Ayn Rand died more than a quarter of a century ago, yet her name appears regularly in discussions of our current economic turmoil. Pundits including Rush Limbaugh and Rick Santelli urge listeners to read her books, and her magnum opus, “Atlas Shrugged,” is selling at a faster rate today than at any time during its 51-year history.
There’s a reason. In “Atlas,” Rand tells the story of the U.S. economy crumbling under the weight of crushing government interventions and regulations. Meanwhile, blaming greed and the free market, Washington responds with more controls that only deepen the crisis. Sound familiar?
The novel’s eerily prophetic nature is no coincidence. “If you understand the dominant philosophy of a society,” Rand wrote elsewhere in “Capitalism: The Unknown Ideal,” “you can predict its course.” Economic crises and runaway government power grabs don’t just happen by themselves; they are the product of the philosophical ideas prevalent in a society — particularly its dominant moral ideas.
Why do we accept the budget-busting costs of a welfare state? Because it implements the moral ideal of self-sacrifice to the needy. Why do so few protest the endless regulatory burdens placed on businessmen? Because businessmen are pursuing their self-interest, which we have been taught is dangerous and immoral. Why did the government go on a crusade to promote “affordable housing,” which meant forcing banks to make loans to unqualified home buyers? Because we believe people need to be homeowners, whether or not they can afford to pay for houses.
The message is always the same: “Selfishness is evil; sacrifice for the needs of others is good.” But Rand said this message is wrong — selfishness, rather than being evil, is a virtue. By this she did not mean exploiting others à la Bernie Madoff. Selfishness — that is, concern with one’s genuine, long-range interest — she wrote, required a man to think, to produce, and to prosper by trading with others voluntarily to mutual benefit.
Rand also noted that only an ethic of rational selfishness can justify the pursuit of profit that is the basis of capitalism — and that so long as self-interest is tainted by moral suspicion, the profit motive will continue to take the rap for every imaginable (or imagined) social ill and economic disaster. Just look how our present crisis has been attributed to the free market instead of government intervention — and how proposed solutions inevitably involve yet more government intervention to rein in the pursuit of self-interest.
Rand offered us a way out — to fight for a morality of rational self-interest, and for capitalism, the system which is its expression. And that is the source of her relevance today.
In his address to the joint session of Congress, President Obama said that “We cannot shun the negotiating table” in conducting our foreign policy. He’s previously elaborated that “if countries like Iran are willing to unclench their fist, they will find an extended hand from us.” And Iran’s president Ahmadinejad tentatively welcomes “talks based on mutual respect and in a fair atmosphere.”
The shared idea, evidently, is that our conflict with Iran stems largely from a past failure to use so-called diplomacy to settle disputes. Alluding to George W. Bush’s supposedly tough policy, Obama has said he wants to restore “the same respect and partnership that America had with the Muslim world as recently as 20 or 30 years” ago.
Really? Thirty years ago this November, followers of Ayatollah Khomeini, who spearheaded Iran’s Islamic revolution, stormed the U.S. embassy in Tehran and took the personnel hostage. President Carter gently admonished Iran, but ruled out military retaliation. Instead his advisors spent months dreaming up schemes to bribe Iran into releasing the hostages — while bending over backward to enable the regime to save face. In the end Khomeini’s Islamist theocracy collected a handsome payoff for its aggression, and concluded, rightly, that if attacked, America would crumple to its knees.
Was Obama thinking of the 1980s? In April 1983 Iran’s jihadist proxies in Lebanon rammed a truck bomb into the U.S. Embassy in Beirut; the Reagan administration responded by doing nothing. Months later, encouraged by Washington’s inaction, Tehran issued a kill order — via its ambassador in Syria — to its allied groups in Beirut. Early one morning, an Islamist suicide bomber set off a massive explosion at the barracks where U.S. marines were sleeping and killed 241 of them.
Reagan spouted hot air about not backing down — and soon after ordered the U.S. troops to bug out. The jihadists wanted America out, they slaughtered our troops, and we caved in and gave them what they wanted.
Osama bin Laden, like jihadists in Iran and elsewhere, viewed our response to the Beirut bombings as further proof that their ideologically driven war was a viable cause. And so, inspired by Iranian aggression, the anti-American jihad kept ramping up.
Maybe Obama meant the fabled halcyon days of the 1990s, when President Clinton tried to mend fences with Iran?
In 1996 a team of jihadists — financed and trained by Tehran — blew up the Khobar Towers building in Saudi Arabia, killing 19 American servicemen. Clinton’s administration learned that Iran was behind the attacks. But Washington brushed aside any notion of retaliating against Iran, in order to facilitate a “reconciliation” with that murderous regime. In an eerie parallel with today, Iran expressed its openness to U.S. groveling — an opportunity Clinton seized.
So, Clinton attended a speech by Iran’s leader at the U.N.; the administration also permitted the sale of much-needed aircraft parts to Iran, among other sweeteners. Granted the cover of respectability, Iran was emboldened to continue fomenting Islamist aggression and avidly pursue its then-embryonic nuclear program.
Obama’s appeasing diplomacy re-enacts the disastrous policy of the past. Our policymakers evaded Iran’s character as an enemy, and by rewarding its aggression with bribes and conciliation, they encouraged a spiral of further attacks.
No. Bush was no exception to this trend. After 9/11 his administration invited Iran — the leading sponsor of Islamist terrorism — to join an anti-terrorism coalition(!). Talk of an axis of evil was quickly abandoned, and Washington backed the European scheme to bribe Iran to halt its nuclear program. By late last year, there was talk of opening a U.S. Special Interests Section (a step down from an embassy) in Iran. Meanwhile Bush’s welfare mission in Iraq negated U.S. security and left Iran untouched to grow more powerful and resolute.
A genuinely new, rational policy toward Iran would turn away from the last 30 years and begin by facing up to Tehran’s ongoing proxy war against us.
Will a green energy industry be an engine of economic growth? Many want us to think so, including our new President. Apparently a booming green economy with millions of new jobs is just around the corner. All we need is the right mix of government “incentives.”
These include a huge (de facto) tax on carbon emissions imposed through a cap-and-trade regulatory scheme, as well as huge government subsidies for “renewable,” carbon-free sources. The hope is that these government sticks and carrots will turn today’s pitiful “green energy” industry, which produces an insignificant fraction of American energy, into a source of abundant, affordable energy that can replace today’s fossil-fuel-dominated industry.
This view is a fantasy — one that could devastate America’s economy. The reality is that “green energy” is at best a sophisticated make-work program.
There is a reason why less than 2 percent of the world’s energy currently comes from “renewable” sources such as wind and solar — the very sources that are supposedly going to power the new green economy: despite billions of dollars in government subsidies, funding decades of research, they have not proven themselves to be practical sources of energy. Indeed, without government mandates forcing their adoption in most Western countries, their high cost would make them even less prevalent.
Consider that it takes about 1,000 wind turbines, occupying tens of thousands of acres, to produce as much electricity as just one medium-sized, coal-fired power plant. And that’s if the wind is blowing: the intermittency of wind wreaks havoc on electricity grids, which need a stable flow of power, thus requiring expensive, redundant backup capacity or an unbuilt, unproven “smart grid.”
Or consider the “promise” of solar. Two projects in development will cover 12.5 square miles of central California with solar cells in the hope of generating about 800 megawatts of power (as much as one large coal-fired plant). But that power output will only be achieved when the sun is shining brightly — around noon on sunny days; the actual output will be less than a third that amount. And the electricity will cost more than market price, even with the life-support of federal subsidies that keeps the solar industry going. The major factor driving the project is not the promise of abundant power but California’s state quota requiring 20 percent “renewable” electricity by 2010.
More than 81 percent of world energy comes from fossil fuels, and half of America’s electricity is generated by burning coal. Carbon sources are literally keeping us alive. There is no evidence that they have — or will soon have — a viable replacement in transportation fuel, and there is only one in electricity generation, nuclear, which “green energy” advocates also oppose.
We all saw the ripple effects last summer when gas prices shot above $4 per gallon, and higher transportation costs drove up prices of everything from plane fares to vegetables. If green policies cause a permanent, and likely far greater, hike in the cost of all forms of energy, what shockwaves would that send through our already badly damaged economy?
We don’t want to find out.
Regardless of one’s views on global warming — and there is ample scientific evidence to reject the claim that manmade carbon emissions are causing catastrophe — the fact is that kneecapping the fossil fuel industry while diverting tax dollars into expensive, impractical forms of energy will not be an economic boon, but an economic disaster.
We in developed countries take industrial-scale energy for granted and often fail to appreciate its crucial value to our lives — including its indispensable role in enabling us to deal with drought, storms, temperature extremes, and other climate challenges we are told to fear by global-warming alarmists.
If we want to restore economic growth and reduce our vulnerability to the elements, what we need is not “green energy” forced upon us by government coercion but real energy delivered on a free market.
Vice President of Education and Senior Fellow, Ayn Rand Institute
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Let Bankruptcy Courts Take the Wheel
by Tom Bowden | February 11, 2009
General Motors, having sucked up $9.4 billion of taxpayer cash since Christmas, now desperately craves the remaining $4 billion authorized by President Bush for disbursement in February.
And come March, once that new money has disappeared down the Detroit drain hole, renewed pleas for aid will undoubtedly land on President Obama’s desk. Will the new chief executive emulate Bush, bowing to the anti-bankruptcy sentiment fomented by Rep. Barney Frank, chairman of the House Financial Services Committee, and others who advocate bailing out the Detroit automakers? Or will he let the bankruptcy courts take charge?
“There’s only one thing you can do in bankruptcy that you can’t do outside of bankruptcy — break your word, break your deals,” said Frank in a “60 Minutes” interview. “It allows you to say to the small businesses who have been catering lunches for you, ‘sorry, we’re not paying you.’ It allows you to go to the workers and say, ‘sorry, we’re not paying you.’”
Really? So bankruptcy is a get-out-of-jail-free card that allows treacherous companies to escape payment obligations they would otherwise have to honor? Sorry, Mr. Frank, but that’s a fantasy.
Plodding behemoths like General Motors are not even eligible for bankruptcy until they’ve become insolvent, which means they already can’t pay their bills and have no prospects for recovery. What bankruptcy does is treat the victims of those broken deals fairly — by preventing the bankrupt company from playing favorites among unpaid creditors, and by giving those creditors a big say in the distressed company’s future.
If an automaker can return to profitability by streamlining products, cutting staff, or closing plants, a bankruptcy judge can allow a reorganization. But a company that’s hopelessly floundering may have to be liquidated through an orderly sale of assets, with income paid to creditors according to their existing contract rights.
Yes, Mr. Frank, some creditors walk away from a bankruptcy empty-handed, or collect only pennies on each dollar of debt. Caterers, assembly-line workers, material suppliers, landlords — everyone who does business with a company in a market economy assumes a risk of nonpayment. But that needn’t spell disaster if creditors take steps in advance to confine the pain of bankruptcy within reasonable limits. Wise businessmen check on credit histories, set limits on outstanding balances, and register liens on hard assets. Even unions can protect their members, such as by having pension funds placed in trusts sheltered from bankruptcy proceedings.
Under bankruptcy, the risk of financial loss stays right where it belongs, on those who assumed the risk of non-payment by voluntarily dealing with a badly managed company. But in Barney Frank’s bailout universe, Congress can simply paper over the reality of business failure by shifting those losses to taxpayers, competitors, and consumers — in short, everyone who doesn’t deserve to pay.
This means that if GM’s caterers don’t get paid for the hors d’oeuvres served to CEO Rick Wagoner and his team of corporate bailout beggars, you and I must foot the bill. And if UAW members fear losing the staggeringly high wages and benefits they’ve extorted over decades using pro-union legal privileges, society must ride to their rescue.
But shifting the financial pain of business failure onto society at large is unjust. Most obviously, taxpayers shouldn’t be forced to prop up failing companies’ balance sheets. But other victims abound. Think of the profitable competitors with hard-earned credit standings, watching with justified resentment as badly managed rivals line up at the public trough.
Consumers, too, pay a price for bailouts. Bailed-out firms flood the market with inferior products — GM cars, anyone? — by continuing to own assets that would have gone to making more desirable products if market forces had ruled. Just picture today’s city streets if the horse and buggy industry had been bailed out a century ago.
Is General Motors to become a brain-dead patient in a Federal bailout ward, languishing on tax-funded life support beyond all hope of recovery? Not if Congress steps aside and lets the bankruptcy courts do justice through adjudication.
As environmentalism continues to grow in prominence, more and more of us are trying to live a “greener” lifestyle. But the more “eco-friendly” you try to become, likely the more you find yourself confused and frustrated by the green message.
Have you tried giving up your bright and cheery incandescent light bulbs to save energy — only to learn that their gloomy-but-efficient compact fluorescent replacements contain mercury? Perhaps you’ve tried to free up space in landfills by foregoing the ease and convenience of disposable diapers — only to be criticized for the huge quantities of energy and water consumed in laundering those nasty cloth diapers. Even voicing support for renewable energy no longer seems to be green enough, as angry environmentalists protest the development of “pristine lands” for wind farms and solar power plants.
Why is it that no matter what sacrifices you make to try to reduce your “environmental footprint,” it never seems to be enough?
Well, consider why it is that you have an “environmental footprint” in the first place.
Everything we do to sustain our lives has an impact on nature. Every value we create to advance our well-being — every ounce of food we grow, every structure we build, every iPhone we manufacture — is produced by extracting raw materials and reshaping them to serve our needs. Every good thing in our lives comes from altering nature for our own benefit.
From the perspective of human life and happiness, a big “environmental footprint” is an enormous positive. This is why people in India and China are striving to increase theirs: to build better roads, more cars and computers, new factories and power plants and hospitals.
But for environmentalism, the size of your “footprint” is the measure of your guilt. Nature, according to green philosophy, is something to be left alone — to be preserved untouched by human activity. Their notion of an “environmental footprint” is intended as a measure of how much you “disturb” nature, with disturbing nature viewed as a sin requiring atonement. Just as the Christian concept of original sin conveys the message that human beings are stained with evil simply for having been born, the green concept of an “environmental footprint” implies that you should feel guilty for your very existence.
It should hardly be any surprise, then, that nothing you do to try to lighten your “footprint” will ever be deemed satisfactory. So long as you are still pursuing life-sustaining activities, whatever you do to reduce your impact on nature in one respect (e.g., cloth diapers) will simply lead to other impacts in other respects (e.g., water use) — like some perverse game of green whack-a-mole — and will be attacked and condemned by greens outraged at whatever “footprint” remains. So long as you still have some “footprint,” further penance is required; so long as you are still alive, no degree of sacrifice can erase your guilt.
The only way to leave no “footprint” would be to die — a conclusion that is not lost on many green ideologues. Consider the premise of the nonfiction bestseller titled “The World Without Us,” which fantasizes about how the earth would “recover” if all humanity suddenly became extinct. Or consider the chilling, anti-human conclusion of an op-ed discussing cloth versus disposable diapers: “From the earth’s point of view, it’s not all that important which kind of diapers you use. The important decision was having the baby.”
The next time you trustingly adopt a “green solution” like fluorescent lights, cloth diapers or wind farms, only to be puzzled when met with still further condemnation and calls for even more sacrifices, remember what counts as a final solution for these ideologues.
The only rational response to such a philosophy is to challenge it at its core. We must acknowledge that it is the essence of human survival to reshape nature for our own benefit, and that far from being a sin, it is our highest virtue. Don’t be fooled by the cries that industrial civilization is “unsustainable.” This cry dates to at least the 19th century, but is belied by the facts. Since the Industrial Revolution, population and life expectancy, to say nothing of the enjoyment of life, have steadily grown.
It is time to recognize environmentalism as a philosophy of guilt and sacrifice — and to reject it in favor of a philosophy that proudly upholds the value of human life.
Speaking of the financial crisis, French president Nicolas Sarkozy recently said, “Laissez-faire is finished. The all-powerful market that always knows best is finished.”
Sarkozy was echoing the views of many, including president-elect Obama, who assume that the financial crisis was caused by free markets — by “unbridled greed” unleashed by decades of deregulation and a “hands off” approach to the economy. And given this premise, the solution, they say, is obvious. To solve this crisis and prevent another one, we need a heavy dose of Uncle Sam’s elixir: government intervention. Whether it’s more bailouts, stricter regulation, a new round of nationalizations, or some other scheme, the only question since day one has been how, not whether, government is going to intervene.
And the issue is wider than the financial crisis. Millions of Americans don’t have health insurance? Well, says Obama, that’s because we’ve left the health care system to the free market. The solution: a complete government takeover of medicine. A few companies engaged in accounting fraud? It must be because we didn’t impose enough regulations on businessmen. The solution: rein in corporations with Sarbanes-Oxley.
But while capitalism may be a convenient scapegoat, it did not cause any of these problems. Indeed, whatever one wishes to call the unruly mixture of freedom and government controls that made up our economic and political system during the last three decades, one cannot call it capitalism.
Take a step back. In the lead up to the “Reagan Revolution,” the explosive growth of government during the ’60s and ’70s had left the American economy in disarray. A crushing tax burden, runaway inflation, brutal unemployment, and economic stagnation had Americans looking for an alternative. That’s what Reagan offered, denouncing big government and promising a new “morning in America.”
Under Reagan, some taxes were reduced, inflation was subdued, a few regulations were relaxed — and the economy roared back to life. But while markets were able to function to a greater degree than in the immediate past, the regulatory and welfare state remained largely untouched, with government spending continuing to increase, as well as some taxes. Later administrations were even worse. Bush Jr., often laughably called a champion of free markets, presided over massive new governmental controls like Sarbanes-Oxley and massive new welfare programs like the prescription drug benefit.
None of this is consistent with capitalism. As the economic system that fully recognizes and protects individual rights, including the right to private property, capitalism means, in Ayn Rand’s words, “the abolition of any and all forms of government intervention in production and trade, the separation of State and Economics, in the same way and for the same reasons as the separation of Church and State.” Laissez-faire means laissez-faire: no welfare state entitlements, no Federal Reserve monetary manipulation, no regulatory bullying, no controls, no government interference in the economy. The government’s job under capitalism is single but crucial: to protect individual rights from violation by force or fraud.
America came closest to this system in the latter half of the nineteenth century. The result was an unprecedented explosion of wealth creation and consequent rise in the standard of living. Even now, when the fading remnants of capitalism are badly crippled by endless controls, we see that the freest countries — those which retain the most capitalist elements — have the highest standard of living.
Why then should capitalism take the blame today — when capitalism doesn’t even exist? Consider the current crisis. The causes are complex, but the driving force is clearly government intervention: the Fed keeping interest rates below the rate of inflation, thus encouraging people to borrow and providing the impetus for a housing bubble; the Community Reinvestment Act, which forces banks to lend money to low-income and poor-credit households; the creation of Fannie Mae and Freddie Mac with government-guaranteed debt leading to artificially low mortgage rates and the illusion that the financial instruments created by bundling them are low risk; government-licensed rating agencies, which gave AAA ratings to mortgage-backed securities, creating a false sense of confidence; deposit insurance and the “too big to fail” doctrine, whose bailout promises have created huge distortions in incentives and risk-taking throughout the financial system; and so on. In the face of this long list, who can say with a straight face that the housing and financial markets were frontiers of “cowboy capitalism”?
This is just the latest example of a pattern that has been going on since the rise of capitalism: capitalism is blamed for the ills of government intervention — and then even more government intervention is proposed as the cure. The Great Depression? Despite massive evidence that the Federal Reserve’s and other government policies were responsible for the crash and the inability of the economy to recover, it was laissez-faire that was blamed. Consequently, in the aftermath, the government’s power over the economy was not curtailed but dramatically expanded. Or what about the energy crisis of the 1970s? Despite compelling evidence that it was brought on by monetary inflation exacerbated by the abandonment of the remnants of the gold standard, and made worse by prices controls, “greedy” oil companies were blamed. The prescribed “solution” was for the government to exert even more control.
It’s time to stop blaming capitalism for the sins of government intervention, and give true laissez-faire a chance. Now that would be a change we could believe in.
For years, the Canadian operator of a huge Venezuelan gold project known as Las Cristinas has been seeking an environmental permit to start digging. Well, Crystallex International Corporation can stop waiting — the mine is being nationalized as part of dictator Hugo Chavez’s long-running program of socialist takeovers. “This mine will be seized and managed by a state administration” with help from the Russians, said Mining Minister Rodolfo Sanz.
It’s not surprising that a brute like Chavez would want to grab the 16.9 million ounces of gold estimated to lie buried in the Las Cristinas reserve. But what’s more puzzling is why — when gold mines, oil rigs and refineries worth billions of dollars are nationalized by regimes such as Venezuela and Russia — the ousted companies can muster no moral indignation, only tight-lipped damage appraisal.
The reason, in a nutshell, is that resources like gold and petroleum in their natural state are universally regarded as public property that cannot be extracted by private companies except with government permission, revocable at will. “Venezuela will not accept that foreign organizations tell them what to do with their own resources,” said a local journalist recently.
But unexploited natural resources are unowned, not publicly owned. Ownership — the legal right to use and dispose of material resources — cannot exist until someone actually brings those resources under human control. A dictator cannot, by decree, bring hidden gold or oil deposits to the surface. Only the knowledge and effort of entrepreneurs, engineers and drillers can transform that hidden potential into actual wealth. Ownership is the law’s recognition that those particular producers deserve the legal right — as against every person on earth who didn’t tap that potential — to control the wealth they created.
Consider that Arabs wandered for centuries across desert sands that concealed vast petroleum deposits, but it was Western investors who actually made Middle Eastern petroleum valuable. These companies searched for many years in a vast wilderness, moving in frustration from one dry hole to another, risking utter failure and financial ruin. Eventually, by virtue of their ingenuity, courage and perseverance, world markets were flooded with oil that Middle Eastern governments should have deemed private property — 100 percent private.
Instead, those governments muscled in, claiming public ownership based on nothing but their sovereignty over the geographical areas where oil deposits happened to reside. First through royalties, then by extorted royalty increases, and finally by outright nationalization, the descendants of nomads whose meager possessions fit on a camel’s back could now build palaces, buy airplanes and fund terrorism from the seemingly endless profits generated by Western technology and ingenuity.
But all this was a perversion of sovereignty. After all, why are states entrusted with exclusive power to use force within their borders? There’s only one legitimate reason: to protect individual rights, including property rights. Just as a bodyguard’s task is protecting clients from physical attacks, a government’s function is safeguarding people and property against criminals and foreign invaders.
Sovereignty exists to protect private property, not to destroy it. A bodyguard who claimed to own his client’s house, cars and jewelry would be immediately fired. Yet governments that claim to own all natural resources within their borders get a free pass, as if ownership could be conjured from the barrel of a gun.
Today, nationalization is endorsed not only by third world thugs but by the United Nations, which — with America’s full agreement — declared in 1962 that the “sovereign right of every State to dispose of its wealth and natural resources” is “recognized as overriding purely individual or private interests.” Even the victims agree. Said one CEO: “We do not see the issue of nationalization as a violation of the law but as a right of a government.”
This is why power-grasping dictators like Venezuela’s Hugo Chavez and Russia’s Vladimir Putin can claim moral authority to treat foreign investors the way they treat their own citizens — as cattle to be herded, milked or slaughtered for society’s sake. Thus when ExxonMobil recently dared to dispute the pittance Venezuela offered in payment for seized assets, Chavez denounced “those bandits of ExxonMobil,” absurdly declaring they “will never rob us again.”
Nationalization, stripped of all rationalization, is naked theft. A blow for justice will be struck by the first public figure to denounce it as such. In the meantime, companies like Crystallex will continue to be bullied by dictators who know exactly how much they can get away with.
About The Author
Tom Bowden
Analyst and Outreach Liaison, Ayn Rand Institute
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Supreme Disappointments
by Tom Bowden | November 03, 2008
Where do individual rights come from? You’d think that if anyone knows the answer, it would be America’s top judges.
But you would be wrong.
On this basic question conservative and liberal judges alike are locked into a crucial error about America’s bedrock constitutional principle: individual rights.
The error consists in regarding rights as gifts from society that can be revoked at will, through the political process.
In truth, rights are not social gifts but political principles based on facts of reality. These facts don’t bend to the so-called will of society. That’s why the most fundamental question a Supreme Court justice must answer is what in fact do the individual’s rights to life, liberty, property, and happiness include? Only then can he determine if a certain law or government action is securing or violating those rights.
But judges don’t ask this question anymore, because they don’t think it’s objectively answerable.
Instead, and broadly speaking, judicial conservatives only ask what privileges American society granted the individual at the time of constitutional ratification. To conservatives, it’s meaningless to ask whether the right to liberty in fact includes, say, the right to use contraception (a question 18th-century Americans may have answered incorrectly). Their only concern is whether society at that time meant to permit this action. So when modern legislators make criminal offenses out of abortion, contraception, homosexuality, and other acts said to be frowned upon centuries ago, conservative judges feel duty-bound to stand aside and do nothing, in obedience to the “social will.”
Judicial liberals reject this conservative view of social values frozen in time, like a sepia-toned snapshot of bygone days. Instead, liberals see constitutional values evolving like a motion picture, constantly updating to reflect current social mores. To liberals, it’s meaningless to ask whether the right to liberty in fact includes freedom of trade and contract (a question that a majority of Americans may be answering incorrectly today). Their only concern is whether the “will” of today’s society favors permitting such actions. So when Congress declares federal dominion over every nut, bolt, and button of American industry, liberal judges feel duty-bound to stand aside and do nothing — not because earlier Americans intended to allow such controls, but because modern Americans want them.
But conservatives and liberals are both wrong about rights.
It is not true that rights are grants from society. The very concept of a right identifies the actions you can take without anyone’s permission. Rights are not social privileges but objective facts, identifying the freedoms we need to live our lives — whether a majority in society agree or not. This is why the Founding Fathers dedicated their new government to the protection of each individual’s already existing rights to life, liberty, and the pursuit of happiness.
Thus, the Fifth and Fourteenth amendments forbid the government to deprive you of “life, liberty, or property” (except when you have violated someone else’s rights, and even then the government must follow due process, such as holding a trial). The Ninth Amendment safeguards all “rights” not listed elsewhere. These principles encompass all the innumerable actions required for your survival and happiness over a lifetime — the right to make a contract, earn a profit, build a house, make a friend, speak your mind, and so on.
Because the Constitution is the “supreme Law of the Land,” judges are duty-bound to strike down statutes that violate rights. This is not improper “judicial activism” but the robust, constitutional power of judicial review.
Judges must never bow to social opinion, historical or current, when exercising judicial review. For example, laws that institutionalized government discrimination against blacks in military service and voting deserved to be struck down, even if political majorities in the Founders’ generation or modern times favor such rights violations.
To their discredit, today’s judges — conservatives and liberals alike — have all but abandoned this judicial safeguard of our liberties.
The arch-conservative Robert Bork once declared that Ninth Amendment “rights” carry no more meaning than an accidental inkblot on the constitutional parchment. And according to Justice Antonin Scalia, there’s nothing in the Constitution “authorizing judges to identify what [those rights] might be, and to enforce the judges’ list against laws duly enacted by the people.” As for life, liberty, and property, government can smash them at will, if society so wishes. “Does [the Constitution] guarantee life, liberty or property?” asks Justice Scalia rhetorically. “No, indeed! All three can be taken away. . . . It’s a procedural guarantee.”
Judicial liberals don’t dispute that a judge must bow to the “social will” — they simply divine it differently. As one liberal Justice declared, the Constitution “must draw its meaning from the evolving standards of decency that mark the progress of a maturing society.”
While conservatives and liberals squabble about whether society permits you this action or that, they are defaulting on their sacred constitutional duty of judicial review.
America desperately needs a new generation of judges who understand that their function is not to uphold social opinions but to protect our rights.
The financial peril of Fannie Mae and Freddie Mac — the government-sponsored, government-regulated mortgage giants regarded as instrumental in solving the nation’s mortgage market problems — has one benefit. It should help expose the lie that today’s financial problems are the result of an insufficiently regulated market.
For too long, the refrain has gone, Congress and the administration have been asleep at the wheel when they should have been steering the economy by expanding government control over the housing and financial markets. Economist Paul Krugman slams the administration’s “free-market ideology”; he urges Bush to “reverse course now” and “seek expanded regulation.”
All this overlooks a crucial fact: There has been no free market in housing or finance. Government has long exercised massive control over the housing and financial markets — including its creation of Fannie Mae and Freddie Mac (which have now amassed $5 trillion in liabilities) — leading to many of the problems being blamed on the free market today.
Consider the low lending standards that were a significant component of the mortgage crisis. Lenders made millions of loans to borrowers who, under normal market conditions, weren’t able to pay them off. These decisions have cost lenders, especially leading financial institutions, tens of billions of dollars.
It is popular to take low lending standards as proof that the free market has failed, that the system that is supposed to reward productive behavior and punish unproductive behavior has failed to do so. Yet this claim ignores that for years irrational lending standards have been forced on lenders by the federal Community Reinvestment Act (CRA) and rewarded (at taxpayers’ expense) by multiple government bodies.
The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?
According to one enforcement agency, “discrimination exists when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.” Note that these “arbitrary or outdated criteria” include most of the essentials of responsible lending: income level, income verification, credit history and savings history — the very factors lenders are now being criticized for ignoring.
The government has promoted bad loans not just through the stick of the CRA but through the carrot of Fannie Mae and Freddie Mac, which purchase, securitize and guarantee loans made by lenders and whose debt is itself implicitly guaranteed by the federal government. This setup created an easy, artificial profit opportunity for lenders to wrap up bundles of subprime loans and sell them to a government-backed buyer whose primary mandate was to “promote homeownership,” not to apply sound lending standards.
Of course, lenders not only sold billions of dollars in suspect loans to Fannie Mae and Freddie Mac, contributing to their present debacle, they also retained some subprime loans themselves and sold others to Wall Street — leading to the huge banking losses we have been witnessing for months. Is this, then, a free market failure? Again, no.
In a free market, lending large amounts of money to low-income, low-credit borrowers with no down payment would quickly prove disastrous. But the Federal Reserve Board’s inflationary policy of artificially low interest rates made investing in subprime loans extraordinarily profitable. Subprime borrowers who would normally not be able to pay off their expensive houses could do so, thanks to payments that plummeted along with Fed rates. And the inflationary housing boom meant homeowners rarely defaulted; so long as housing prices went up, even the worst-credit borrowers could always sell or refinance.
Thus, Fed policy turned dubious investments into fabulous successes. Bankers who made the deals lured investors and were showered with bonuses. Concerns about the possibility of mass defaults and foreclosures were assuaged by an administration whose president declared: “We want everybody in America to own their own home.”
Further promoting a sense of security, every major financial institution in America — both commercial banks and investment banks — was implicitly protected by the quasi-official policy of “too big to fail.” The “too big to fail” doctrine holds that, when they risk insolvency, large financial institutions (like Countrywide or Bear Stearns) must be bailed out through a network of government bodies including the Federal Deposit Insurance Corporation, the Federal Home Loan Banks and the Federal Reserve.
All of these government factors contributed to creating a situation in which millions of people were buying homes they could not afford, in which the participants experienced the illusion of prosperity, in which billions upon billions of dollars were going into bad investments. Eventually the bubble burst; the rest is history.
Given that our government was behind the wheel, influencing every aspect of the mortgage crisis, it is absurd to call today’s situation the result of insufficient regulation.
We do not need more regulation or economic “steering” — laws or bureaucrats dictating to financiers and investors the kind of innovation they may or may not engage in. If that were the solution to economic problems, then Hugo Chavez would preside over the world’s healthiest economy in Venezuela. What we need to do is remove the government’s power to coerce, bribe, reward and bail out irrational decisions. The unfree market has failed. It’s time for a truly free market.
Considering the many jubilant boasts by “flat world” devotees in recent years, you might have been tempted to regard economic globalization as a juggernaut, powered by inexorable forces of technology and history.
Big mistake. There’s no preordained direction for the world economy — only an undetermined future that will take the shape of whatever ideas and policies we choose to uphold. The lack of an intellectual defense of capitalism has left free markets vulnerable. “The power of the state is reasserting itself,” said Daniel Yergin, co-author of The Commanding Heights and a free-market optimist, in The Wall Street Journal recently.
In Latin America, the pro-market reforms of the 1990s are being swallowed by resurgent nationalism. Hugo Chavez’s program for national socialism in Venezuela includes the gleeful seizure of foreign assets in oil, mining, cement, steel, telecommunications and electricity.
Ecuador, Bolivia, Nicaragua and neighboring nations have fallen into step with Venezuela, further chilling international trade. Argentina, already burdened by high inflation, recently imposed taxes on grain exports so painful that farmers went on strike nationwide.
Russia has pursued nationalization less noisily than Chavez, using selective prosecution and other threats to bully foreign investors like British Petroleum into surrendering valuable oil and natural gas interests. Even England — which for decades embraced Margaret Thatcher’s privatization program, despite a long tradition of state-run enterprise — decided earlier this year to nationalize a private bank, Northern Rock.
Other ominous symptoms of nationalism’s growth are the massive sovereign wealth funds springing up in the Middle East, China, Brazil and wherever else oil and export revenues fatten up government coffers instead of private balance sheets.
The International Monetary Fund estimates such funds may control $12 trillion in assets globally by 2012, up from $3 trillion today. Few question such funds’ legitimacy, even as their state-appointed managers pursue hidden political agendas from which market distortions and political fallout predictably follow.
In America, politicians are embracing this strong state role so that no matter which party prevails this November, the reform agenda will include trade policies that retreat from economic globalism.
In little more than a decade, Congress approved both North American Free Trade Agreement (1994) and Central America Free Trade Agreement (2005), encouraging speculation that the Free Trade Area of the Americas (FTAA) would soon topple trade barriers throughout the hemisphere. Although such agreements don’t establish actual freedom of trade, they nonetheless represent improvements over highly protective tariffs.
But this year, the House of Representatives has deep-sixed trade bills negotiated in good faith with Colombia and South Korea, and the FTAA is in cold storage. Meanwhile, Congress has blithely pushed through a farm bill whose trade-distorting provisions seem certain to frustrate the ongoing World Trade Organization talks aimed at lowering trade barriers worldwide.
So why is the world retreating behind nationalistic walls — even in America, where you might least expect it?
The short answer is this: The expanding economic freedom of the past few decades was primarily a response to the bankruptcy of communism and socialism; it was not based on acceptance of capitalism as an ideal. Without such acceptance, recent political advances — despite the economic success they generated — are vulnerable to the new wave of anticapitalist measures.
For all of capitalism’s astounding accomplishments, the intellectual underpinning sufficient to deflect its critics has never been fully identified or understood. Capitalism and the profit motive continue to be viewed with suspicion.
After all, even in America, we live in a culture that lauds self-sacrifice, community service and “giving back” as its moral ideals. Businessmen who selfishly pursue profits, in contradiction to those ideals, are consigned to a moral dungeon from which they can only hope to escape on evenings and weekends. This is why Barack Obama can get away with belittling the “money culture,” his wife can smugly counsel youth to shun “corporate America” and John McCain can brag about working “out of patriotism, not for profit.”
The odor of moral suspicion that clings to capitalism helps explain why, decade after decade, businessmen are first to be blamed for the never-ending crises actually caused by statist market distortions. Whenever some new emergency arises, culpability falls first on greedy capitalists, whose profit-seeking is regarded as morally suspect, and rarely on government regulators, whose selfless policies are regarded as morally unquestionable.
The resulting pattern is depressingly familiar. Are people in Latin America still poor? The cause must be “exploitative” multinationals, and the cure must be state ownership of natural resources and more forced wealth redistribution. Are food prices rising? Blame the “ruthlessness” of global supply and demand and the “machinations” of speculators, then jettison free trade and ban exports.
Are domestic companies sending jobs overseas? Then temper the “cruelty” of the world market: Ban outsourcing of government projects, weaken the dollar and use tax policy to keep jobs at home.
Capitalism will remain the world’s punching bag until such time as the profit motive is rescued from moral oblivion. Ideas shape history — and therefore political reform requires active, fundamental intellectual change, not passive reliance on favorable trends.
What ideas and ideals are needed for freedom to flourish?
History offers no better answer than the American story. Two centuries ago, the Founding Fathers blazed the path to a capitalist future by creating a nation based on the individual’s right to life, liberty, property and the selfish pursuit of his own personal happiness.
For the first time, a nation’s social system embodied approval of profit-seeking, the lifeblood of capitalism. America’s founding principles, all but forgotten today, facilitated the explosive economic globalization of the 19th century and remain our only hope for freedom in the 21st century.
Those founding principles withered because no one could morally defend self-interest. For individual rights to prevail in politics, nothing less than a revolution in ethics will be required — a bloodless revolution — not of arms, but of ideas. You’ll know that struggle is over when businessmen are finally viewed not as moral pariahs or ciphers but as paragons of virtue, precisely because they pursue profits.
