Who is John Galt.....?

Some of you may have read Ayn Rand's classic Atlas Shrugged. The book chronicles the slow melt down of the United States as those that know how to make things work are given no incentive to provide that expertise to the populace. I am not an adherent of the Objectivist school of philosophy. However, I find many parallels between Atlas Shrugged and the events of today's era.

Rand shows us a world where, in order to be successful, it is necessary to curry favor with the appropriate bureaucrat. This is as it is currently in our glorious plutocracy. If you are a bank, it would appear that you need to engage Tim Geithner. If you are a drug company, you need to lobby one of the key swing senators who can influence health-care legislation. Of course, heavy industry needs to make sure that they have the right bureaucrat on board in case Obama manages to get off the mat enough to start some type of climate change legislation.

Rand further describes how those that do produce on their own are stifled by regulation and changing legislation. This is exactly what is currently happening. Investors are finding it nearly impossible to figure out what to invest in and what to stay away from because new regulation is always on the horizon. The most egregious example of this is the recent proposal to break up and enhance regulation on large financial institutions. Banks and their investors had planned on their current business model for the foreseeable future but, with these proposals, it is unclear whether that model is viable. When government regulation of any given business changes, the investor and management must adjust to a new set of parameters within which to run their business. This changing of the rules in mid-game causes investors to potentially change their strategies for deploying their monies which can be devastating to the businesses that depend on that money. To illustrate what I mean, ask yourself whether or not you would invest in health insurance companies right now or wait for the health care bill to pass.

As the government fiddles with all manner of private business, we continously see that unforeseen second and third order effects happen that stymie innovation and the road to recovery. The decision by the Federal Reserve to pay interest on excess reserves is a case study. The rule was put into place so that banks could build up reserves and still make some money to help them stay in business. The second order effect was that they now don't have to lend out their money to the public in order to stay in business. The third order effect is that all of the Fed's money pumping is not making it into the economy to stoke the recovery. There is a potential that that money will be deployed swiftly and cause inflation once banks are less risk averse than they are now. There are numerous other examples where federal meddling in the private sector is making it increasingly difficult to make financial decisions. This is causing the private sector to withdraw to safety rather than take reasonable risks based on foreseeable business parameters.

Although I know that it is not in vogue to praise free markets because it has been the received wisdom that the free market was what caused the recent downturn, let me speculate what may have happened if the market was allowed to work in one sector. If the government had allowed GM and Chrysler to go bankrupt several salutory events could very reasonably have happened. The unions back would have been broken, and the pricing of auto labor would have been brought into line with reality. Ford, the US automaker with the best business practices, would have increased market share which would have rewarded the best run US automaker. There would have been little reason to have the "Cash for Clunkers" program which would have helped a cash strapped US treasury. Money which was added to the deficit by the various auto bailout plans would be available to private entrepeneurs who may have spent the savings on building high speed rail systems to take the place of airlines whose business models look increasingly suspect in the current high fuel cost era. The trains would be much more "green" than getting GM and Chrysler to build a few E85 cars.

Alas this is not to be. Our society is instead rapidly dissolving into one that looks to influence beauracrats and elected officials to get our hands on an ever dwindling pot of federal handouts. I recently saw an add for the census that suggested that a good reason to complete census forms was so that your district could get the right amount of federal monies. Daily I hear adds from companies that suggest that because banks received bailouts on their problem loan books we should expect a bailout from our credit card debts. As more and more of our society become leeches, I wonder who will be left to produce the wealth that the we live off of.

In "Atlas Shrugged" Rand describes a world where the producers, led by a man named John Galt, one by one quit because they get tired of seeing the fruits of their labors given to others who had "connections." I fear that we will see that outcome if we continue on our current path. This is not without precedent. The USSR basically collapsed from within because of economic apathy. The communist leaders of China were discerning enough to understand what had happened and began to encourage policies that have loosened government controls on the market. These policies, although not as free a one would like, still have produced a minor economic miracle in the country.

I don't want to find out who is John Galt, but I am afraid that we will all meet him within my lifetime.