I meant to post this earlier but my net connection, along with it seems that of a large number of other Malaysians, was down for the better part of Friday and Saturday. Here’s a link to an amusing article that I read on The Economist. Apparently one unexpected side effect of the current financial crisis has been a boom in the sales of books by Ayn Rand. The publication finds that there is a correlation between announcements of government intervention in the markets and spikes in the sales of Rand’s magnum opus, Atlas Shrugged.
The apparent cause is that current news seems to be echoing events in the novel, with Alan Greenspan’s admission of a flaw in the financial system being particularly seen by Randites as a cowardly capitulation reminiscent of a character’s rejection of reason in favour of faith in the book. More significantly, there seems to be a phenomenon called “Going Galt” going around in the U.S., named after John Galt, a major character in the novel. The idea is that taxpayers should stop subsidizing the government’s wasteful bailout policies and opt out of the financial system by simply choosing to produce less wealth than they could or even choosing not to work at all or closing down their businesses.
For what it’s worth, even though I call myself a libertarian, I don’t identify with this movement at all. Tax increases are to be avoided whenever possible, but in this case are absolutely necessary for the long-term health of the U.S. economy. I’m never happy with bailing out failed businesses or borrowers who took on more liabilities than they could comfortably handle, but I cannot agree that the U.S. government should simply do nothing. I’d have preferred for example, that the U.S. government went ahead and nationalized any banks that are found to be insolvent, but it’s pretty obvious that this is going to entail an extremely large increase in short-term government expenditure that will eventually need to be paid for in the form of higher taxes. I certainly won’t pretend that doing it my way would be any cheaper.
One thing about this movement particularly irks me is that many of them don’t seem to understand the concept of marginal tax rates. There are stories, for example, about people going around finding ways to make sure their income doesn’t exceed US$250,000 because they seem to believe that the higher tax rate for that bracket would be applicable towards the entirety of their income, rather than just the specific amount that exceeds the ceiling. Not very smart for a bunch of folks claiming to espouse rationality and reason.
I have not read her novels. But now that you mentioned, on my last trip I saw a couple of my co passengers reading Ayn Rand.
I agree with you that taxes should be paid, but I think it is good to pressure the govt to think about its spending. Such pressure groups bring reason into govt thinking.
Taxes are hard for even the smartest of people to understand. I dont blame the people to who dont understand the concept of marginal tax rates.
This is a wonderful piece, especially the last few paragraphs where you discuss the Obama government response to the so-called Great Recession. Although I may be a libertarian by some definitions, I do not call myself one or think of myself as one. I support practical, intelligent responses to the crisis, such as the Bush TARP and orderly (subsidized) disposal of Bear Stearns, while allowing Lehman Brothers to collapse. The Lehman collapse tends to prevent the spread of “moral hazard”. Other banks were allowed to go into bankruptcy or be sold to other banks. Finally, Obama’s team subsidized — bailed out — some huge financial companies like AIG, Fannie Mae, and Freddie Mac, and supported others with loans that seem likely to repaid. This kept the financial system from total, catastrophic collapse with enormous entanglement of distant companies and countries and, while risking moral hazard, probably prevented riots, depression, enormous unemployment, and general economic chaos. Obaman Keynesianism increased the national debt, but probably not catastrophically. It preserved millions of jobs. Krugman the Nobel-prize winning economist argues that Obama’s team should have spent more money on job preservation. He may be right. The trouble is, when we return to good times, taxes should be raised to pay down the national debt. But Republicans are certain to oppose this potentially sound and orthodox Keynesian measure; many Democrats are likely to join them. And so America piles up debt, for which Obama and the Democrats are even now being blamed. If I understand Friedman correctly, he believes that everything should have been allowed to collapse. I may be wrong, but I doubt this.
Sad to be reminded that this was more than a year ago, and while the US economy has stabilized, it still isn’t growing as strongly as expected or generating enough jobs. I don’t have any easy solutions. I think the US government should still be willing to spend money on projects that are worthwhile and act to stimulate the economy, but I guess it’s pretty hard to differentiate between good projects and “bridges to nowhere”. Despite all the gloom about the deficit, the national debt is still manageable and inflationary expectations are low.
As you say, the real problem are the political hurdles and the difficulty of increasing taxes when things get better to pay down the debt.