The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."Ayn Rand predicted our current troubles well. This is the biggest problem with the handling of this crisis. Monetary and fiscal policies evidently should be used skillfully and to their full extent, but the crisis should not be used as an excuse to eliminate correct economic incentives that have always worked fine. It should always be kept in mind that incentives matter. To disrespect this basic principle of economics will not help us to get out of this crisis, it'll only postpone its solution.
Tuesday, January 13, 2009
In this recent post I talked about the connection between rock band Rush and Ayn Rand's ideas. Coincidentally, the Wall Street Journal published an excellent article by Stephen Moore a few days ago where he uses insights from Rand's Atlas Shrugged, first published 52 years ago, to interpret the current crisis. Here's one relevant passage: