Monthly Archives: February 2017

Submitted by Steve Simpson via The Foundation for Economic Education,

After Donald Trump announced a number of cabinet picks who happen to be fans of Ayn Rand, a flurry of articles appeared claiming that Trump intended to create an Objectivist cabal within his administration.

Ayn Rand-acolyte Donald Trump stacks his cabinet with fellow Objectivists, proclaimed one article. Would that it were so. The novelist and philosopher Ayn Rand was a passionate champion of individual freedom and laissez-faire capitalism and a fierce opponent of authoritarianism. For her, government exists solely to protect our rights, not to meddle in the economy or to direct our private lives.

A president who truly understood Rands philosophy would not be cozying up to Putin, bullying companies to keep manufacturing plants in the United States, or promising insurance for everybody among many other things Trump has said and done.

And while its certainly welcome news that several of Trumps cabinet picks admire Rand, its not surprising. Her novel Atlas Shrugged depicts a world in decline as it slowly strangles its most productive members. The novel celebrates the intelligent and creative individuals who produce wealth, many of whom are businessmen. So it makes sense that businessmen like Rex Tillerson and Andy Puzder would be among the novels millions of fans.

But a handful of fans in the administration hardly signals that Trumps would be an Ayn Rand administration. The claims about Rands influence in the administration are vastly overblown.

Even so, there is at least one parallel we can draw between a Trump administration and Rands novels, although its not favorable to Trump. As a businessman and a politician, Trump epitomizes a phenomenon that Rand harshly criticized throughout her career, especially in Atlas Shrugged. Rand called it pull peddling. The popular term today is cronyism. But the phenomenon is the same: attempting to succeed, not through production and trade, but by trading influence and favors with politicians and bureaucrats.

Cronyism has been a big issue in recent years among many thinkers and politicians on the Right, who have criticized big government because it often favors some groups and individuals over others or picks winners and losers.

Commentators on the Left, too, often complain about influence peddling, money in politics, and special interests, all of which are offered as hallmarks of corruption in government. And by all indications, Trump was elected in part because he was somehow seen as a political outsider who will drain the swamp.

But as the vague phrase drain the swamp shows, theres a lot more concern over cronyism, corruption, and related issues than there is clarity about what the problem actually is and how to solve it.

Ayn Rand had unique and clarifying views on the subject. With Trump in office, the problem she identified is going to get worse. Rands birthday is a good time to review her unique explanation of, and cure for, the problem.

The first question we need to be clear about is: What, exactly, is the problem were trying to solve? Drain the swamp, throw the bums out, clean up Washington, outsiders vs. insiders these are all platitudes that can mean almost anything to anyone.

Are lobbyists the problem? Trump and his advisers seem to think so. Theyve vowed to keep lobbyists out of the administration, and Trump has signed an order forbidding all members of his administration from lobbying for 5 years.

Its not clear whether these plans will succeed, but why should we care? Lobbyists are individuals hired to represent others with business before government. We might lament the existence of this profession, but blaming lobbyists for lobbying is like blaming lawyers for lawsuits. Everyone seems to complain about them right up until the moment that they want one.

The same goes for complaints about the clients of lobbyists the hated special interests. Presidents since at least Teddy Roosevelt have vowed to run them out of Washington yet, today, interest groups abound. Some lobby for higher taxes, some for lower taxes. Some lobby for more entitlements, some for fewer or for more fiscal responsibility in entitlement programs. Some lobby for business, some for labor, some for more regulations on both. Some lobby for freer trade, some for trade restrictions. The list goes on and on. Are they all bad?

The question we should ask is, Why do people organize into interest groups and lobby government in the first place?

The popular answer among free-market advocates is that government has too much to offer, which creates an incentive for people to tap their cronies in government to ensure that government offers it to them. Shrink government, the argument goes, and we will solve the problem.

Veronique de Rugy, senior fellow at the Mercatus Center, describes cronyism in these terms:

This is how cronyism works: A company wants a special privilege from the government in exchange for political support in future elections. If the company is wealthy enough or is backed by powerful-enough interest groups, the company will get its way and politicians will get another private-sector ally. The few cronies win at the expense of everyone else.

(Another term for this is rent seeking, and many other people define it roughly the same way.)

Theres a lot of truth to this view. Our bloated government has vast power over our lives and trillions of dollars worth of favors to dole out, and a seemingly endless stream of people and groups clamor to win those favors. As a lawyer who opposes campaign finance laws, Ive often said that the problem is not that money controls politics, its that politics controls money and property, and business, and much of our private lives as well.

Still, we need to be more precise. Favors, benefits, and privileges are too vague a way to describe what government has to offer. Among other things, these terms just raise another question: Which benefits, favors, or privileges should government offer? Indeed, many people have asked that question of cronyisms critics. Heres how the Los Angeles Times put it in an editorial responding to the effort by some Republicans to shut down the Export-Import Bank:

Governments regularly intervene in markets in the name of public safety, economic growth or consumer protection, drawing squawks of protest whenever one interest is advanced at the expense of others. But a policy thats outrageous to one faction for example, the government subsidies for wind, solar and battery power that have drawn fire on the right may in fact be a welcome effort to achieve an important societal objective.

Its a valid point. Without a way to tell what government should and should not do, whose interests it should or should not serve, complaints about cronyism look like little more than partisan politics. When government favors the groups or policies you like, thats good government in action. When it doesnt, thats cronyism.

In Rands view, there is a serious problem to criticize, but few free-market advocates are clear about exactly what it is. Simply put, the problem is the misuse of the power that government possesses, which is force. Government is the institution that possesses a legal monopoly on the use of force.

The question we need to grapple with is, how should it use that power?

Using terms like favors, privileges, and benefits to describe what government is doing when cronyism occurs is not just too vague, its far too benign. These terms obscure the fact that what people are competing for when they engage in cronyism is the privilege of legally using force to take what others have earned or to prevent them from contracting or associating with others. When groups lobby for entitlements whether its more social security or Medicare or subsidies for businesses they are essentially asking government to take that money by force from taxpayers who earned it and to give it to someone else. Call it what you want, but it ultimately amounts to stealing.

When individuals in a given profession lobby for occupational licensing laws, they are asking government to grant a select group of people a kind of monopoly status that prevents others who dont meet their standards from competing with them that is, from contracting with willing customers to do business.

These are just two examples of how government takes money and property or prevents individuals from voluntarily dealing with one another. There are many, many more. Both Democrats and Republicans favor these sorts of laws and willingly participate in a system in which trading on this power has become commonplace.

Rent seeking doesnt capture what is really going on. Neither, really, does cronyism. Theyre both too tame.

A far better term is the one used by nineteenth-century French economist Frederic Bastiat: legal plunder. Rand uses the term political pull to describe those who succeed by convincing friends in government to use the law to plunder others or to prevent them from competing.

And she uses the phrase the Aristocracy of Pull, which is the title of a whole chapter in Atlas Shrugged, to describe a society in which political pull, rather than production and trade, has become the rule. Its a society that resembles feudalism, in which people compete to gain the favor of government officials in much the same way that people in feudal times competed for the favor of the king so they could use that power to rule over one another and plunder as they pleased.

The cause, for Rand, is not the size of government, but what we allow it to do. When we allow government to use the force it possesses to go beyond protecting our rights, we arm individuals to plunder one another and turn what would otherwise be limited instances of corruption or criminality into a systemic problem.

For example, when politicians promise to increase social security or to make education free, they are promising to take more of the incomes of taxpayers to pay for these welfare programs. When they promise to favor unions with more labor laws or to increase the minimum wage, they are promising to restrict businesses right to contract freely with willing workers. When they promise to keep jobs in America, they are promising to impose tariffs on companies that import foreign goods. The rule in such a system becomes: plunder or be plundered. What choice does anyone have but to organize themselves into pressure groups, hire lobbyists, and join the fray?

Rand memorably describes this process in the famous money speech in Atlas Shrugged:

But when a society establishes criminals-by-right and looters-by-law men who use force to seize the wealth of disarmed victims then money becomes its creators avenger. Such looters believe it safe to rob defenseless men, once theyve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

Observe what kind of people thrive in such a society and who their victims are. Theres a big difference between the two, and Rand never failed to make a moral distinction between them.

In the early 1990s, Atlantic City resident Vera Coking found herself in the sights of a developer who wanted to turn the property on which she lived into a casino parking lot. The developer made what he thought was a good offer, but she refused. The developer became incensed, and instead of further trying to convince Coking to sell or finding other land, he did what a certain kind of businessman has increasingly been able to do in modern times. He pursued a political solution. He convinced a city redevelopment agency to use the power of eminent domain to force Coking to sell.

The developer was Donald Trump. His ensuing legal battle with Coking, which he lost, was the first of a number of controversies in recent decades over the use of eminent domain to take property from one private party and give it to another.

Most people can see that theres a profound moral distinction between the Trumps and their cronies in government on the one hand and people like Vera Coking on the other. One side is using law to force the other to give up what is rightfully theirs. To be blunt, one side is stealing from the other.

But the victims of the use of eminent domain often lobby government officials to save their property just as vigorously as others do to take it. Should we refer to all of them as special interests and damn them for seeking government favors? The answer should be obvious.

But if thats true, why do we fail to make that distinction when the two sides are businesses as many do when they criticize Wall Street, or the financial industry as a whole, or when they complain about crony capitalism as though capitalism as such is the problem? Not all businesses engage in pull-peddling, and many have no choice but to deal with government or to lobby in self-defense.

John Allison, the former CEO of BB&T bank (and a former board member of the Ayn Rand Institute, where I work), refused to finance transactions that involved the use of eminent domain after the Supreme Court issued its now-infamous decision in Kelo v. City of New London, which upheld the use of eminent domain to transfer property from one private party to another. Later, Allison lobbied against the TARP fund program after the financial crisis, only to be pressured by government regulators into accepting the funds. In an industry as heavily regulated as banking, theres little a particular bank can do to avoid a situation like that.

Another example came to light in 2015, when a number of news articles ran stories on United Airliness so-called Chairmans Flight. This was a flight from Newark to Columbia, South Carolina, that United continued to run long after it became clear it was a money-loser. Why do that? It turns out the chairman of the Port Authority, which controls access to all the ports in New York and New Jersey, had a vacation home near Columbia. During negotiations over airport fees, he made it clear that he wanted United to keep the flight, so United decided not to cancel it. Most of the news stories blamed United for influence-peddling. Only Holman Jenkins of the Wall Street Journal called it what it was: extortion by the Port Authority chairman.

The point is, theres a profound moral difference between trying to use government to plunder others and engaging with it essentially in self-defense. Its the same difference between a mobster running a protection racket and his victims. And theres an equally profound moral difference between people who survive through production and trade, and those who survive by political pull.

Rand spells out this latter difference in an essay called The Money Making Personality:

The Money-Maker is the discoverer who translates his discovery into material goods. In an industrial society with a complex division of labor, it may be one man or a partnership of two: the scientist who discovers new knowledge and the entrepreneur the businessman who discovers how to use that knowledge, how to organize material resources and human labor into an enterprise producing marketable goods.

The Money-Appropriator is an entirely different type of man. He is essentially noncreative and his basic goal is to acquire an unearned share of the wealth created by others. He seeks to get rich, not by conquering nature, but by manipulating men, not by intellectual effort, but by social maneuvering. He does not produce, he redistributes: he merely switches the wealth already in existence from the pockets of its owners to his own.

The Money-Appropriator may become a politician or a businessman who cuts corners or that destructive product of a mixed economy: the businessman who grows rich by means of government favors, such as special privileges, subsidies, franchises; that is, grows rich by means of legalized force.

In Atlas Shrugged, Rand shows these two types in action through characters like steel magnate Hank Rearden and railroad executive Dagny Taggart, two brilliant and productive business people who carry a crumbling world on their shoulders. On the opposite end of the spectrum are Orren Boyle, a competitor of Reardens, and Jim Taggart, Dagnys brother and CEO of the railroad where she works. Both constantly scheme to win special franchises and government contracts from their friends in Washington and to heap regulations on productive businesses like Reardens. Rearden is forced to hire a lobbyist in Washington to try to keep the bureaucrats off of his back.

When we damn special interests or businesses in general for cronyism, we end up grouping the Reardens in with the Orren Boyles, which only excuses the behavior of the latter and damns the former. This attitude treats the thug and his victim as morally equivalent. Indeed, this attitude makes it seem like success in business is as much a function of whom you know in Washington as it is how intelligent or productive you are.

It is unfortunately true that many businesses use political pull, and many are a mixture of money-makers and money-appropriators. So it can seem like success is a matter of government connections. But its not true in a fundamental sense. The wealth that makes our modern world amazing the iPhones, computers, cars, medical advances and much more can only be created through intelligence, ingenuity, creativity and hard work.

Government does not create wealth. It can use the force it possesses to protect the property and freedom of those who create wealth and who deal with each other civilly, through trade and persuasion; or it can use that force to plunder the innocent and productive, which is not sustainable over the long run. What principle defines the distinction between these two types of government?

As I noted earlier, the common view about cronyism is that it is a function of big government and that the solution is to shrink or limit government. But that just leads to the question: whats the limiting principle?

True, a government that does less has less opportunity to plunder the innocent and productive, but a small government can be as unjust to individuals as a large one. And we ought to consider how we got to the point that government is so large. If we dont limit governments power in principle, pressure group warfare will inevitably cause it to grow, as individuals and groups, seeing government use the force of law to redistribute wealth and restrict competition, ask it to do the same for them.

The common response is that government should act for the good of the public rather than for the narrow interests of private parties. The Los Angeles Times editorial quoted above expresses this view. Whats truly crony capitalism, says the Times, is when the government confuses private interests with public ones.

Most people who criticize cronyism today from across the political spectrum hold the same view. The idea that governments job is to serve the public interest has been embedded in political thought for well over a century.

Rand rejects the whole idea of the public interest as vague, at best, and destructive, at worst. As she says in an essay called The Pull Peddlers:

So long as a concept such as the public interest is regarded as a valid principle to guide legislation lobbies and pressure groups will necessarily continue to exist. Since there is no such entity as the public, since the public is merely a number of individuals, the idea that the public interest supersedes private interests and rights, can have but one meaning: that the interests and rights of some individuals takes precedence over the interests and rights of others.

If so, then all men and all private groups have to fight to the death for the privilege of being regarded as the public. The governments policy has to swing like an erratic pendulum from group to group, hitting some and favoring others, at the whim of any given moment and so grotesque a profession as lobbying (selling influence) becomes a full-time job. If parasitism, favoritism, corruption, and greed for the unearned did not exist, a mixed economy [a mixture of freedom and economic controls] would bring them into existence.

Its tempting to blame politicians for pull-peddling, and certainly there are many who willingly participate and advocate laws that plunder others. But, as Rand argues, politicians as such are not to blame, as even the most honest of government officials could not follow a standard like the public interest:

The worst aspect of it is not that such a power can be used dishonestly, but that it cannot be used honestly. The wisest man in the world, with the purest integrity cannot find a criterion for the just, equitable, rational application of an unjust, inequitable, irrational principle. The best that an honest official can do is to accept no material bribe for his arbitrary decision; but this does not make his decision and its consequences more just or less calamitous.

To make the point more concrete: which is in the public interest, the jobs and products produced by, say, logging and mining companies or preserving the land they use for public parks? For that matter, why are public parks supposedly in the public interest? As Peter Schwartz points out in his book In Defense of Selfishness, more people attend private amusement parks like Disneyland each year than national parks. Should government subsidize Disney?

To pick another example: why is raising the minimum wage in the public interest but not cheap goods or the rights of business owners and their employees to negotiate their wages freely? It seems easy to argue that a casino parking lot in Atlantic City is not in the public interest, but would most citizens of Atlantic City agree, especially when more casinos likely mean more jobs and economic growth in the city?

There are no rational answers to any of these questions, because the public interest is an inherently irrational standard to guide government action. The only approach when a standard like that governs is to put the question to the political process, which naturally leads people to pump millions into political campaigns and lobbying to ensure that their interests prevail.

Rands answer is to limit government strictly to protecting rights and nothing more. The principle of rights, for Rand, keeps government connected to its purpose of protecting our ability to live by protecting our freedom to think and produce, cooperate and trade with others, and pursue our own happiness. As Rand put it in Atlas Shrugged (through the words of protagonist John Galt):

Rights are conditions of existence required by mans nature for his proper survival. If man is to live on earth, it is right for him to use his mind, it is right to act on his own free judgment, it is right to work for his values and to keep the product of his work. If life on earth is his purpose, he has a right to live as a rational being: nature forbids him the irrational. Any group, any gang, any nation that attempts to negate mans rights, is wrong, which means: is evil, which means: is anti-life.

A government that uses the force it possesses to do anything more than protect rights necessarily ends up violating them. The reason is that force is only effective at stopping people from functioning or taking what they have produced or own. Force can therefore be used either to stop criminals or to act like them.

The principle, then, is that only those who initiate force against others in short, those who act as criminals violate rights and are subject to retaliation by government. So long as individuals respect each others rights by refraining from initiating force against one another so long as they deal with each other on the basis of reason, persuasion, voluntary association, and trade government should have no authority to interfere in their affairs.

When it violates this principle of rights, cronyism, corruption, pressure group warfare and mutual plunder are the results.

Theres much more to say about Rands view of rights and government. Readers can find more in essays such as Mans Rights, The Nature of Government, and What Is Capitalism? and in Atlas Shrugged.

In 1962, Rand wrote the following in an essay called The Cold Civil War:

A man who is tied cannot run a race against men who are free: he must either demand that his bonds be removed or that the other contestants be tied as well. If men choose the second, the economic race slows down to a walk, then to a stagger, then to a crawl and then they all collapse at the goal posts of a Very Old Frontier: the totalitarian state. No one is the winner but the government.

The phrase Very Old Frontier was a play on the Kennedy administrations New Frontier, a program of economic subsidies, entitlements and other regulations that Rand saw as statist and which, like many other political programs and trends, she believed was leading America toward totalitarianism. Throughout Rands career, many people saw her warnings as overblown.

We have now inaugurated as 45th president of the United States a man who regularly threatens businesses with regulation and confiscatory taxation if they dont follow his preferred policies or run their businesses as he sees fit. A recent headline in USA Today captured the reaction among many businesses: Companies pile on job announcements to avoid Trumps wrath.

Are Rands warnings that our government increasingly resembles an authoritarian regime one that issues dictates and commands to individuals and businesses, who then have to pay homage to the government like courtiers in a kings court really overblown? Read Atlas Shrugged and her other writings and decide for yourself.

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