Ayn Rand killed the American dream: Our free-market economy only works for the 1 percent

Bankers cash bonus checks while sending others to unemployment. Selfishness and deregulation made the rich richer

Published June 21, 2015 4:00PM (EDT)

Ayn Rand, Paul Krugman                  (WIkimedia/Reuters/Anton Golubev)
Ayn Rand, Paul Krugman (WIkimedia/Reuters/Anton Golubev)

Excerpted from the book "Altruism"

The billionaire investor and philanthropist George Soros uses the term “free market fundamentalism” to describe the belief that the free market is not only the best but the only way of managing an economic system and preserving civil liberties. “The doctrine of laissez-Faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest,” he writes. If the laissez-faire attitude of an entirely deregulated free market were based on the laws of nature and had some scientific value, if it were anything other than an act of faith pronounced by the champions of ultraliberalism, it would have stood the test of time. But it hasn’t, since its unpredictability and the abuses it has permitted have led to the financial crises with which we are only too familiar. For Soros, if the doctrine of economic laissez- faire — a term dear to philosopher Ayn Rand — had been submitted to the rigors of scientific and empirical research, it would have been rejected a long time ago.

The free market facilitates the creation of businesses; innovation across many fields, for example in new technology, health, the Internet, and renewable energy; and affords undeniable opportunities to young entrepreneurs wishing to start up business activities that will further society. We have also seen that commercial exchange between democratic nations considerably reduces the risk of armed conflict between them. Yet, in the absence of any safeguard, the free market permits a predatory use of financial systems, giving rise to an increase in oligarchies, inequality, exploitation of the poorest producers, and the monetization of several aspects of human life whose value derives from anything other than money.

The Price of Everything, the Value of Nothing

In his book What Money Can’t Buy: The Moral Limits of Markets, Michael Sandel, one of the United States’ most high-profile philosophers and an adviser to President Obama, says that neo-liberal economists understand the price of everything and the value of nothing.

In 1997, he ruffled a lot of feathers when he questioned the morality of the Kyoto Protocol on global warming, the agreement that removed the moral stigma attached to environmentally harmful activities by simply introducing the concept of buying the “right to pollute.” In his view, China and the United States are the least receptive countries to his outspoken objections to free market fundamentalism: “In other parts of east Asia, Europe and the UK, and India and Brazil, it goes without arguing that there are moral limits to markets, and the question is where to locate them.” He gives some examples of the commercialization of values which in his view should not be monetized:

• For $8,000, Western couples can buy the services of an Indian surrogate mother;

• For $250,000, a rich hunter can pay for the right to kill a black rhinoceros in South Africa, a protected species in danger of extinction;

• For $1,500 to $25,000 per year, an increasing number of doctors in the United States are offering a “concierge” service, granting permanent access to their mobile telephone and the opportunity for same-day appointments;

• An online casino “gave” $10,000 to a single mother from Utah desperate to raise money to pay her son’s school fees, on the condition that she had to have their Internet domain name permanently tattooed across her forehead.

Can we monetize everything? Would there be any sense in letting someone buy a Nobel Prize if they had not deserved it? As for slavery, it continues to exist, just in different forms: trafficking women and children for prostitution the world over; Bangladeshi, Nepalese and Pakistani workers harshly exploited in the Gulf states; entire families in India shackled by debts spanning several generations to employers who deprive them of any freedom (more than ten million children from such families are subjected to forced labor in this way).

The only question the economist asks is: “How much?”

Markets make no distinction between worthy and unworthy choices: it is only the parties concerned who can confer value on any of the things or services exchanged. This can apply to anything, even hiring a hit man.

Do we want a market economy or a market society?

According to Sandel, even if the market economy is an effective tool for organizing productive activities, from a moral point of view, it should not invade all sectors of human life.

It therefore is not free trade in itself that must be called into question, but the fact that all freedom can only be implemented in a manner that is responsible toward those around you. These responsibilities are governed by moral values and by an ethical code that is respectful of the well-being of the community as a whole, starting with the obligation not to harm others when pursuing self-interest. By virtue of the fact that the unscrupulous and profit-hungry miss no opportunity to take advantage of unconditional freedom for their own profit and to the detriment of others, it is essential to establish regulations, which are nothing more than protective measures for society. This is, however, not what has happened, as Amartya Sen explains:

The apparatus of regulation was dismantled year after year by the Reagan administration until George W. Bush’s time in office. But the success of the liberal economy has always certainly depended not only on the dynamism of the market itself, but also on regulatory mechanisms and controls to ensure that speculation and profit-seeking do not lead to excessive risk-taking.. . . If  you are concerned about freedom or happiness, you must try to organize the economy in such a way that they are possible.

According to Stiglitz, “well-designed regulations did succeed in ensuring the stability of our financial system for decades, so regulations can work. Moreover, this period of tight financial regulation was also one of rapid economic growth, a period in which the fruits of that growth were more widely shared than they are today. . . . By contrast, in the period of ‘liberalization’ the growth of a typical citizen’s income was far lower than in the period of regulation. . . . There is a simple reason for the failure of liberalization: when social returns and private rewards are misaligned, all economic activity gets distorted, including innovation. The innovation of the financial sector was directed not at improving the well-being of Americans but at improving the well-being of bankers.”

The reality is that the free market economy does not work as well as its supporters claim. They say that it leads to greater stability, but successive global crashes have shown that it can be very unstable and have devastating consequences. What’s more, all the evidence points to the markets being far less effective than they maintain, and that the fairness of supply and demand, so dear to classical economists, is nothing but a myth, since we live in a world where a vast number of needs remain unsatisfied, and in particular where the investment required to eradicate poverty and respond to the challenges of global warming is lacking. For Stiglitz, unemployment, which prevents countless workers from contributing to the economy to their full potential, is the worst failing of the deregulated market, the greatest source of inefficiency, and one of the major drivers of inequality. Poverty, as Amartya Sen explains, is a deprivation of freedom, and not just any freedom: the freedom to express the potential that each person has in life.

The politicians and economists who have dominated the US political establishment since the Reagan administration thought we had to do away with all regulation pertaining to the free market and give free rein to the laissez-faire philosophy. They thought it was the best way to create equal opportunities for all: the most enterprising and the hardest working would be those who would succeed the most. The American Dream glorifies the shoe shiner who becomes a millionaire through sheer force of ingenuity and perseverance. Yet studies show that in the United States, with the odd exception, the wealthiest people, who lest we forget make up 1 percenr of the population, as well as their descendants, have the greatest chance of preserving their level of wealth in the long term. Stiglitz summarizes the situation as follows: “America had created a marvelous economic machine, but evidently one that worked only for those at the top.”

According to the champions of deregulation, the rich’s accumulation of wealth is supposed to benefit the poor due to the fact that they create jobs, stimulate the economy, and let wealth “trickle down” to the bottom. We must therefore not kill the goose that lays the golden egg. The problems start when the goose keeps all its eggs. The reality is that nowadays there is a minimal amount of trickling down, and it no more quenches the thirst of the poor than the water of a mirage.

In collaboration with economists from various countries, French economist Thomas Piketty has analyzed hundreds of years of tax records from thirty countries across Europe, the US and Japan. The conclusion of his fifteen years of painstaking analysis from this unprecedented mass of data is that the rich are getting richer and that their wealth doesn’t trickle down. In fact it trickles up. These findings, presented in Capital in the Twenty-first Century,flatly contradict the claim, repeated over and again by libertarian economists, that the accumulation of wealth at the top of the pyramid benefits everyone by filtering down to the middle classes and the poor. This is simply not true.

One of the main features of Piketty’s findings is that when people obtain most of their wealth through inheritance and from subsequently investing it, they invariably grow richer and richer, while those who earn wages and salaries for their productive work grow relatively poorer. This goes plainly against the idea that a small government and a deregulated economy made the USA a land of opportunity for all. The current system resembles a game of Monopoly with one player having one set of dice and the other three. The latter can only get richer and richer. His success has nothing to do with his hard work and personal skills. The three sets of dice represent inherited wealth, earnings made on financial investment and assets (such as property, art collections, etc., which generate non-taxable passive income), and proportionately less taxation on the rich. One set of dice stands for productive work based on personal skills.

Piketty has also shown that the only times when inequality decreased in the USA was when the government directly intervened to promote growth, during the New Deal in the 1930s and the Marshall Plan after World War II. Then the working person could hope to gain equal footing with the financiers through his or her own merit and hard work. Based to some extent on altruism, a Keynesian style of economics is aimed at achieving prosperity for both present and future generations, not at ensuring the selfish, short-term gain of a minority. Thoughtful regulation allowed the creation of a balance in society by applying an incremental wealth tax rate. People were more concerned for their fellow man and the social contract had a stronger element of cooperation instead of barefaced competition. From the 1980s on, the American Dream ended with the likes of Ronald Reagan, Milton Friedman, and Ayn Rand, as social solidarity waned and inequality continued to grow thanks to major tax cuts granted to the rich.

If more and more citizens across the world are feeling outrage toward the current economic system it is because, as Stiglitz says, following the 2008 crisis: “It was rightly perceived to be grossly unfair that many in the financial sector (which, for shorthand, I will often refer to as ‘the bankers’) walked off with outsize bonuses, while those who suffered from the crisis brought on by these bankers went without a job. . . . What happened in the midst of the crisis made clear that it was not contribution to society that determined relative pay, but something else: bankers received large rewards, though their contribution to society — and even to their firms— had been negative. The wealth given to the elites and to the bankers seemed to arise out of their ability and willingness to take advantage of others.”

To illustrate this, let us remember that at the onset of the crisis, Goldman Sachs highly recommended that its customers invest in Infospace, a startup selling various online services that had grown rapidly and been given the highest possible rating, even though it was dismissed by an analyst as a “piece of junk.” Excite, a similar business that also had a strong rating, was dismissed as “such a piece of crap.” In 2008, after 9 million poor Americans had lost their houses, often their sole asset, the heads of Goldman Sachs received 16 billion dollars in bonuses. Similarly, the five most senior people at Lehman Brothers, one of the biggest sellers of risky mortgage loans, pocketed over 1 billion dollars in bonuses between 2000 and 2007. When the company went bankrupt and their customers were ruined, they held on to the entirety of this money. As Stiglitz remarks: “Something has happened to our sense of values, when the ends of making more money justifies the means, which in the US subprime crisis meant exploiting the poorest and least-educated among us.”

Excerpted from the book "Altruism" by Matthieu Ricard. Copyright © 2013 by Matthieu Ricard. Translation copyright © 2015 by Little, Brown and Company. Reprinted by permission of Little, Brown and Company, New York, NY. All rights reserved. 

By Matthieu Ricard

Matthieu Ricard is a Buddhist monk, author, translator, and photographer. He is the author of several books including The Monk and the Philosopher, a dialogue with his father; The Quantum and the Lotus, a dialogue with astrophysicist Trinh Xuan Thuan; Happiness: A Guide to Developing Life's Most Important Skill; and Why Meditate? His books have been translated into over twenty languages. He has lived, studied, and worked in the Himalayan region for over forty years. Four million people have viewed his TED talk on happiness.

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