Universal Translator

Tuesday, November 8, 2011

Ayn Rand: Getting it Completely Backwards

Saint Petersburg in revolt gave us Vladimir Nabokov, Isaiah Berlin, and Ayn Rand.  The first was a novelist, the second a philosopher.  The third was neither but thought she was both.

                                                --Corey Robin
                                                The Reactionary Mind

It’s been a long time since I read it – because it has been a long time since I was an idiot adolescent – but I recall that there is a scene toward the end of Atlas Shrugged in which Rand’s ragtag team of superhero industrialists, flying in a plane, look down and see the lights of New York begin to go out.

In Rand’s narrative, you see, the Mighty 1%™ had chosen to withdraw their creativity, their entrepreneur-based superpowers, their special genius . . . and now New York and the entire world would go dark.  That’d show the rest of us!

In the Real World, another narrative is shaping up.  The ending is similar, but the story is very, very different.

In the Real World, the narrative runs like this . . . .

From WWII until the Rise of Reagan the United States operated under a fairly progressive income tax.  As one’s income increased, the marginal tax rate one paid on that income increased as well.  These tax monies were then plowed back into American society and they paid for wondrous things.  Interstate highways and infrastructure!  Medicare and Medicaid!  Unemployment Insurance!  Public Education!  The Center for Disease Control!  The FAA, the EPA, the USDA food safety inspectors!  The FBI, the CIA, and the world’s finest military superpower!!

(Your mileage may vary on that last one.)

And in a process that economists refer to as “The Great Contraction” the United States grew into a prosperous nation, with a thriving middle-class.  There were still the rich and the poor, sure, but the division between the very rich and the very poor was not so large as it had been, and there were a lot of happy people quite content to live lives of economic security as part of the vast American middle-class.

But then the fairly rich began to wonder why they weren’t richer, and began to chafe under what they considered to be “punitive” tax rates.  They elected a genial B-movie actor who had spent his professional career largely being upstaged by a chimpanzee, and they demanded that he use his magic Hollywood skills to get them a better tax deal.  And oh Boy! did he.

IIRC, when Ronald Reagan swept into office the top marginal tax rate was 70%.  By the time he left that rate had been cut nearly in half.  Capital gains tax rates had been slashed and we were beginning to hear that rich dead people shouldn’t be taxed either. 

(Which, when you think about it, is really weird – who better to tax than dead people?  They aren’t going to miss it.  But of course it wasn’t the dead people who were lobbying to not have their fortunes taxed, it was the blood-greedy heirs of the dead people who reasoned that – if the government didn’t get the money – then they would.  This marked the beginning of the campaign to repeal the estate tax.)

But, of course, there is a problem with slashing taxes like this, at least if one looks at the situation from a systems-based perspective.  If rich people keep more of their money, they tend not to pump that money back into the economy.  After all, they don’t really need to buy much more stuff.  Instead, they buy financial – not economic – investments, like bond portfolios.  This sucks money away from actually productive ventures.  Money becomes a way to own things, but not a way to make things, build things, innovate new things, or employ people.

Making sure rich people have a whole lotta money also means that they now have a whole lotta money to further their own agenda – which, in this story, involves demonizing the very idea of taxes.  After before too long taxes of any kind, levied for any reason, were no longer recognized as simply the dues one has to pay to be a well-regarded member of Club America.  Before too long they were regarded as nothing less than Uncle Satan’s Unholy Spawn, things to be avoided as much as possible lest one be rendered unclean by the mere touch of such filth.

Besides . . . by this point it’s not like the 1% needed to worry about the quality of public services.  Now that taxes have been so low, for so long, the 1% have been able to amass plenty of money to purchase whatever services they need from the private market.  And I don't just mean they send their kids to private schools, or they don't have to fly commercial.  In California, the 1% have their own private firefighters appear whenever wildfires threaten their homes.  Only “the little people” need to worry about things like safe food, safe airlines, police, fire departments, or good public schools.

And the rub is that – now – whether “the little people” want such things or not no longer counts.  Because the 1% can afford their own political system as well.  If “the little people” can’t afford a political system of their very own . . . well, then, the market has spoken.

* * *

California – by some measures the world’s 5th largest economy – amended its State Constitution some time ago so as to effectively render the raising of taxes impossible.  California is now effectively bankrupt, but large enough – like most of our Too Big to Fail Banks – to be able to keep masking that fact for a little while longer.

And, today, I heard two stories on NPR about life in modern-day middle America. 

As to the first, if I understand the situation correctly, the Indiana state legislature passed a law some time ago that severely restricts its municipalities’ ability to increase property taxes.  (The reporting was a little vague; NPR kept referring to the Indiana “voters,” but subsequent statements seemed to make it clear that the measure was passed by Indiana legislators.)

Which means that in some areas of rural Indiana – for example, Franklin Township, outside of Indianapolis – parents no longer can send their children to school via school bus unless they pay $40 to $50 per student per month for the privilege of doing so.  Which means a two-income, working-class family with two school age children needs to come up with an extra $960 to $1200 per year to get the kids to school, or else one of the two parents is going to have to work out an arrangement with his or her boss so they can drive the kids to school in the morning – and pick them up again afterward – without losing their jobs.

The second story was about a place called Rockford, Illinois, which is now forced to get rid of 15% of its streetlights because it just can’t afford to provide electric lighting any longer.  Not only are the town’s streetlights going dark but, because these lights are owned by the local utility company, that company has been going around to the lights that have been shut off and stripping them down for parts.

I should note that this is the second time I have heard this kind of story in less than a week.  Only a few days ago I was reading an article about a town in Michigan named Highland Park that has lost its public lighting in its entirety.  Just as with the town in Illinois, the Michigan burg’s streetlamps were being similarly stripped by the local utility.  The NPR story about Rockford, Illinois mentioned Highland Park, and also a place called Clintonville, Wisconsin, which similarly is getting rid of its streetlights.

Let me repeat that:  the streetlights in American townships are being turned off and stripped for spare parts. 

* * *

In the end, perhaps Ayn Rand did correctly predict America’s final outcome, though not that outcome’s cause.  The lights are indeed going out in the United States of America . . . not because we took too much from the 1%, but because we started taking too little.

Maybe under our new Randian Robo-Overlords we do need a new national Motto:  The United States of America – We Can’t Afford Lights.

Thanks, Ayn, you friggin’ idiot. 


  1. The problem isn't the taking...it's the spending. When you purchase a TV or make a donation to UNICEF you implicitly understand that the money you spent can't be spent on all the other goods that you value. This forces you to prioritize your spending in order to maximize the benefit that you derive from your spending decisions. This is the opportunity cost concept.

    Consumers considering the opportunity costs of their allocation decisions is what ensures the efficient allocation of resources.

    Congress considers opportunity costs of their spending decisions...but there are two basic problems. 1. They are spending other people's money. 2. They don't have enough information.

    Just like no two private goods that you can purchase will provide you with the exact same benefit...no two public goods that congress can purchase will provide our country with the exact same benefit.

    Given the two basic problems with congress there is no guarantee that their spending decisions will provide our country with the maximum benefit. The only way we can ensure that public goods would be efficiently allocated was if each and every taxpayer was allowed to directly allocate their taxes.

    If you're interested in learning more here's my blog entry on the topic...the opportunity costs of public goods.

  2. IMO, what is needed is a shift in people's worldview that respects the sanctity of the individual within society, coupled with the knowledge that a society (a collection of individuals living in social cooperation) achieves its highest aspirations when people are free to pursue their values in ways that give them purpose.

    Swellsman said:

    "Instead, they buy financial – not economic – investments, like bond portfolios. This sucks money away from actually productive ventures. Money becomes a way to own things, but not a way to make things, build things, innovate new things, or employ people.

    If people weren't willing to buy bond portfolios, the cost of funding capital-intensive projects (like retrofitting a factory with more efficient machinery) would be more expensive and less common, reducing the marginal productivity of labor and thereby dampen the wages of employees. Banks and other financial institutions act as intermediaries between people who have abstained from consumption and those who believe they can use that money more effectively (by investment, in the case of bonds) than it would otherwise cost them for saving that money on their own. So no money is "sucked" from the economy; it is allocated by means of a market's decentralized, mutually beneficial process of economic calculation (the price system).

    I just want to touch on two other points. Granted, marginal tax rates were higher in the past, but it was also the case that a small fraction of people paid those high rates (partly due to various deductions and exceptions). Therefore, the capital-destroying nature of confiscatory tax rates were not really felt. Side note: one reason governments tend to like monetary inflation is because it creeps people into higher and higher tax brackets even though wages stay flat.

    As the state has escalated its interventionist control of people's lives, often at behest of big business, the increased productivity of our economy is devoured by the collaboration between big business and big government. That is one fine point made in Atlas Shrugged.