Friday, December 21, 2007

Greenspan, Rand and Reality

NY Times columnist and economist Paul Krugman has a piece up today the housing bubble. I found it an interesting read, particularly this passage discussing Ayn Rand's influence on Alan Greenspan:

In a 1963 essay for Ms. Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”

I have read before about Greenspan's allegiance to Rand's philosophies, particularly her belief in "unfettered capitalism" (Krugman's term). Krugman goes on to discuss how such a belief might have led Greenspan to discourage economic regulation in general and encouraged the bubble to develop.

Greenspan's belief in the honesty of businessmen seems naive to me. Yes, there is some level of truth to it when one is thinking about small, local businesses. It might also be true if all businesses always weighed long-term benefits/cost with the same care they weigh short-term gains.

In an ideal world this would extend to large, faceless corporations as well .... but it doesn't of course.

In an ideal world, where everything is transparent, maybe all businesses and businessmen could be trusted to do the right thing. However, in the real world (you know, the world where we don't "make our own reality"), given enough leeway large businesses inevitably seem to find a way to push beyond the boundaries. Ultimately, when everything goes bad, it never seems like those who most contributed to the problem end up being those who suffer most.

In an ideal world, unfettered capitalism might work, and markets might be perfectly efficient, and everyone might earn rewards in proportion to their hard work, and life would always be sunny and bright.

In the real world, market-based incentives are not always best, incompetence and nepotism thrive ... and sometimes capitalism needs to be fettered. Unless there is some realistic expectation of suffering consequences, businessmen have, with sad consistency, demonstrated a willingness to engage in improper behavior in order to rake in immediate profit, as long as it was others who were suffering any costs which might be entailed.

Rand herself was never able to live up to the ideas her philosophy espoused. Why Greenspan would expect "every businessman" to be rise to these standards, I don't know. I do know history had already demonstrated many counter-examples to his claim when he originally made it, and is in the process of showing to him once again just how misguided his beliefs were.

33 comments:

x4mr said...

Sirocco,

Excellent post. You really, really should watch "The Corporation." I don't care what it takes. See the film. If you don't I'll have to hire or bribe to learn your identity, abduct you, and force you to watch it.

Since I already have you, I will then inflict "Inland Empire" on you.

Seriously, see "The Corporation."

It powerfully slam dunk refutes the Rand notion of corporate behavior. I love Rand's fiction, but its practical application is more complicated.

The reality is that we need an entirely new paradigm for the organization of human endeavor on the planet. That's a subject for another occasion.

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