Posted by: Dirk | September 15, 2007

Alan Greenspan, Ayn Rand, William Easterly and Hugo Chávez

Alan Greenspan, the Federal Reserve’s Ex-Chief, will publish his book The Age of Turbulence: Adventures in a New World on Monday. It seems that he was a big fan of Ayn Rand’s literature. The NY Times devoted an article to her literature today. Coincidentally, I just finished reading Ayn Rand’s Atlas Shrugged (1957). I think this is maybe the main work, combining all pillars of Rand’s idea of living (which is called objectivism, by the way). Let me give you a short and incomplete review. (This still is a spoiler!)

The book starts in a capitalistic society. The main person, Dagny Taggart, runs a railroad. She really loves it, and does anything to maintain and improve it. She is very straightforward in her actions and thoughts. So is Hank Rearden, owner of a mill producing Rearden steel. His invention of it makes him a monopolist, he charges high prices. Taggart and Rearden make a deal nevertheless, Rearden needs to complete a first project to show off his product’s advantages, and Ms Taggart needs a bridge.

The society around them changes, and Washington is taken over by people who want to help those people in need. They proclaim that a society delivering goods according to need is superior to a society delivering goods through markets. Markets, they say, are full of greed and egoistic people. The egoistic industrialists would live by gaining windfall profits at the cost of society. Therefore, the new people in Washington start to convert the economy into a central planning, Soviet-style economy.

Industrialists find it hard to make a profit with all the red tape and political demands. Profits are shrinking. The entrepreneurs vanish from the earth. They start a new life in a hidden valley, having their own currency. The outside society fixes wages and prices, also people are not allowed to switch or leave their jobs. This is obviously slavery. Ms Taggart is the last entrepreneur standing, the others try to persuade her to join them. Without entrepreneurs and the goods and services they produce, the economy comes to a stand still. It falls apart, making it clear that the system relied on the ruling class exploiting both the entrepreneurs (robbed of profits) and the workers (or slaves).

The book reminded me of Schumpeter’s Capitalism, Socialism and Democracy (1942). Ayn Rand covers more ground, connecting the macro story of markets with the micro story of individuals pursuing their happiness. (The book also features a love story.) Another recent book that takes up the same issues is William Easterly‘s The White Man’s Burden (2006). Easterly writes about how ‘the white man’ tried to help developing countries to reach prosperity. He divides the helpers into two categories: seekers and planners. Seekers are of the entrepreneur type, looking for ways to make some money. They are in Rand’s sense egoistic. Planners think that they can create plans that will work for the benefit of the people. These resemble the people that took over Washington in Rand’s book.

In Easterly’s opinion, seekers are more successful than planners. His main points is accountability. Politicians from developed nations can set all sorts of goals, but they are not accountable. If the Millennium goals are not reached, then nothing will happen to the people who came up with them. On the other side, entrepreneurs that sell goods and services in developing nations will be held accountable. If people are unhappy with them, they will stop making deals with them. The same for local politicians. If they use money to build schools, people would vote for them again. If they just stuff money into their own pockets this will be unpopular. (Introducing democracy is not so easy, however, the mess in Iraq just proves the point).

Now, all this reminds me of the situation in countries like Zimbabwe, or Venezuela. The apocalyptic scenario at the end of Atlas Shrugged seems to be very close to Zimbabwe today. Also, Venezuela might be on this track. Many entrepreneurs and middle class people are leaving the country. The state sector grows at expense of the private sector. Of course, oil revenues will pay for most of this, and it does not seem that the oil price will go down in the near future. I think that Venezuela’s economy is more or less stable, but the main problem might be the change of attitudes. The mix of more planners and less seekers probably produce economic difficulties in the future. Chávez surely puts a lot of people out of poverty with his oil revenues, but will there be an economy left to employ them? This, in my view, is the major question for Venezuela’s future.

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Responses

  1. Hi!

    Ayn Rand’s Atlas Shrugged (La Rebelión de Atlas, en castellano)
    könnte auch 100% Argentinien sein. Leider.
    Was Greenspan betrifft, ich kann das folgende nicht aus meinem Kopf wegnehmen:

    REP. HENRY WAXMAN: Do you feel that your ideology pushed you to make decisions that you wish you had not made?

    ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not.

    And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.

    REP. HENRY WAXMAN: You found a flaw in the reality…

    ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

    REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?

    ALAN GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

    (Ich nahm das letzte von: http://pragcap.com/resources/understanding-modern-monetary-system)

    BTW, ich habe heute zufälligerweise dein Blog endeckt. Ich fiunde es interessant.

    M.f.G.

    Francisco


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