I just watched part one of the movie based on Ayn Rand’s book “Atlas Shrugged.” I figured I better watch part one before I go to the movie theater to see part two. I purchased the movie and eventually will show it to my students to get their opinion. I think I will show it in my Macroeconomic class.
If you have been following my blog I write profusely about the horror associated with cronyism. This is the unholy union between government and business that awards competitive benefits to those who hang around the fort. Rand captures this reality quite well when she discusses the ability of a business person to get government to pass an anti-dog-eat-dog law. The explicit purpose of this legislation is to limit monopolies, but implicitly awards monopolistic like powers to those companies closest to the government. This is what cronyism is all about. It is not about free competition and a level playing field for all participants, but a legislative centrally controlled market that disperses the spoils to those closest to the politicians in power. This does not help our economic situation one bit, it exasperates it.
I am not a corporatist, but I am pro-market. I believe in the principles of free enterprise. But I am also pragmatic enough to recognize that human kind is a fallen race, subsequently there needs to be some sort of oversight of what occurs within the market. First and foremost, this is business’ job, and secondly it is our government’s job. True efficiency of the system occurs when the market overseas itself, but government is on the sideline to step in when the market cannot provide sufficient oversight of itself.
This partnership between government and the market is not cronyism, it is a pragmatic need to ensure fair practices occur. I wish I could say the market is always fair, but I can’t. At the end of the 19th century, the so called “Gilded Age,” produced a class of rich that had amassed huge amounts of wealth, and a rising gap between the rich and the poor. In response to this Theodore Roosevelt enacted trust-busting legislation, “promoting competition, while introducing progressive taxation” to establish the “first threads of a social safety net.” The purpose of this action was “to make society fairer without reducing its entrepreneurial vim.”
This week’s Economist tackles the question of whether inequality needs to be addressed or not? The article entitled “True Progressivism” is an excellent dialogue concerning our modern economic situation. It makes some very good points.
First they state accurately that “The twin forces of globalization and technical innovation have actually narrowed inequality globally, as poorer countries catch up to richer ones.” Although one could argue that convergence is not happening, the fact is that poverty has been reduced by 50% throughout the world. However, that is not the case here in the United States where the gap between rich and poor has widened. “In America the share of national income going to the top .01% (some 16,000 families) has risen from just over 1% in 1980 to almost 5% now.”
There are also those who argue that some measure of inequality is good for an economy. “It sharpens incentives to work hard and take risks; it rewards talented innovators who drive economic progress.” But, as the Economist rightly states, “One reason why Wall Street accounts for a disproportionate share of the wealthy is the implicit subsidy given to too-big-to-fail banks.” The writer uses this to illustrate government subsidies given to the wealthy to maintain the status quo of cronyism.
The Economist argues what needs to occur if we are going to become progressive in repairing our recessive economy. First, use a Rooseveltian methodology for attacking monopolies and vested interests. In other words, eliminate the cronyism that places a stranglehold on the advancement of our society.
Second, deal with our educational system. “The gap in test scores between rich and poor American children is roughly 30 to 40% wider than it was 25 years ago.” This the introduction of choice is critical. If this means charter schools and vouchers, so be it, but our country is falling behind.
Third, target government spending. As much as I don’t want social security messed with, the fact is the system is in trouble. However, overall we need to look at how the government spends money. Fuel subsidies to oil companies that are making billions on our addiction to oil needs to be reviewed. A government is required to raise revenue and spend. The question of where that spending goes is critical.
Last, we need to reform our tax system. I still believe in a flat tax system that eliminates all deductions. I also think that a higher capital gains tax will provide a fairer system so secretaries pay the same level of tax as the executives. I also think our country needs to review our corporate tax structure to ensure our entrepreneurs are able to compete with the rest of the world.
We have a lot of work to do. We don’t need a crony system that creates anti-dog-eat-dog legislation, but we do need a free market system that is fair in conjunction with a reformed system of government that revises our tax laws and educational opportunities to get us moving forward again, instead of backwards. The rest of the world is, while we fiddle and Washington D.C. burns.
And that is my thought for the day!