely on their government, the less freedom they allow themselves.  I am reminded of Hobbes’ classic political tract written in defense of the monarchy during one of England’s most turbulent times.  I am reminded of this because Leviathan assumed the natural inferiority of the people to their government and the doctrine of the “Divine Right of Kings.”  He argued the necessity of an absolute monarchy, lest we fall back into the “state of nature,” whereby the weak succumb to the brute force of the strong.  I recall the cover of Leviathan (seen left), whereby the body (the people) is incomplete – dysfunctional – without the head (the state).  The political (post-9-11) and cultural (welfare-dependence) ideologies of America today resemble more closely than at many times past the traditional justification of the authoritarian state called from the necessity for stability and safety. This ideology is highly antiquated.  Hobbes published this tract in 1651, yet we still see today the fear-mongering that has become the cornerstone of big government.  The state is quickly becoming the sole arbiter of private disputes, the sole thinker of our generation.  Rand once stated that “A country without intellectuals is like a body without a head” (For the New Intellectual, p. 12).  What she meant was that a generation without those willing to think and judge will sink beneath the weight of government.

Gold, The Only Objective Standard of Value

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The following is a seminal passage from Ayn Rand’s Atlas Shrugged.  As Francisco explains the importance of money as the only moral base for man’s existence, he highlights an inevitable fact we would all do well to recognize from current trends resulting from both fiscal and monetary policy coming out of Washington and the Federal Reserve respectively – the declining value of our fiat money.

“Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence.  Destroyers seize gold and leave to its owners a counterfeit pile of paper.  This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.  Gold was an objective value, an equivalent of wealth produced.  Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.  Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtues of the victims.  Watch for the day when it bounces, marked: ‘account-overdrawn’.”

Atlas Shrugged, 383-84

The “legal looters,” are of course those in Washington, and yes, I mean to include everyone because if you are not part of the solution, then you must by logical necessity be part of the problem.  The account “which is not theirs” is of course that of the taxpayer.  S&P’s recent downgrade of U.S. credit is evidence that the “day when it bounces, marked: ‘account-overdrawn'” is not so far off.  Also interesting to note is that gold recently topped $1800 per ounce following S&P’s announcement and a highly volatile market here at home and overseas.  It only makes good sense that the value of gold would climb as the value of the world’s reserve currency no longer commands the highest credit rating.

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Economic Cannibalism: A Lesson from the Soviets

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Simon Black’s June 14th article entitled “What are the Social Implications of Economic Collapse?” makes a clear-cut diagnosis of America’s imminent fall from its economic pedestal.  The point of no return is passed according to Black.  Foreign buyers of Treasury securities are undoubtedly nervous over the credibility of U.S. debt, and as we lose their business the only option for Washington is to turn up the printing press at the Federal Reserve.  Deficit spending has evolved into an all-out race to the bottom of the dollar.  The diagnosis is in.  Massive inflation and an attempt to continue government austerity via higher taxation will erode much of America’s purchasing power along with her savings.  The final result will be what Black and many others have termed economic cannibalism.  On this, Black makes a poignant reference that bears the full light of Ayn Rand’s vision as laid out in Atlas Shrugged.

In the best traditions of Atlas Shrugged, the government will continue its persecution of the productive class– professionals, investors, entrepreneurs, and skilled workers. Existing taxes will rise, new taxes will be created, trade barriers will be enacted, and a maze of cost prohibitive regulations will be passed.

In the private sector, the results will be stifled incentive, which translate into a serious lack of innovation and growth.  The public however will see still worse effects:

When inflation eats away at a family’s already meager standard of living, when austerity eliminates the benefits to which recipients have grown accustomed, when default vanquishes a retiree’s savings, when high taxes make workers feel like they’re just government serfs– this is when the real turmoil will begin.

Why do we continue down a path to ruin when it is so clearly lit by the beacon of bankruptcy?  One may be so bold as to draw a useful comparison between the fiscal inadequacies of the U.S. over the past two decades with that of the Soviets.  In 1982, President Reagan in a June 8th address to the English House of Commons, said with a wagging finger, “the Soviet system pours its best resources into the making of instruments of destruction.  The constant shrinkage of economic growth combined with the growth of military production is putting a heavy strain on the Soviet people.  What we see here is a political structure that no longer corresponds to its economic base, a society where productive forces are hampered by political ones” (my emphasis).  One may argue then, that the U.S. system of government no longer “corresponds” to the economic realities that dictate pragmatic policy.  Our political structure instead ignores  the logical implications of its policies in favor of safeguarding political interests, thus rendering such policies and the political structure itself highly illogical and contrary to our best interests.

So as we continue to look to government for solutions, perhaps we should ask ourselves if government is itself the source of the problem.  America has gone through many changes in its lifetime, but never has the social and ideological fabric been altered so drastically as since the Great Depression and the beginning of the American welfare state.  Since then, deficit spending (printing money in the name of economic recovery and future stability), government austerity, and continually growing defense spending has left America desperately insolvent, while declining investments in education and a shrinking middle class has left many clinging to the bosom of government like newborn pups.  This is not democracy.  This is not liberty.  It is the natural evolution of the welfare state.

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