Blank-and-effect – The economics of pragmatism

In the latest of a series of new government interventions into the economy, President Bush announced a new plan to bail the financial industry out of hundreds of billions of dollars of bad assets. This follows an $85 billion bailout and effective takeover of the nation’s largest insurance company, as well as a several-hundred billion dollar bailout of the nation’s largest mortgage companies.

These actions represent a resurgence of government intervention on a scale not seen since the Great Depression. The decades-long aftermath of that era taught economists and others many lessons about the danger of economic control and fostered a revival of respect for the free market. It is now clear that our leaders have completely forgotten all such lessons and dispensed with any superficial respect they once held for capitalism.

Politicians are railing against “greed” as the reason behind the financial industry’s problems. Speaking about the government’s seizure of the country’s largest mortgage companies, Treasury Secretary Henry Paulson said the action was necessary because the companies “couldn’t be trusted to carry on by themselves.” Couldn’t be trusted to do what? To run a successful business and make a profit. Apparently, we are supposed to accept the blatant contradiction of a corporate America so “greedy” that it would bankrupt itself if left to its own devices.

The contradictions don’t stop there. Speaking of the new massive bailout plan, President Bush said, “There will be ample opportunity to discuss the origins of this problems[sic]. Now is the time to solve it.”

Translation: go ahead and solve the problem now, then figure out what the problem was later. Or: first achieve the desired effect, then determine its cause. This statement reveals a lack of respect not just for the free market, but for causality as such.

How are we to know, for example, that any given policy will return the economy to long-term health? Paulson and Bush’s answer: who cares? Why waste time figuring out where the problems came from, when we can solve them today? The proposed solution involves hundreds of billions of taxpayer dollars thrown at the problem of the moment, with no end in sight. There is no explanation of how bureaucrats will be able to manage huge companies better than seasoned corporate leaders, nor of how spending hundreds of billions of dollars on failing companies will result in increased prosperity.

But to those steeped in the pragmatist mentality, such explanations are beside the point. To them, cause-and-effect is old-fashioned. What’s needed is a “flexible” approach where different solutions are attempted on a trial-and-error basis. If something sounds good, give it a shot – even if that involves taking over companies and spending billions. Nationalization? Privatization? More regulation? Less? All of these options are being kept on the table as equally likely to work, as the Bush administration proudly declares that it is keeping an “open mind.”

Paulson, according to a colleague, stated that “there are no atheists in foxholes and no ideologues in financial crises”. Paulson and the Bush Administration’s point is that now is not the time to abide by a theoretical approach, but rather a time to simply act to correct the immediate problem. What they fail to recognize is that theirs is a theoretical approach. It is the approach of pragmatism, the theory that what is theoretically true has no impact on what actually works in practice.

We are witnessing an extremely expensive attempt to have one’s cake and eat it too. And as with all such attempts, it has to fail – the only question is how and when the destructive effects will be felt.

A Stroke of Good Luck

Free countries, when faced with the incapacitation or even death of a leader, do not fold like a house of cards. But news of North Korean dictator Kim Jong-Il’s apparent incapacitation from stroke is threatening to drive North Korean affairs into chaotic uncertainty.

US and Chinese officials are particularly nervous about the impact the destitute state’s imminent collapse would have on the nuclear situation. The article cites a US government official who, worrying about the “serious implications for international negotiation on the country’s nuclear disarmament,” notes that two recent decisions require approval from the potentially paralyzed despot, and so the diplomats are simply waiting on Kim’s return.

Nuclear armament has long been Kim’s trump card, the means by which he has extorted numerous concessions from the US in exchange for international “stability.” While the odds that this feeble, impoverished country could have ever mounted a serious attack against our allies in the region has always been slim, the US has consistently chosen not to risk such an improbability. Instead we have pursued a pragmatic approach: diplomacy, the foreign policy of appeasement.

However, the policy of appeasing North Korea failed to stop the one thing it was supposed to prevent: North Korea’s continued development of nuclear weapons. For most of his reign, Kim has been largely bluffing about his country’s capacity to attack its neighbors, but North Korea is now believed to have actually developed nuclear weapons.

Appeasement has also legitimized a ruthless dictator who continues to crush all dissent and keep his people chained in poverty. Thus in 2000, the world witnessed a historically obscene spectacle: the Secretary of State of the world’s freest country raising her glass to the dictator of the world’s most oppressive country.

That moment, the culmination of decades of diplomatic engagement with North Korea, is a large-scale example of what Ayn Rand identified as the sanction of the victim—“the willingness of the good to suffer at the hands of the evil.” When a leader of a free country sits down to dinner with a dictator, the former bestows moral credibility on the latter, serving only to embolden the perpetrator. Observe that the resulting promises by Kim Jong-Il to disband nuclear development quickly disappeared with North Korea’s detonation of a nuclear device in 2006.

The United States was founded on the principle that all men have a right to life, liberty, and the pursuit of happiness. North Korea represents the opposite principle-–that the individual has no rights and exists solely to serve whatever ends the state chooses for him. Given these differences, there can be no question that we have a moral right to defend ourselves from foreign aggressors like North Korea.

So why do we not defend ourselves? Because we doubt our moral superiority, we have allowed a petty dictator like Kim Jong-Il to set the terms of America’s security. In the end, the pragmatic and supposedly practical approach yielded a thoroughly impractical result: a nuclear-armed North Korea.

We should view Kim Jong-Il’s present incapacitation as a stroke of good luck, a chance to reevaluate our immoral and impractical appeasement of his totalitarian regime—and to strike a blow that would end his evil regime for good.

The Value of Atlas Shrugged

Originally published in 1957, Atlas Shrugged, one of the most controversial novels in American fiction, celebrated its 50th anniversary last year. Annual sales have been growing for years, and may grow even faster if Hollywood talk of a film-adaptation proves accurate.

Atlas Shrugged is routinely included on ‘favorite books’ surveys. It is not uncommon to hear a businessman, a teacher, a truck driver, or a musician say, “Atlas changed my life.” How is it that a fifty-year-old, 1200-page novel about industrialists and inventors can have such an effect on so many people?

Written by Ayn Rand, the Russian-born philosopher who escaped communism early in the 20th century, Atlas is a compelling novel about a cast of business executives struggling to achieve their interests in an inimical world. Set in New York City, it tells the story of Dagny Taggart, an underappreciated railroad VP, who fights to save her company from the incompetence and envy of her brother, the company’s President; of Henry Rearden, creator of a new metal alloy, who defends his invention against government bureaucrats who first mistrust then covet the valuable metal; of Francisco D’Anconia, heir to a lucrative copper mining firm, who pursues his own mysterious agenda while seemingly wasting away his wealth on frivolities; and of several other protagonists, each struggling in their own way to achieve and articulate their personal values.

What makes Atlas different is its philosophic depth. Underneath the suspenseful action, the story is fundamentally an intellectual mystery. Why do characters make the choices they do? What ideas animate them? The answers penetrate to the very core of Western Civilization’s traditions and values: Is man his brother’s keeper? Is the love of money the root of all evil? Is sexual pleasure base? Is happiness possible? What does it mean to be moral?

Atlas Shrugged, like all classics of literature, dramatizes a particular worldview, a way of approaching life that readers can judge, learn from, and incorporate into their own perspective. Unlike other classics, however, Atlas dramatizes values that are normally opposed in our culture—the justice of unfettered capitalism, the morality of principled egoism, the absolute efficacy of human reason. The heroes of Atlas are idealized expressions of values normally attacked in America’s college classrooms, churches and political platforms: commercialism, selfishness, and rational certainty.

If college is a time to survey the intellectual landscape in order to discover one’s own identity, if it is a time to read the great works of literature and philosophy, then it is eminently a time to read Atlas Shrugged. Atlas is a novel about what it means to be moral—and the answer, presented in an intense, page-turning, emotionally moving, intellectually challenging form, is one that will otherwise not be given a fair hearing. And it will be unlike anything you’ve ever encountered before.

TU on GoodSearch!

I am pleased to announce a new way that you can financially support The Undercurrent (TU), without spending a dime. TU has just been added to the list of eligible non-profit organisations for donations from GoodSearch. GoodSearch is a search engine powered by Yahoo Search that donates money to whatever non-profit organization that you choose. By choosing TU as your designated beneficiary and using the search engine, you will be supporting the cause of introducing thousands of students to Ayn Rand’s ideas.

You can also support TU by using GoodShop. There is a link to GoodShop on the GoodSearch homepage. Anytime you’re planning to buy something from Ebay, Amazon, Best Buy, Itunes, and hundreds of other stores, go to their websites through GoodShop, and a certain percentage of the cost of your purchases will be donated to TU. It’s that simple.

Thank you, from all of us at TU.

Enforcing ‘Constructive Behavioral Change’

A group of college presidents has sparked debate by signing a petition urging the drinking age be lowered to 18, the legally recognized age of adulthood. They argue that “twenty-one is not working” because it has “not resulted in significant constructive behavioral change among our students.”

Several groups are opposing this campaign, among them Mothers Against Drunk Driving. The president of MADD complains that “it is deeply disappointing to me that many of our education leaders would support an initiative without doing their homework on the underlying research and science.” She and others deny that “studies did not conclusively show a benefit to raising the drinking age [to 21].”

Leave aside for now the factual claims of either side and consider the nature of the debate itself. On one side is a group arguing that current laws do not “work”, citing only empirical studies as evidence for their position. On the other side is a group arguing that current laws should be left alone, citing only empirical studies as evidence for their position. In fact, both sides have the same motive (reducing drinking), but only differ on what the “research” tells us is the best way to achieve it.

This debate offers a good example of a fundamental error being committed in nearly all public policy discussions today. In general, the process proceeds as follows:

1. Determine desired behavior of populace.
2. Conduct various studies in order to determine what government restrictions might bring about such a “constructive behavioral change”.
3. Vote to decide which method seems to be the best bet.
4. In a few years, repeat.

There is a glaring problem in the above: the question of whether the government is justified in using its power to bring about “constructive behavioral change” is never raised. It is simply taken as a given that what is determined in step 1 is legitimate so long as there is enough public or legislative support.

In short, there is no discussion of rights. Does a 20-year-old have the right to drink beer? Does an 18-year-old have such a right? Given that they are adults, is the State justified in forbidding them to exercise their own judgment about whether to drink? These are the questions that those debating this issue should ask. But such questions would likely strike advocates of either position as bizarre – there are no rights under consideration here, only desired behaviors.

To see the problem with this approach, suppose for a moment that the Founding Fathers had used it when developing the Constitution and the Bill of Rights. Should we have the right to free speech? Well, that would depend on what speech the public desires to hear or read–thus, some studies would have to be conducted to see what the effects of allowing any given type of speech are, and whether such speech is “constructive.” Should there be a law preventing unwarranted government search and seizure of private property? Who could say–there hadn’t been conclusive research to determine the effects of that kind of policy.

Thankfully, the Founders approached law in an entirely different way: as a matter of principle. They proposed that government be instituted in order to secure the rights to life, liberty and the pursuit of happiness on the basis of fundamental principles of human nature, not as the result of a series of studies. When principles like individual rights are thrown aside, anything goes. When “constructive behavioral change” becomes the guiding standard of government policy, there is no room left for considerations of freedom.

If we want to see a principled approach to government and law, we must start by challenging the assumption that public desire for behavioral change trumps the rights of the individual.

Now Taking Fall 2008 Orders

Greetings TU supporters,

The Undercurrent is now taking orders for its upcoming September issue! To order copies, click on “Subscribe” at the right, or the link below:

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We will also be offering newspaper stands for sale at a discounted rate to make distribution easier. Stands will be about $26 each, plus shipping and handling. Send Guy an email after you order your papers to let us know if you’d like to order stand(s) with your papers.

Send an email to guy [at] the-undercurrent [dot] com if you have any questions or if cost is an issue for you, and we will see if we can subsidize your order. From all of us at TU, thank you for your support in helping us to promote a more rational culture.

Death and Carbon Taxes

In the early 1960s, President Kennedy challenged America to make what would be a giant leap for mankind by putting a man on the moon within the decade. Offering his own version of this challenge in a recent speech, former Vice President Al Gore called on America to transition all electricity production to “renewable” energy sources within ten years through the imposition of a tax on the burning of fossil fuels. According to Gore, all the problems currently facing America—notably the alleged “threat of climate change”—are the result of some pathological need for an expensive commodity that Gore thinks we can do without. His solution is simple: force people to forgo fossil fuels by carbon-taxing them out of existence. While Gore calls this alternative energy plan “achievable, affordable, and transformative,” it actually represents a giant leap backward for mankind.

Consider the consequences of implementing the carbon tax when renewable sources like solar and wind currently account for less than 9% of all electricity production, despite decades-long government subsidies. The alternative energy industry would wither without the government feeding tube; but with it, the industry has achieved output levels best described as comatose. Adding more taxpayer funds to the fodder, as Gore plans, will not fuel growth in the alternative energy industry. In other words, while we certainly can transition from oil and coal, the alternative fuel industry will not offer us anything to transition to.

Al Gore knows this. It is why he has not called for an outright, immediate ban on oil and coal, something one would expect from a man whose messianic message foretells imminent global destruction at the hands of fossil fuels. Gore understands that our use of oil and coal will more likely increase in the foreseeable future, and so a carbon tax is a surefire means of funding the alternative energy industry—costing taxpayers trillions in the short-term. Gore wants to have his cake and eat it too. He aims to destroy the fossil fuel industry while cashing in on its destruction, and he stands to make a killing (literally) in the process. The carbon tax is, essentially, a scheme to transfer wealth from individual and corporate taxpayers to “socially responsible” companies in which Gore and his cronies have personally invested. This is what Gore really means when he refers to the “green movement.” In the long run, however, this myopic scheme will actually yield diminishing returns for Gore—and everyone else. As the carbon tax bleeds the fossil fuel industry dry, the alternative energy industry will lose its primary source of funding and eventually vanish, as well. The demise of all electricity production will grind the motor of American life to a halt. The carbon tax may quell Gore’s concerns in the present, but it will more loudly proclaim the death knell of the future.

But suppose Gore’s call for total sacrifice to save the planet does not belie a more sinister motivation. Even then, on what facts does Al Gore conclude that a marginal change in temperature warrants the government-mandated execution of our fossil fuel industry and, with it, our way of life? Earth’s dynamic climate has changed over its 4.5 billion-year history from periods of intense heat to all-out ice ages, despite the fact that human beings only appeared on earth in the past 40 thousand years. President Kennedy did not call on men to reach for the moon by sacrificing their modern lives on earth, but that is what Al Gore would have us do now, in spite of whether his goal of creating viable alternatives to fossil fuels is desirable, practical, or necessary. His diktat-driven challenge bears the hallmark of a Soviet five-year plan, not a constitution enshrining man’s right to life, liberty, and property, including his right to produce and consume fossil fuels.

If global warming really is a problem, throwing our modern civilization and rights on a sacrificial pyre to Al Gore won’t solve it. Instead of drastically transforming the fundamental nature of our civilization, we should investigate the facts underlying the problems Gore claims fossil fuels cause and then leave individuals free—financially and politically—to solve them as required. Coercive taxation only has the power to destroy, and no matter how much Gore stands to gain in the short-term, his plan will certainly leave a path of destruction where a vibrant, fossil-fueled economy once flourished.

We must resist this, else that cynical old maxim will ring anew: death is carbon taxes.

The Absurdity of Hope

In November 2007, Barack Obama said that as President of the United States, he would personally negotiate with Iran, offering economic incentives and a chance for peaceful relations if Iranian leaders would forego pursuit of nuclear weapons and support of terrorists. In an interview with the New York Times, he said that Iran could possibly be ‘rewarded’ with membership in the World Trade Organization and other economic benefits if the country shows ‘changes in behavior’.

Most recently, an Obama adviser reiterated the Illinois Senator’s call to ‘sit down’ with Iranian leaders without conditions in order to resolve the issue of Iran’s pursuit of nuclear weapons. A Washington Post headline, “U.S. Talks with Iran Exemplify Bush’s New Approaches” confirms that this strategy is consistent with Bush’s approach as well.

But is negotiation really possible with a nation like Iran?

A negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of action. Negotiations are proper in situations where two parties have somewhat different goals but cannot agree on the exact terms of the transaction, and are conducted between parties who have a mutual interest or want to share a value. Consider the example of a professional being interviewed for a job. The professional expects a certain salary which he feels is warranted by his expertise. The potential employer may disagree about the actual amount and may, in turn, offer the candidate other incentives to join. Ultimately, the two parties either reach a mutually acceptable resolution or the professional seeks an alternative position. This kind of cooperative negotiation is based on a win-win mentality designed to ensure mutual gain.

Cooperative negotiation is based on reasonable and open communication stemming from a belief that common interests, benefits and needs exist.

Is this the kind of negotiation Obama seeks with Iran? If it is, then the Senator has failed to grasp the preconditions of successful negotiation. Iran’s President Ahmedinejad has regularly called for America’s annihilation in national radio addresses. He has consistently maintained his desire to destroy Israel, a staunch US ally. His government has, since the beginning of the Iraq war, murdered US soldiers on a daily basis through the arming of Shiite insurgents and the aggressions of the Mahdi army. For several years, his despotic regime has been responsible for the deaths of countless Americans by means of its direct support and financing of the terrorist organization Hezbollah.

Iran has revealed over and over again, in words and in actions, that its goal is the destruction of America. How does Obama expect to negotiate with a party whose goal is American destruction? The consequences of ‘negotiating’ with Iran would be similar to what would happen to a storekeeper if he agreed to pay ‘protection money’ to a local thug. The criminal, having identified his weak spot and reluctance to fight, would regularly increase the amount demanded under the threat of physical harm. ‘Sitting down’ with Iran and ‘rewarding’ it with membership to the World Trade Organization along with other economic incentives if it demonstrated a ‘change in behavior’ would be like attempting to placate a local thug with gifts so that he does not kidnap our kids when they return from school.

The self-inflicted blindness of Senator Obama and others who want to ‘negotiate’ with Iran, despite its transparent intentions, is baffling. The absurd hope that one’s friendly gestures will change the temperament of a murderous thug is suicidal.

The Ponies Made Me Do It

Former NBA official Tim Donaghy was sentenced to 15 months in prison last week for gambling on NBA games, some of which he himself officiated. The interesting thing about this case is not the question of whether or not the defendant was guilty. This was not a “whodunit?” case; Donaghy openly admitted his guilt at the trial. The interesting thing was his argument for why he should not go to prison.

Donaghy’s defense: he is a gambling “addict.” In a statement filed in a Brooklyn court, treatment counselor Stephen Block said Donaghy “could not stop himself from gambling.” (See here.) According to Block, gambling is an “illness,” a “hidden disease” which compels its victim to break the law against his will. This kind of testimony was the cornerstone of Donaghy’s defense.

This view is very widespread, and is not limited to gambling. Drug abusers, alcoholics, porn fanatics, and wife-beaters all claim that their self-destructive behavior is a result of forces beyond their control.

Whatever the facts of this particular case, being an addict does not exempt a person from the law because an addict still chooses his actions.

Consider a pedophile who is sexually attracted to young children and abuses children by acting on his attraction. Whatever the cause of his desire, there is nothing inherent in the desire that necessitates his acting on it. Whatever psychological obstacles—and they may be significant—such a man has to overcome to rehabilitate his desire, he still retains the choice of whether to act on it or not.

No matter what a man’s habits or emotional state (leaving aside the truly insane), he is always capable of making a choice. The desire to commit self-destructive acts does not compel one to act. Desires can only rule the man who allows emotions to dictate his life.

Science and Faith: Enemies

Billionaire investor Sir John Templeton passed away last month. A devout Presbyterian, Templeton devoted much of his fortune to the study of the relationship between religion and science. He believed that faith and the scientific method could work harmoniously to advance knowledge about the world.

Such a position may seem plausible at first. After all, many scientists today actively practice religion while still performing their research superlatively. But can science and faith actually co-exist?

They fundamentally cannot.

The scientific method requires us to make observations of our surroundings to form knowledge about the world. Knowledge, according to this method, ultimately rests on evidence found in reality.

In contrast, religious faith demands belief without evidence or even in contradiction to the evidence. Instead of looking outwards to reality to systematically gain knowledge, faith rejects a methodical processing of facts and urges us to look inwards. In practice, this means feeling-based convictions become the final arbiter of truth.

To illustrate this inescapable clash between science and faith, consider the controversy surrounding stem cell research. (See “Defining Life: The Moral Case for Stem Cell Research.”). Evidence suggests that stem cells possess the potential to cure debilitating diseases. In spite of this evidence, however, many people criticize stem cell research because they believe that a higher being opposes it.

Likewise, consider 15-month old Ava Worthington, who died earlier this year from an easily curable disease, bacterial bronchial pneumonia. Instead of taking her to a doctor for treatment, her parents prayed for her recovery while watching her perish. These examples demonstrate that science and faith lead in completely opposite directions.

But what about the scientist who also practices religion? Or the religious individual who still visits the doctor when his child falls ill? If science and faith fundamentally clash, how do these people get by?

These individuals are inconsistent. Like a diabetic who engages in a sugar-free diet one day and consumes donuts the next, their actions are the product of two contradictory approaches. To the extent they practice one, they undermine the other. For example, the scientist achieves success in his research only to the extent that he implements the scientific method. Acting on blind faith in the laboratory only serves to undercut this approach and ultimately, his success.

Science and faith are at war because they implement contradictory approaches to knowledge. One depends on evidence found in reality while the other deliberately rejects it. While individuals try inconsistently to practice both, Ava Worthington’s case shows that in principle, it is one or the other.