April 26, 2024

Why Did So Few People Save For Hard Times?

February 4, 2009 by Leave a Comment

A Recession of Biblical Proportions

Consumers usually build savings in booms, then raid their troves during busts – but not this time.

In booms we put away some of the abundance because we know we’ll need it in busts to come. Then, when the bad times hit, we spend some of what we’ve saved. But no more: Our recent bizarre behavior helps explain how we got into this economic mess.

For the first time since Genesis, consumers are doing everything backward. During the expansion from 2002 through 2007, our savings rate fell rather than rose. In mid-2005 it even went negative, and it mostly stayed below 1% until late last year. Then, as the recession really took hold, we again did the opposite: We increased our saving. As the economy shrinks, our savings rate has climbed to almost 3%.

Not only do we lack savings to dig into and spend during this downturn, but we’re also spending a smaller proportion of our incomes (which are themselves stagnating, so maybe it’s a triple whammy). Put it all together, and it’s clear why this recession is dragging on.

The central mystery: Why did we go into hock in the fat years? One argument is that we were behaving rationally. As our homes increased in value, they were doing our saving for us, so we didn’t have to save out of current income.

Nor was our borrowing binge focused only on mortgages; we were going heavily into most other types of debt as well. In fact, we were spending record proportions of our incomes just to service our personal debt – even with interest rates near historical lows.

Maybe it was just a mania, focused not on tulip bulbs but on the simple joy of buying, reinforced by a belief that bad times were no longer inevitable.

Whatever happens, don’t expect miracles. Spending and saving behavior evolves slowly, and our current mess is in some ways the culmination of a long journey. We may not suddenly start behaving with biblical wisdom. But at least let’s try not to forget how bad things can be when we get spending and saving backward.

Normal vs. Abnormal

It’s normal human behavior to want more than we have.   Our free enterprise system rewards hard workers by allowing them to live well.   What was not normal over the past decade were the ridiculous lending policies of the banks, encouraged and supported by the easy monetary policies of the Federal Reserve.

In fact, not much of anything was normal over the past ten years.  It’s not normal to lend borrowers large amounts of money without regard to income or credit.  It’s not normal to expect housing prices to rise 100% every five years.  It’s not normal to expect that a nation could borrow its way to prosperity.  The list goes on.

The really bad news here is that while consumers know what they have to do (save more, spend less) every action being taken by the Government and Federal Reserve is to continue the failed policies of the past, this time on an even grander scale.  Let’s all hope that the common sense of the governed will ultimately elect leaders who stop promising free lunches with borrowed money.

Courtesy:      mwhodges.home.att.net/

Filed Under: Economy, Federal Reserve, Housing, Stimulus Plan Tagged With: , ,

The Flip Side of Bad News – Still A 90% Employment Rate

February 2, 2009 by Leave a Comment

Disappearing Money

Charles Biderman of TrimTabs gave an interesting interview to Barron’s this weekend.  TrimTabs tracks flows of money in an effort to predict the stock market’s primary trend.

According to TrimTabs, “the first sign of a turnaround will be corporate insiders buying their own stock again and boards announcing new stock buybacks and cash takeovers of other public companies.  Right now, such buybacks are off about 90% year over year.

CEO confidence is at its lowest level since the Conference Board begain measuring in 1976.

Not a very positive assessment for those looking to put funds to work in the market.

In addition, the often cited “huge amounts of cash sitting on the sidelines” (in money markets funds), is also not apt to be a reason for launching the stock market higher either.   According to Mr Biderman,

“of the almost $4 trillion sitting in money market funds, almost two-thirds is institutional money, much of it probably earmarked as reserves against shareholder redemptions or committed to retirement and other long term purposes.  The money coming out of equity mutual funds is greater than that going into bank CD’s, money markets or other savings.  The money is disappearing because people are using it to live on.”

Of course, there are other possibilities as to where the disappearing cash is going.  Consider the  mistrust of the banking system and near zero interest yields on savings.  Perhaps some of these folks who sold their stocks are putting the money under their mattresses.  Or they just might be spending some of it.

Despite talk of consumers spending less and saving more, I have not really seen much evidence of that from one perspective.   I went to three casual dining establishments over the weekend (TGIF’s, Bertucci’s and Ruby Tuesdays) and each place was packed with customers.  There was a 10 to 20 minute wait time at each place for a table.   Maybe Connecticut’s economy is not yet getting hit as hard as other states.  Maybe people have decided to spend some of the money from liquidated equity funds.  Or, maybe things aren’t quite as bad as they say.   After all, even if the unemployment rate is at 10%, that means that 90% are still working and still spending.

Filed Under: Confidence, Connecticut, Economy, Jobs Tagged With: , , ,

Logical Minds Reject “Solution” Of More Debt

January 31, 2009 by Leave a Comment

Logical minds are questioning the wisdom of US stimulus (deficit) spending.   We have already seen the end results of excessive borrowing and spending by the State of California – see California Defaults.

Global Worries Over U.S. Stimulus Spending

DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.

“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

While the focus in Washington has been on putting together a stimulus package that will attract broader political support when it comes up for a vote in the Senate, here in Davos the talk has been about the coming avalanche of Treasury debt needed to pay for the plan on top of the bailout measures approved last fall, like the $700 billion Troubled Asset Relief Program, or TARP.

American officials maintain they are aware of the challenge. A top White House adviser, Valerie Jarrett, promised in Davos on Thursday that once the stimulus plan achieved its intended affect, the United States would “restore fiscal responsibility and return to a sustainable economic path.”

“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.

“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”

“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product,” he said. “It cannot be solved with more debt.”

While Mr. Ferguson is a skeptic of the Keynesian thinking behind President Obama’s plan — rather than borrowing and spending to stimulate the economy, he favors corporate tax cuts — even supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.

The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”

Mr. Zedillo, who remembers how Mexico was forced to tighten its belt when it received billions from Washington to keep its economy from collapsing in 1994, was even more blunt.

“People are not stupid,” Mr. Zedillo said. “They see the huge deficit, the huge spending, and wonder what comes next.”

US Should Take Its Own Advice

We could not come close to achieving fiscal responsibility when we did not have a financial crisis.  It is absurd to think that “at some future date” we will do so.  There is no easy solution to our financial nightmare.  The attempt to postpone and paper over the debt crisis with additional borrowed or printed money merely guarantees a bigger problem down the road.

Mr. Zedillo, former Mexican President, notes that his country was told by America  to “tighten its belt when facing financial collapse”.   Is the United States exempt from the same logic?  Why are we not taking the same advice we force upon others?

Filed Under: Bailout, Dollars, Economy Tagged With: ,

California Defaults

January 31, 2009 by 3 Comments

California to Delay $4 Billion in Payments – WSJ

California’s chief accountant on Monday will begin delaying nearly $4 billion of scheduled state payments, postponing income-tax refunds, grants to college students and welfare checks in an effort to prevent the state from running out of cash.

The delays will hurt an already wilting state economy, economists said, calling them the opposite of stimulus checks because people won’t get money they expect to receive. Controller John Chiang has said the delays will last 30 days.

Now, as lawmakers continue to haggle over how to erase a budget deficit projected to reach $42 billion by mid-2010, the state’s chief accountant has said he must delay payments to meet constitutionally mandated debt obligations.

Included in the delayed payments are personal income-tax refunds totaling nearly $2 billion, as well as bank and corporate tax refunds, among other things.

While many counties have enough cash to get through February, Trinity County in Northern California has only two to three weeks of reserves, said Dero Forslund, Trinity’s administrative officer. Once the money runs out, the county will issue IOUs to its 320 workers, he said, and then see if service reductions will be necessary as well. Trinity was expecting $2 million from the state in February, he said.

For years, California has relied on borrowing, by selling municipal bonds, to help get through difficult budgetary situations. But with a bond market that has nearly dried up — and with a poor credit rating — the state is hard-pressed to borrow.  California is already tied with Louisiana for the lowest credit rating among states.

To help close the budget gap, California Gov. Arnold Schwarzenegger last month ordered some state employees to take two days off a month without pay, starting Feb 6. The order applies to tens of thousands of state workers — out of a total of 238,000

The Cruel Irony of Excessive Debt

Call it what you will.   California avoids the legal definition of default but to the many creditors stiffed by the State, it makes little difference.  Those relying on income tax rebates and welfare checks to pay their bills will not be able to.   This broadens the economic pain to other creditors, retailers, etc. continuing the vicious downward cycle.  California must cut its spending but every spending cut equates to an income cut for someone else.

End result of excessive debt –  The State is left with zero options – it cannot borrow, it is defaulting on payment obligations and tax collections are plunging as the California economy implodes.  Every action the State needs to take to survive further harms their economy.  Further defaults or “debt holidays” by the State of California are inevitable.

California Faces Fiscal Armageddon- JrDeputy Accountant

“Fiscal Armageddon” has already sunk its teeth into the country – why should California be any different? With large numbers of immigrants, low-income residents, and disproportionate amounts of wealth and conservatism planted in Southern California, we’re pretty hopelessly screwed at this point. The battle of liberal vs. conservative will be waged across our great state with the whackos up here in San Francisco yelling for more social services and the LA neocons screaming for tax cuts; the truth is we all need a break and arguing about it isn’t going to help anything.

In such tumultuous times, an anticipated tax refund check can mean the difference between a roof over your head and eviction or food in your stomach and starvation. Many Californians who may have once blown stimulus checks and tax refunds on frivolous expenses are now counting on that mini-windfall to get them through what has already worked out to be a rough beginning of the year.

What exactly are we supposed to do with an IOU? California will not solve this budget crisis. Instead of IOU, an FU might be more appropriate because no one is going to be able to collect on these without putting the state in even deeper trouble.

The upside? These IOUs earn interest. Sadly, it’s a false upside – imagine millions of Californians owed 5% on promissory notes trying to squeeze blood out of a turnip. It just isn’t happening.

And no, California will not allow you to remit an IOU with your tax returns. This is a one-way dicking, my friend, and you are on the receiving end.

California’s “Super Stimulus” Program Fails

California has been living on vast amounts of borrowed money for decades.  The State has effectively been running “super stimulus” programs on a vast scale for years.  The false prosperity created by stimulus spending  is now over.  The economic pain that follows will destroy the financial security of many State residents.   Was the excessive spending with borrowed money worth the results?  The California example of failure should be considered in Washington as lawmakers attempt to “super stimulate” the entire country by burying us in more debt.

Filed Under: Economy, Stimulus Plan Tagged With: , ,

Notable Links

January 29, 2009 by Leave a Comment

An $800 Billion Mistake

As a conservative economist, I might be expected to oppose a stimulus plan. In fact, on this page in October, I declared my support for a stimulus. But the fiscal package now before Congress needs to be thoroughly revised. In its current form, it does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that’s what it takes to produce a much better bill. We cannot afford an $800 billion mistake.

Start with the tax side. The plan is to give a tax cut of $500 a year for two years to each employed person. That’s not a good way to increase consumer spending. Experience shows that the money from such temporary, lump-sum tax cuts is largely saved or used to pay down debt. Only about 15 percent of last year’s tax rebates led to additional spending.

The proposed business tax cuts are also likely to do little to increase business investment and employment.

The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit. It is worth taking the time to get it right.

The same politicians who are telling us that the stimulus package must be enacted ASAP are the same ones who did not see the financial crisis coming and then tried to deny it.  We are being told that we face disaster if we do not act quickly.

The world will not end if this spending bill is not passed this week.  We heard the same “we must act now” warnings last year with the $750 billion TARP disaster.  The politics of fear is wearing thin.   The so called stimulus act should be debated and time given to the American public to decide if this massive expenditure of money will accomplish anything other than running up more debt.

My advice to Congress and the President

How about this?  Come clean with the American public about the problems we face as a nation.  Admit that we have indebted ourselves to such an extent that our economic future is now at risk.  Stop trying to sell the idea that spending and borrower will fix the problem.   The problem caused by too much debt cannot be cured by more borrowing.  How about admitting that we are overextended financially and need to face sacrifices instead of passing the problem on to our children?  If the politicians can’t put these thoughts into words, they can simply hold up a picture of the chart below.

Courtesy:  http://mwhodges.home.att.net/

The Real Long-Run Value of Gold

To match its inflation-adjusted peak of $850 an ounce – as recorded by the London PM Gold Fix of 21st Jan. 1980 – the price of gold should now stand nearer $2,615.

“Ask the investor who rushed out to Buy Gold precisely 29 years ago, at $845 an ounce, about gold as an inflation hedge,” as Jon Nadler – senior analyst at Kitco Inc. of Montreal, the Canadian dealers and smelters – said on the 29th anniversary of gold’s infamous peak last week.

“They could sell it for about $845 today…[but] they would need to sell it for something near $2,200 just to break even, when adjusted for inflation.”

Because for gold to reach $2,200 an ounce in today’s money (if not $2,615…) would mean something truly remarkable in terms of its real long-run value.

  • Inflation-adjusted, that peak gold price of 21 Jan. 1980 saw the metal worth more than 5 times its purchasing power of 1913;
  • In March 2008, just as Bear Stearns collapsed and gold touched a new all-time peak of $1,032 in the spot market, the metal stood at its best level – in terms of US consumer purchasing power – since December 1982;
  • Touching $2,200 an ounce (without sharply higher inflation undermining that peak), gold would be worth almost 6 times as much as it was before the Federal Reserve was established in real terms of domestic US purchasing power.

Is gold a smart investment in terms of preserving purchasing power?  Depends on when you purchased it as the article explains.  Virtually every asset class except gold has seen a major drop in value over the past two years – something to think about.

TURNING JAPANESE – THE AUDACITY OF REALITY

Every day seems worse than the previous day. Five hundred thousand people are getting laid off every month. Our banking system is on life support. Retailers are going bankrupt in record numbers. The stock market keeps descending. Home prices continue to plummet. Home foreclosures keep mounting. Consumer confidence is at record lows. You would like to close your eyes and make it go away. Not only is the news not going away, it is going to get worse and last longer than most people can comprehend.

These “experts” fail to see the big picture and have no sense of history. It took 28 years to get to this point and it will take at least a decade to repair the damage. If the politicians running this country try to take the easy way out (very likely), add another decade to the recovery timeframe. Some indisputable facts will put our current predicament in perspective:

Another great article by James Quinn who assesses America’s economic future.  A very sobering and detailed analysis well worth reading.

Filed Under: Bailout, Economy, Gold Tagged With: , ,

The Unemployment Rate – Is It 7.5% Or 18%?

January 29, 2009 by 1 Comment

Job losses continue to accelerate as thousands of workers lost their jobs today.

The latest numbers include:

CORNING INC     3,500
BOEING               5,500
STARBUCKS         6,700
AOL                       700
FORD CREDIT      1,200

Job losses for the day totaled 17,600.    Compared to 65,000 job cuts yesterday and considering that 143 million people are still employed in the US labor force, today’s job loss may seem minor.   None the less, at a rate of almost 18,000 layoffs per business day, the annualized total of job losses in 2009 would amount to 4.5 million jobs.   Total job losses last year came in at 2.1 million.

Companies that announce layoffs of up to 20% of the work force are not just fine tuning.   The size of the job cuts being announced imply that businesses see an unprecedented and major reduction in future sales and profits.

Despite the obvious increase in job losses, official government estimates may be drastically understating the true unemployment rate.  Consider the following:

The Birth/Death Model Defies Economic Reality

The birth/death adjustment made by the Bureau of Labor Statistics added over 900,000 new jobs last year when computing the unemployment rate.  The model attempts to estimate new job formation caused by the birth and death of businesses.  The model admittedly produces inaccurate numbers at economic turning points but we are far beyond that point.  Last year’s addition of jobs based on the model were ridiculous and had zero correlation with economic reality.  Accordingly, the official government statistics understated the unemployment rate last year due to the birth/death model distortions.

True Unemployment Rate May Be Twice The Government Numbers

The official unemployment rate may also be dramatically inaccurate based on the Bureau of Labor Statistics method of calculation.  Consider the chart below from Shadowstats.com

If the government was still calculating the unemployment rate using the same criteria and methods that had last been used during the Clinton administration, the “official” unemployment rate today would be closer to 18%.

Courtesy of Shadowstats.com

The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated “discouraged workers” defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.

The economy is always about jobs.  Regardless of the method of computation, the unemployment rate is growing dramatically.   As the affects of layoffs and deleveraging continue to ripple throughout the economy, expect to see an official unemployment rate of over 10% in 2009.

Filed Under: Economy, Jobs, Layoffs Tagged With: , , ,

Job Losses – Symptom Of The Economy’s Downward Spiral

January 27, 2009 by 1 Comment

Major Job layoffs become a non stop story

Here’s a list of Monday’s horror show.

Sprint Nextel Cuts 8,000 jobs

Texas Instruments 3,400 jobs

Caterpillar 20,000 jobs

Corus 3,500 jobs

Philips Electronic 6,000 jobs

Home Depot 7,000 jobs

ING 7,000 jobs

Pfizer 8,300 jobs

GM 2,000 jobs

A total of 65,200 job losses in one day that will in turn result in further job losses as the jobless drastically cut back spending on all but essential items.

Points to consider about the ever increasing job losses:

1.  Only the large layoffs by national firms make the headlines.  Small businesses that employ over half of all private sector employees probably laid off a comparable number of people as demand and spending evaporate throughout the economy.

2.  Given the high unemployment rate, very few of the recently laid off will be finding new jobs.

3.  The stimulus plan is unlikely to re-employ the armies of workers now unemployed.  The government simply cannot manufacture enough make work jobs to replace those lost in the free enterprise productive sector of the economy.  The cost of every non productive job “created” will put a further burden on the private sector that creates the majority of jobs.

4.  The downward spiral of home prices and increased foreclosures will continue as many of the unemployed will be unable to make their mortgage payments.

5.  Car loans, credit cards, student loans and personal loan default rates will continue to rise based on the inability to pay.

6.  Asset values backing the defaulting debt will decline, causing further defaults.

7.  Destruction of confidence will cause major spending reductions even by those still employed and contribute to further job losses.

8.  Huge job losses and credit defaults will cause further massive losses for lenders of every type.  Lenders with exploding delinquency rates will drastically cut back their lending.   The current situation is unprecedented and the lending models based on income, credit, job stability etc. no longer work; every potential borrower will be viewed as a future default.

9.  The demands on the Treasury will be of such extremes, that economic triage will be necessary.  Rescuing the system will take precedence over millions of individual cases of economic ruin.

10.  Ultimately, it is always about jobs.

Despite all the optimism about the “stimulus” program, it will not work.  The amount of spending proposed is insignificant compared to the amount of asset and job destruction taking place.  The government will vastly increase its spending throughout 2009, but ultimately it will be time and price that bring the over leveraged system back into equilibrium.  A majority of Americans will see much of their wealth destroyed before we reach the end of this national tragedy.

Filed Under: Economy, Jobs, Stimulus Plan Tagged With:

Connecticut Discovers How To Eliminate Unemployment

January 26, 2009 by 3 Comments

The State of Connecticut has discovered a method of preventing job layoffs.

Blumenthal Wants Connecticut Regulators To Block AT&T Job Cuts – The Hartford Courant

AT&T said last month that it would pare its Connecticut workforce, which totals about 6,800, by 400 jobs and transfer another 60 jobs to Michigan. A day after the news broke, Attorney General Richard Blumenthal, flanked by union leaders, implored state regulators to block the cuts with the force of law while the state investigates the impact on customer service.

“This is not about AT&T. This is not about Blumenthal. This is about the kind of message Connecticut is sending to business — a state that has no positive job growth and [has] people who are falling over themselves to prove that they’re pro-consumer by showing they’re anti-business,” AT&T spokesman Dave Mancuso said.

State regulators have so far denied Blumenthal’s requests, without listing specific reasons.

Blumenthal’s call for a stay on layoffs has only intensified AT&T’s growing frustration with operating in Connecticut. During an economic conference in September, AT&T’s eastern regional manager urged government officials to scale back regulation and let the company do its job.  “We don’t need policy-makers stepping in and telling us how to do it or where to do it,” Chad Townes said at the conference.

Though parts of AT&T are regulated, the company is increasingly operating in a competitive marketplace that demands lower costs and lower prices.

“In order for them to be competitive with other carriers, this is what they have to do,” Kagan, the telecom analyst, said. “If they have to start worrying about how many jobs they have to leave in how many states … the company would be doomed.”

Layoff Bans Are Counter Productive

Under the guise of preserving customer service the Attorney Generals attempt to block job cuts will only further destroy Connecticut’s ability to draw new businesses to the State.  The Attorney General should know better and his actions seem more directed to pandering for votes rather than improving the business climate in Connecticut.

If prohibiting job layoffs is a great idea, why not extend the theory of a centrally planned economy even further?  Prohibit all layoffs by every business operating in Connecticut.  Extend this logic further and pass a law forcing AT&T and every other business in the State to hire new employees until the unemployment rate reaches zero?   Excuse me for saying so Mr. Blumenthal, but this tactic has failed in every socialist state on the planet.

Attempting to prohibit layoffs is total lunacy and it will not work.  My advice to the Attorney General – Instead of creating a hostile business environment,  Connecticut should be focusing on sensible issues that will foster economic and job growth.

If the Attorney General really wants to help Connecticut’s economy, here’s something sensible that he can work on.

Tax Foundation – Connecticut 3rd Highest Tax Burden in Nation

Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2008, Connecticut taxpayers had to work until May 8 (the latest in the nation) to pay their total tax bill, 15 days later than the national Tax Freedom Day (April 23).

Connecticut‘s State/Local Tax Burden Third-Highest in Nation
Connecticut, currently ranked 3rd highest, has risen 21 places over the last three decades and now holds a place among the nation’s highest-tax states.

Connecticut’s 2008 Business Tax Climate Ranks 38th
Connecticut ranks 38th in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property.

Connecticut Levies Sales Tax above National Median; Gasoline and Cigarette Taxes among Nation’s Highest

Connecticut Residents Are Voting With Their Feet

The Connecticut State Data Center says figures from last year show the population growth in the state is very small.

The University of Connecticut-based center says Connecticut’s population grew by less than two-tenths of 1 percent last year.

There is a connection between high taxes, job losses and zero population growth.  Connecticut has become a very high cost state for both residents and employers.  If Connecticut really wants to increase jobs in the state,  attention should be focused on lowering taxes.  Foolish, politically motivated schemes such as prohibiting layoffs will only lead to further job losses.

Filed Under: Connecticut, Economy, Jobs Tagged With: ,

‘Atlas Shrugged’ – Banned in Washington

January 21, 2009 by 3 Comments

Equality Through Poverty

Ayn Rand’s 1957 classic novel, Atlas Shrugged, depicts how governments ultimately destroy the most productive sectors of a society, leaving everyone equally poor.

‘Atlas Shrugged’ : From Fiction to Fact in 52 Years

Stephen Moore – Wall Street Journal – No One Explains It Better – (Highlights)

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read “Atlas Shrugged” a “virgin.” Being conversant in Ayn Rand’s classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only “Atlas” were required reading for every member of Congress and political appointee in the Obama administration. I’m confident that we’d get out of the current financial mess a lot faster.

[Atlas Shrugged] Getty Images

The art for a 1999 postage stamp.

Ultimately, “Atlas Shrugged” is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand’s political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear — leaving everyone the poorer.

Many of us who know Rand’s work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that “Atlas Shrugged” parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated “Atlas” as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

The current economic strategy is right out of “Atlas Shrugged”: The more incompetent you are in business, the more handouts the politicians will bestow on you. That’s the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies — while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to “calm the markets,” another trillion of national wealth is subsequently lost. Yet, as “Atlas” grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate “windfalls.”

The full article is well worth reading, not to mention the book itself.    Unfortunately, this book is more likely to be banned than read in Washington.

Filed Under: Bailout, Economy, Stimulus Plan Tagged With: ,