How Government Regulation is Corrupt by its Very Nature

The New Jersey Star-Ledger—an unwavering pro-regulation champion—ran an op-ed titled Wall Street banks and federal regulators are still too chummy. This interesting piece actually exposes the essentially corrupt nature of government regulation of business:

Another cortex-shattering example of Wall Street’s unfettered existence arose last week, with reports about the chummy relationship between banking leviathan Goldman Sachs and the agency that is in charge of its regulation, the Federal Reserve Bank of New York.

Goldman . . . has Fed regulators literally working inside its office, ostensibly acting as a watchdog who keeps the bank on good behavior.

That can lead to what is known as regulatory capture. If that sounds like a body-snatching thing, it's in that vein: They become pals, banks co-opt the regulators, and the rules become fungible.

Given that all-encompassing nature of banking regulation, how do the editors expect regulators to do their jobs without having offices inside the largest banks? No answer. Since banks’s very survival depends on satisfying regulators, what’s so surprising about bankers cultivating relationships with the people who have a stranglehold on their careers? Does anyone seriously believe bankers would be better off antagonizing the regulators? And as for the regulators, the editors write:

After that crash, The Fed commissioned a report to investigate how it screwed up so egregiously. This report, from a Columbia finance professor named David Beim, found that the Fed was too risk-averse and admiring of banks that it was meant to regulate, and that a culture of leniency prevailed.

Were regulators afraid to challenges their bosses? Absolutely, the report said. Were examiners afraid to alienate banks that could be their next employer? The Beim report didn’t speculate, but NPR reports that seven former Fed examiners now work at Goldman.

Regulators are just as human as bankers. That’s something statists regularly ignore, because that reality clashes with their implicit mystical view of government officials as omniscient, infallible, and superior in wisdom. But remember that the “culture of leniency” prevailed in the context of a housing bubble-led economic boom. Why would regulators challenge their bosses, who were beholden to politicians who run on the booming economy? And by what fantasy do the editors think that regulators are not motivated by the same career incentives as anyone else? Why on Earth would they want to “alienate banks that could be their next employer?” And for that matter, why wouldn’t Goldman want former regulators and their connections inside the government regulatory agencies on it’s payroll? They’d be foolish not to.

What the editors expose is not bad regulation, but the very bad nature of regulation, which leads to corruption because regulation itself is inherently corrupt.

To top it off, there was this predictable nugget:

For two decades, the Ayn Rand disciple [Fed Chairman Alan Greenspan] shunned most forms of regulation and let Wall Street operate like it was the Wild West, literally ignoring fraud because he thought the market could overcome anything.

The result was a global catastrophe, and an old man admitting that his ideology was tragically flawed, as Greenspan was pummeled into historical infamy by an angry Congress.

I left these comments:

There’s some truth here. Banks are so heavily regulated that regulators actually have offices inside the banks. Cozy relationships between banks and regulators? That’s the nature of government regulations. With their business so straight-jacketed, what else can anyone expect of bankers, but [to] get “chummy” with the regulators? This unholy alliance of business and government wouldn’t exist in a free market banking system, where the government prosecuted fraudsters and other wrongdoers but left innocent people free to operate.

That said, there are fallacies here.

First, Greenspan’s butt-covering pronouncements to the contrary, banking regulations increased dramatically in the decade prior to the crash.

Second, Greenspan was not an “Ayn Rand disciple.” He was the Chairman of the Federal Reserve Board, the biggest bank regulatory agency and owner of the monetary system. They are diametric opposites.

If you want to see a real Ayn Rand disciple in action, consider John A. Allison, who successfully guided one of the big ten financial institutions, BB&T, through the housing boom, bust, and financial crisis by avidly avoiding (as much as regulators allowed) sub-prime lending. BB&T consequently emerged as one of the strongest banks.

At the time of the crash, Allison was the longest-serving bank CEO in the United States. He is on Harvard Business Review’s top 100 most successful CEOs of the decade. His experience through good times and bad—38 years at BB&T—warrants respect. Anyone with a modicum of objectivity and honesty should read Allison’s insider's’ view of the 2008 crash; his book “The Financial Crisis and the Free Market Cure.” As Allison notes, the problem wasn’t under-regulation. It was mis-regulation. One example of mis-regulation was mark-to-market accounting rules—imposed under Bush’s big regulatory bill, Sarbanes-Oxley—which needlessly accelerated the financial death spiral and wasn’t corrected until well into 2009, too late to save the economy.

Whereas Greenspan was a financial crisis culprit because he abandoned Ayn Rand principles, Allison saved his bank because he adhered to Ayn Rand’s Aristotelian principles.

The primary culprit for the 2008 crash was government intervention into the housing and mortgage markets—specifically, the Federal Reserve Bank and the politicians’ “affordable housing” policies and crusades. Bad banks were only a secondary cause. The politicians pushed sub-prime lending on the banks through the regulatory apparatus and the GSEs Fannie and Freddie, fueled by the Greenspan Fed’s bubble-inflating easy money policies.

Contra statist apologists, government officials are not omniscient, infallible, or superior in wisdom. They are subject to the same incentives as everyone else, including protecting their turf. Just as statists perpetrated the Big Lie that unregulated markets caused and exacerbated the Great Depression, so they are perpetrating another Big Lie; that deregulated markets caused and exacerbated the Great Recession. Statists and their apologists are perpetrating this new Big Lie to protect and expand their power over the economy.

Related Reading:

Where Does Valid Law End and Regulation Begin?

The Fountainhead of Deception - the Greenspan-Rand Mythmakers

The Financial Crisis and the Free Market Cure—John A. Allison

The Fountainhead of Deception - the Greenspan-Rand Mythmakers

At Politics Daily, Joann M. Weiner has published a piece entitled Ayn Rand: The Fountainhead of Greenspan's Errors.

She starts out with:

"Through their views on the virtues of free markets and individualism,
Ayn Rand and the former chairman of the Federal Reserve Alan Greenspan
will be forever linked as architects of the worst financial collapse
since the Great Depression."

And concludes with:

"Greenspan long believed in Ayn Rand and the power of free markets to
self-regulate. Unfortunately, we all are paying for his misguided
belief and failure to recognize that perhaps Howard Roark and man's
ego are not the fountainhead of human progress as Rand stated in her
1943 introduction to 'The Fountainhead.' "

Ms. Weiner "is an adjunct professor of economics at George Washington University, where she teaches public economics in the Economics Department and leads a seminar on the financial crisis in the MBA program at the Business School." What "public economics" is, I have no idea. I've never heard that term. It sounds to this philosophically attuned observer like the classic collectivist view of the economy, which basically holds that the economy is a distinct entity that exists apart from the productive individuals that comprise it. That method virtually guarantees bad economic analysis.

In any event, Ms. Weiner has not done her research on either the financial crisis or Ayn Rand, especially Rand's concept of egoism (I'm being generous here). Incredibly, she is considered an expert who "leads a seminar on the financial crisis"! Her major accomplishment seems to be a book regarding Implementing Formulary Apportionment in the European Union, which proposes a way to apportion tax revenues between countries from the profits of multinational corporations. Put another way, she studies ways to maximize government's take from productive enterprises. This establishes her statist credentials, and perhaps explains how she can seriously discuss the financial crisis without any mention of the massive role government policy and political manipulation plays in the mortgage, housing, and banking industries (aside from Greenspan's "errors", which are all Ayn Rand's fault).

It also explains her desperate desire to tie Ayn Rand's pro-individual rights, pro-limited government, pro-capitalist philosophy to a crisis that occurred in the most heavily regulated industry operating in the most unfree market segment of the economy. Her need to discredit Ayn Rand by tying her name to a massive failure of government central planning, as absurd as that is, at least exposes the seriousness with which some statists view the influence of her ideas. A nation of egoists, as Rand defines egoism, would never submit to government controls on so massive a scale as we have today.

Ms. Weiner and her ilk continue to use Alan Greenspan's decades-old intellectual connection to Ayn Rand to spin a web of myths, and I have dealt with this type of dishonesty and injustice before. So have the much more knowledgable intellectuals from ARC such as Alex Epstein and Yaron Brook. As they wrote in November, 2008:

"But why should we take him seriously? Greenspan, while once associated with laissez-faire philosopher Ayn Rand, hasn’t advocated genuinely free markets for decades. Remember, this is a man who for two decades reveled in being, as the New York Times put it, 'the infallible maestro of the financial system.'

Free markets don’t have 'infallible maestros'; they liberate us from such “maestros”--the central planners who have time and again falsely claimed the ability and the right to orchestrate millions of economic lives. Free markets enable each of us to be our own maestro, conducting our own affairs, producing and trading as we judge best, and taking responsibility for the consequences when we fail."

Of course, Ms. Weiner would never consider balancing Greenspan against authentic laissez-faire thinkers such as these two Objectivist "New Intellectuals" in the interests of simple fairness. I've left the following comments, sprinkled with a little well-deserved, if humorous, sarcasm.

Mike Zemack
9:34PM Nov 20th 2009

Intellectual clarity (an attribute of a true egoist) demands that the financial crisis be viewed in full context.

For example, we have Fannie, Freddie, and Ginnie, three government sponsored enterprises, which bought up the sub-prime mortgages as fast as they could be originated and sold. There is the grossly mis-named Federal Deposit "Insurance" Corp., which rewards and promotes unsound lending practices and drains the responsible banks – a semi-socialist scheme that privatizes profits and socializes losses. The Clinton-Bush affordable housing crusades used covert and overt tactics to undermine and destroy underwriting standards. The CRA, as well as the massive control and regulatory apparatus under which the banks operate, were the means to this end. "Too-big-to-fail" policies, government-imposed "mark-to-market" accounting rules (which drove many solvent banks into artificial collapse), and the government-licensed rating agency cartel (S&P, Fitch, and Moody's, which are protected from competition) are all significantly culpable.

All of this stoked by the 800 pound gorilla, the Greenspan-led central bank money monopoly and its massive money and credit expansion policies. Yet, Greenspan is shocked – shocked – that the heavily regulated, politically manipulated financial services and mortgage industries, operating under a "maestro's" dictates, didn’t act like a free market should!

But, in a monumental act of intellectual evasion (which an egoist would never engage in), Ms. Weiner not only wears blinders, she views the whole mess through a veritable straw. She blames derivatives! Greenspan, it seems, "allowed" the derivatives market to "self-regulate" (to use that ridiculous term) because self-interest is a be-all and end-all - the massive market distorting, coercive government interventions notwithstanding. Of course, a free market by permission is a contradiction in terms. Apparently, the monetary dictator forgot what the "free" in free market actually means, or that real free markets don't guarantee that everyone will act in his own long-term best interest, but rather leaves whoever doesn’t free to bear the consequences of his own actions. Baked into the whole of government policy is the removal of natural market risk and creation of a heads I win, tails the taxpayers lose environment. A real free market rewards good decision-making and penalizes the bad, as a matter of course. But, of course, you first need a real free market.

Blaming derivatives is like blaming skin cells for the ravages of skin cancer, yet we now need an army of central planners who just KNOW how other people should invest their own money. But it's not the innovative financial derivatives market that is the problem. It's what was in these instruments – the flood of sub-prime mortgages that the government-created conveyor belt of bad lending unleashed on the world – and with AAA-ratings to boot, bestowed on them by the rating agency cartel acting under the premise of implicit government (i.e., taxpayer) guarantees.

Everywhere one looks, one sees the intrusive hand of government. So whom do we get to sort it out? Why, the pseudo-free marketeer Alan Greenspan, the bubble-maker who ran the very central planning agency whose very existence he once argued persuasively against, who declared his mistaken "free market beliefs" to be the excuse for his own statist blunders! Ms. Weiner enthusiastically swallows this tripe, declaring with a straight face that the taxpayer bailouts are "incontestable proof that the markets failed". If she had any intellectual courage and independence (attributes of an egoist), she would seek out the judgement of authentic experts on capitalism and free markets (such as those at the Ayn Rand Institute) before writing on a subject that she obviously is quite in the dark about. Instead, like Alice, she prefers her Wonderland world where everything is anything she wishes it to be, which to her is to imagine that "the markets run free from any sort of regulation [in] a wild west style world where ... that lawless culture contributed significantly to last year's financial meltdown."

Ms. Weiner and all of the other Greenspan-discredits-Rand mythmakers need to re-think... Oh, that's right: thinking (the most fundamental of all egoistic attributes) is "not the fountainhead of human progress as Rand stated in her 1943 introduction to "The Fountainhead.' " Oh, well, maybe it's just as well, because as Henry Ford once said: "Thinking is hard work. If it weren’t, more people would do it."

I do agree with her on one thing, though, sort of. "Ayn Rand and the former chairman of the Federal Reserve Alan Greenspan will be forever linked” to the “worst financial collapse since the Great Depression" – Alan Greenspan as the chief architect, and Ayn Rand because she was right.

Hirsh on "The Anti-Greenspan" in Newsweek

A recent column in Newsweek by Michael Hirsh describes the switch from the supposedly “laissez-faire” Greenspan Federal Reserve Board to a regulation-expanding one led by Ben Bernanke and the “pro-regulation virus” Obama appointee Dan Turillo…the “anti-Greenspan”.

In this article, Hirsh takes the latest swipe at Ayn Rand. He writes about “then-Chairman Alan Greenspan, an Ayn Rand libertarian”. Of course, Rand was no Libertarian, and Greenspan was no Objectivist. Objectivism advocates laissez-faire capitalism, not monetary dictators. But, hey, accuracy about Ayn Rand and Objectivism are in short supply today among the anti-Rand cultists.

As to blaming the current crisis on Greenspan’s “belie[f] that markets could mostly self-correct, [and thus he] kept putting off writing any rules and stoutly resisted other efforts to regulate derivatives on Wall Street.” It wasn’t the innovative financial derivatives as such that was the problem. Rather, it was the toxic sub-prime mortgages that they contained that was.

Ignored in the above line of thinking is that while Greenspan was “allowing” the markets to “self-correct”, the markets were being distorted and crippled by Fannie and Freddie, the Community Reinvestment Act, Sarbanes-Oxley’s mark-to-market accounting rules, and the Fed’s own housing bubble-creating inflationary policies.

Following are comments I left at the Newsweek site, as well as responses to a correspondent’s replies.

The reference to Dan Tarullo as a "pro-regulation virus" is ingenious..,and perfectly apt. Government economic regulation IS a virus, and the cause of the current crisis is a whole swarm of such viruses having evolved over past years and decades. The resulting infections have made for a very sick patient.

In a free, unregulated, "uninfected" market:

*There is no central bank with monopoly power over money creation, interest rates, or to act as lender of last resort. An unregulated financial industry under the control of a government-imposed central bank is a logical impossibility.

*There are no government-created, politically pressured quasi-private GSEs like Fannie and Freddie, buying up untold $billions in unsound mortgages originated by imprudent private lenders and borrowers, for packaging and resale to the public with implicit government guarantees of safety.

*There is no Community Reinvestment Act to impose "flexible lending standards" in order to guarantee an alleged "right" to homeownership.

*There is no federal deposit "insurance" or government mortgage guarantees to encourage excessive lending risk, discourage prudent banking, and shift liability for bad banking to government, i.e., taxpayers.

*There is no excessive, artificial money creation (inflation) engineered by a central bank unconstrained by a gold standard to fuel asset bubbles such as the house-price explosion of the past number of years, which amounted to gasoline being poured onto a raging sub-prime fire.

*There is no government-imposed mark-to-market accounting rule (imposed under Sarbanes-Oxley, the disastrous regulatory law, passed after the Enron scandals, that punished the thousands of innocent companies that DIDN'T cook the books). Under mark-to-market, which Steve Forbes calls an accounting "weapon of mass destruction", many sound financial institutions with positive cash flow and mostly performing mortgages were driven into artificial insolvency "requiring" a government bailout. This may be the greatest "insider trading" scheme in history.

*Profits are privatized, as they should be, BUT SO ARE LOSSES, as they most certainly should be. Profit and loss, or risk and reward, are the countervailing market forces that work to the advantage of prudence long term. The socialization of risk and loss brought about by government intervention severed that connection, unleashing the quick-buck artists on a massive scale.

*Banks are not shielded from bankruptcy.


I could go on and on here. The private lenders and borrowers of bad mortgages, and any fraudsters that may have operated, are just the superficial face of the financial debacle. Their irresponsible behavior need not be excused to understand that it was taking place within the context of a myriad of market-distorting government interventions, which DOES NOT constitute laissez-faire in any way, shape, or form.

Any semblance of a free market in finance, housing, and the mortgage market have long since disappeared behind decades of ever-growing government efforts to "encourage" homeownership. The veritable conveyor belt of imprudent credit expansion revolving around the housing bubble is a creation of government, and wouldn’t have been able to remotely approach today's levels in a free market. In a free market, bad private financial practices are regularly weeded out by bankruptcy, foreclosure, and investment losses long before they can infect the entire system. The common denominator of the entire financial crisis is the government.

This massive financial crisis represents the collapse of a heavily regulated and controlled financial industry operating in a housing and mortgage sector beset by massive government intervention. It is not a failure of a non-existent free market. The alleged "deregulation" is no such thing. There can be no deregulation as long as the government retains its market-distorting regulatory powers, WHETHER OR NOT it happens to have exercised them in some particular way or not (as the scapegoat-seeking Greenspan well knows). The pseudo-deregulation blamed for the crisis is just a rationalization for expanded government control over the economy, to the detriment of individual rights.

As to the continuing efforts to discredit Rand and Objectivism by linking them to Greenspan, it's getting old, and it won’t work. Ideas cannot be refuted without openly confronting them, something Rand's detractors steadfastly refuse to do. Any link between Greenspan and Objectivism has long since been severed when Greenspan accepted the job of monetary dictator in 1987.

I received several replies from another correspondent, who calls him- or herself Too late smart, who brought up points important enough to answer. Following are his comments, followed by my responses.

Posted By: Too late smart @ 12/21/2008 2:35:03 PM
There is nothing in the Community Reinvestment Act requiring lenders to leverage and sell off mortgages. When it was found out that lending in the previously red-lined neighborhoods was profitable they pushed that business beyond all reason valuations went up. When the mortgagers lost jobs in the ressession, well you know what happened then.

You’re technically correct, Too late smart, but only technically. The inherently corrupt nature of government’s arbitrary regulatory authority over the banking industry is the key here. That regulatory power itself was the leverage the government used to coerce banks into sub-prime lending under CRA. The packaging and selling off of risky mortgages was pioneered by Fannie and Freddie, and later emulated by private firms. But it is not innovative products such as mortgage-backed securities that are at fault here. It is the toxic mortgages that ended up in them. The CRA was instrumental in creating them.

When the politicians and their bureaucratic allies that have life and death control over your business tell you to do something…you’re going to sit up and take notice. For a non-complier, the government can call down retribution in a myriad of ways, from criminal investigations under antitrust laws, to tax audits, to fraud or discrimination allegations and prosecutions, to merger permission denials, to congressional subpoenas.

The CRA may not be the primary cause of the crisis, but it is an important piece of the puzzle. When politics, through government’s regulatory powers, mixes with private economic decision-making, the necessary result is corruption of markets. It can be no other way. In the “partnership” between government and business, it’s the guy with the gun…the bureaucrat, politician, or businessman with political connections…that wins over private voluntary economic decision-making. Political power works in mysterious, unpredictable, behind-the-scenes ways.

For example, check out this winter 2000 article in City Journal by Howard Husock, The Trillion Dollar Bank Shakedown that Bodes Ill for Cities, which described the role the Community Reinvestment Act played in the coming meltdown. The predictions here are eerie, but understated. It wasn’t just cities that got infected, but the whole country, thanks to the upcoming inflationary monetary policies of the Greenspan-Bernanke Fed.

Posted By: Too late smart @ 12/21/2008 5:00:40 PM
Zemack: you need a sense of humor. You might have put in an ethnic joke about people who live in ghettos. The fact is people will pay their rent or mortgage before buying food. Any landlord can tell you that.. Now speculators and people who own more than one home can and do default often on million dollars loans. I am glad that you agree with me that it has been the schoolyard bullies that have been making the rules recently.

I’ll leave the ethnic jokes to you. That’s not my style. Plenty of low-income folks continue to pay their mortgages on time. The sub-prime crisis spread to all income groups because banks that jumped into that game had to offer them to everyone, due to anti-discrimination statutes. Many banks did so enthusiastically, such as Mazzilo’s Countrywide. As I said, CRA did not cause the crisis, but is a piece of a complex puzzle.

Posted By: Too late smart @ 12/21/2008 3:16:41 PM
Any kindergarten teacher knows that there must be rules on the playground. Any good teacher knows that the rules should be fair. The last several years in the big playground in Lower Manhattan any rules there were made by bullies and wise guys. Some of them will be getting a time out of about five years in Club Fed.

Under laissez-faire capitalism, the rules are fair because they are based upon objective law designed to fulfill government’s proper role of protecting individual rights equally, for everyone, at all times. This includes the right of consenting adults to contract freely and voluntarily to mutual advantage free from coercive interference by government. Government’s role is to protect those contractual rights, via vigorous prosecution of fraud, enforcement of those contracts, and mediation of contractual disputes.

Your schoolyard bully analogy perfectly describes our mixed economy, where the “rules” are always changing based upon the whims of power-wielding bureaucrats, politicians, and the politically connected special interests of the moment. Rand describes our mixed economy as “…rule by pressure groups. It is an amoral, institutionalized civil war of special interests and lobbies, all fighting to seize a momentary control of the legislative machinery, to extort some special privilege at one another’s expense by an act of government—i.e., by force.” Check out her full description of our mixed economy:

The current crisis occurred in a mixed economy (a government of men), not a laissez-faire one (a government of laws).

Posted By: Too late smart @ 12/21/2008 6:05:45 PM
Democracy and I suppose any other system needs certain quantities of intelligence and altrualism to not fail. An Ann Rand utopia has to have a Titan but what is more likely is a Hitler or a Stalin. Maybe Greenspan was lucky for twenty years. The CRA was not criticized for forty years. Social Security has been called a Ponzi scene for seventy years maybe by Ann Rand.

Too late smart, it’s Ayn (rhymes with mine), not Ann. You should really familiarize yourself with Ayn Rand and Objectivism, so you don’t make uninformed comments like your “Titan” statement. A rights-protecting government under laissez-faire capitalism, which leaves everyone free to live their lives free from the initiation of physical force, makes utopian dictators like Stalin and Hitler impossible.

By the way, Social Security is a Ponzi scheme. My wife and I have contributed over $300 K over our working lives, according to our S.S. statements, which means that if that money was placed into a personal investment account earning a reasonable rate of return, we would have probably three quarters of a million bucks to start drawing on in a few years. Instead, that money was spent or sent to other retirees. Now, when we begin to collect, we will have to depend on future workers’ taxes to collect on our contributions. If that is not a Ponzi scheme, then there is no such thing.

On Ayn Rand's Dishonest Critics-2

Former Fed Chairman Alan Greenspan’s congressional testimony last week continues to produce fodder for attacks on Ayn Rand and Objectivism. The attacks are designed to discredit her philosophy and ideas through guilt-by-association. Greenspan is well known as having been close to Ms. Rand during the 1960s and 1970s, although I don’t know of any evidence that he ever considered himself an Objectivist. If he ever did, he abandoned those beliefs long ago.

Nonetheless, an objective assessment of Greenspan’s actions as Fed chairman and how they relate to Ayn Rand is not a concern of the critics. The goal is to discredit Objectivism and bury it once and for all. But any short-term damage notwithstanding, this effort will be futile longer term. Rational ideas don’t die. Like an underground river that breaks through to the surface in unpredictable places, Objectivist ideas will continue to penetrate the culture and build on its already significant strength.

Bill Moyers, on his recent PBS program Bill Moyers’ Journal, follows the script to the letter. In his opening comments prior to the start of his interview with left-leaning economist James K. Galbraith, Moyers launches into a distorted attack on Ayn Rand, focussed on her ethics of what he calls “radical self-interest”. It is this that is the primary subject of my rebuttal, which I posted on his comments page.

In the wake of the financial crisis, a rush is on to convict capitalism. As I have been writing and will continue to write, it is logically impossible to blame free market capitalism for the implosion of a rigidly controlled and regulated industry. But what I find interesting here is the fact that of all of the pro-free market thinkers, it is Ayn Rand that gets the brunt of the assault. I have long believed that vocal attacks on Ayn Rand’s ideas will escalate in parallel with the ascendance of her influence in the culture. Her sudden prominence as a target of the Left wing attack machine is a good indication that her ideas have now reached the point where they are perceived as a long-term threat to their statist designs on America.

To be sure, there has been some positive (toward Rand), or at least balanced, commentary. But the mere fact of her appearance as a prime whipping dog of the anti-capitalist assault is proof of the growing strength of her ideas in the culture, in my view. Mr. Moyers seems to agree, referring to Rand as “the author of two of the most influential books of my generation THE FOUNTAINHEAD and ATLAS SHRUGGED, both timeless best-sellers.”

Here are the relevant remarks of Mr. Moyers, followed by my response:

Watching Alan Greenspan testify before Congress this week, I tried, I tried very hard not to keep thinking of Ayn Rand. I failed.

The philosopher and novelist Ayn Rand was Alan Greenspan's ideological guru, his intellectual mentor. She was also one of the most amazing fantasists of the last century, the author of two of the most influential books of my generation THE FOUNTAINHEAD and ATLAS SHRUGGED, both timeless best-sellers.

Rand was a hedonist, an exponent of radical self-interest, who so believed in unfettered, unbridled capitalism that she advocated the abolition of all state regulations except those dealing with crime. In the gospel according to Rand, the business community was constantly beleaguered by evil forces practicing, are you ready for this? Altruism! Yes, the unselfish regard for the welfare of others was a menace to greed, and Rand would have none of it.

Alan Greenspan met her as a much younger man in New York and, like so many blossoming capitalists, was smitten. He has since downplayed her influence on him, but as Chairman of the Fed for nearly 19 years he seemed quite Rand-like as he watched Wall Street run wild. Yesterday, like an old warrior still in a fog after his armies have been routed from the field of battle, he expressed shock at how his ideology has failed him. He didn't see it coming, he told the House Oversight Committee. The extent of the meltdown is, "Much broader than anything that I could have imagined," a "Once-in-a-century credit tsunami." The wondrous glories of a free market with no need of pesky oversight had somehow gone wrong. Now you tell us.

There is no question that Greenspan was influenced by Rand. But he is not in any way representative of her or of her philosophy of Objectivism, as anyone who has fully studied her work knows. If he ever was an advocate of laissez-faire capitalism, he certainly hasn’t been one in a very long time. If he were, he never would have taken the job of Fed Chairman, which is essentially a monetary dictator. A “free market” regulator is a logical impossibility. Taking that job completely disqualifies him from any valid connection with Rand’s ideas.

In short, Ayn Rand is being made a victim of guilt-by-association. Why her? Greenspan was undoubtedly influenced by many thinkers. There is only one reason to single out Rand…the power of her ideas and her philosophy of Objectivism. Objectivism offers the only comprehensive, moral defense of free market capitalism and of America’s founding principles of the unalienable rights to life, liberty, property, and each individual’s pursuit of his own welfare and happiness. In other words, Objectivism is the foremost threat to statists of every variety. Therefor, Objectivism must be discredited at all costs…at the cost of honesty, objectivity, fairness, or rational analysis.

Greenspan is being set up as the perfect straw man.

Importantly, though, it is telling that Mr. Moyers starts out by attacking Rand’s Objectivist ethics, and for good reason. The Leftist Mr. Moyers seems to be in agreement with Ms. Rand on at least one key point…ideas move human history, and morality is the most powerful force in the field of ideas. Her discovery of rational self-interest as the proper code of ethics for people to live by is indeed radical and is, in fact, the moral foundation of free market capitalism.

But Mr. Moyers deliberately fails to define her concept of self-interest, leaving his audience to accept a false premise. What he doesn’t tell you is that Rand utterly rejected the conventional definition of selfishness… that of a person who achieves his aims by taking advantage of others through dishonesty or trampling their rights, etc. Rand considered such people evil. Many of the villains in her novels, some of whom are businessmen, are people of such character. A good key to Rand’s concept of selfishness is provided in this brief definition from the book “Ayn Rand Answers”:

What do you mean by “selfishness”?

I mean the pursuit of one’s rational self-interest. I mean that the central purpose of one’s life is to achieve one’s own happiness, not to sacrifice oneself to others or others to oneself. “Selfishness” means to live by the judgement of one’s own mind and to live by one’s own productive effort, without forcing anything on others.

A similar distortion is in Mr. Moyers’ equating altruism with “regard for the welfare of others” and attributing that package-deal to her. In her refutation of altruism, Rand took pains to show that the two concepts are in fact mutually exclusive. She said (from The Ayn Rand Lexicon);

The basic principle of altruism is that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value.

Do not confuse altruism with kindness, good will or respect for the rights of others. These are not primaries, but consequences, which, in fact, altruism makes impossible.


Exposing the true nature of altruism, she went on to say;

Why is it immoral to produce a value and keep it, but moral to give it away? And if it is not moral for you to keep a value, why is it moral for others to accept it? If you are selfless and virtuous when you give it, are they not selfish and vicious when they take it? Does virtue consist of serving vice? Is the moral purpose of those who are good, self-immolation for the sake of those who are evil?

Rand rejected altruism precisely because it leads to predatory behavior, rather than benevolence and mutual respect. Altruism means self-sacrifice, which sets up a moral inversion…the unearned as a virtue, and the earned as a vice. Since, according to altruism, the moral consists not of achieving but of sacrificing personal values…then it necessarily follows that it is moral to be the recipient of the sacrifices of others, since one did not earn it. To keep what one has earned is selfish and thus immoral, according to altruism. The logical consequence of altruism is seen all around us…in the form of the growing entitlement mentality engulfing this country. Anyone with a “regard for the welfare of others” would never demand that they sacrifice their values, and no one possessing integrity would sacrifice their own. ("Sacrifice” is defined by Rand as “the surrender of a greater value for the sake of a lesser one or of a nonvalue.” This does not preclude charity or extending a helping hand to others, if the recipient is worthy according to one’s own hierarchy of values, one can afford it, and it is done out of a sense of good will, rather than as a moral command to “put others above self”.)

Worse yet, altruism is the moral base and justification of socialism and all forms of tyranny. It is the tool of the power-luster. And this gets to the heart of the matter. It is no accident that Barack Obama’s campaign rests on the morality of altruism (“We are all our brothers’…and our sisters’…keeper”). The battle between socialism and capitalism, or collectivism and individualism, is primarily a moral one. Is the individual subordinate to “society”? Or does he have a right to exist for his own sake? If self-sacrifice for the sake of others (altruism) is the standard of morality, then socialism is the moral social system. If the achievement of values for one’s own well-being (rational self-interest) is the standard, then capitalism is the moral social system. Anti-capitalists know this. Capitalism’s defenders…from Smith to Von Mises to Friedman…have not yet figured this out…with the exception of Ayn Rand. This may explain Mr. Moyers’ attacking her ethics. In any event, a country of rational people who selfishly demand their right to their own lives and freedom is what socialists (or their watered-down cousins, the welfare statists) fear most. This is the real motive behind the outbreak of anti-Rand, anti-Objectivist attacks, in my view.

Ethics is a complex subject, and requires much more discussion than is presented here. But, let me just say this. The radicalness, and great virtue, of Rand’s ethics is that it discards both altruism (self-sacrifice for the sake of others), and the conventional concept of selfishness (sacrificing of others for one’s own sake). Rand’s rational self-interest is a non-predatory, non-exploitative, rights-respecting moral code that discards the primitive dogma of human sacrifice altogether and, thus, clears the way for a benevolent human interaction based upon mutual respect. Her twin discoveries of rational self-interest…a new concept of egoism which is derived from man’s nature and the factual requirements of his survival…and of the true, evil nature of altruism stands as one of the greatest of philosophic achievements.

Mr. Moyers can be forgiven, perhaps, for getting it wrong on the Objectivist ethics. The view of selfishness as always evil and altruism as the good has deep roots, and Rand’s challenge to that dogma takes tremendous cognitive effort and reflection. But the tip-off that proves Mr. Moyers’ dishonesty is his discription of Rand as an advocate of hedonism. It doesn’t take much research to discover that she explicitly rejected hedonism as inimical to a person’s rational self-interest, which can only be determined by a process of reason within a long-term context.

A long line of economic thinkers has proven the practical ability of free market capitalism to enable tremendous increases in man’s material well-being. Yet capitalism continues to wither under the big-government assault. Ayn Rand found the key to this disparity…capitalism’s need for a moral sanction. Anyone interested in rolling back the growth of the predatory welfare state in America must be ready to make not just the practical case for capitalism, but the moral case as well. In this regard, I recommend discarding the misrepresentations of Rand’s ethics, as well as preconceived notions of selfishness and altruism. Make your own objective assessment by reading the Ayn Rand novels mentioned by Mr. Moyers, The Fountainhead and Atlas Shrugged, followed by these three non-fiction books:

The Virtue of Selfishness, by Ayn Rand

Ayn Rand’s Normative Ethics…the Virtuous Egoist, by Tara Smith

Loving Life…the Morality of Self-Interest and the Facts That Support It, by Craig Bittle