Thursday, February 18, 2010

Atlas Shrugged Response

(Response challenging my views being opposite the lessons of Atlas Shrugged)

I don't see it that way. I am a pretty pure capitalist. I support Milton Friedman's ideas about school vouchers to maximize privatized education. I never supported Obama’s plan to control CEO pay. In my MBA classes I was one of the few students to oppose CEO pay regulation, as compensation is a market function. Hell, I even work for one of the largest corporations in the world which provides a lesson everyday about supply and demand. I think government subsidies for corporations are anti-capitalistic. I thought that the American car companies should fail. I think unions have outlived their purpose and are the major cause of the auto company’s demise (and airlines). I think minimum wage laws are useless and unnecessary and I disagree when Democrats push regulatory legislation. I think the Federal Reserve is what allowed banks to undertake excessive risk with minimal consequence. If the Philadelphia bank in the 70’s, the Savings and Loan bank in the 80’s, and other large banks in the 90’s were allowed to fail, it would have sent a clearer message to manage risk this past decade, instead of embrace it. I don’t think it’s possible for a company to make too much money. This includes drug companies, as profit drives innovation.

However, there are times when I see conflicts between capitalism and the best interests of society. Healthcare is one example. The interest of shareholders does not align with the interests of the people. I see insurance companies as one of the most wasteful corporate entities, being fed by taxpayer dollars, and supported by legislation to stifle competition, creating a high barrier to entry. Tell me how this plays into a free market belief? I also find it absurd that the largest buyer of drugs pays the highest price driven by legislation making negotiation illegal. Tell me how that is capitalistic? (By the way, I have enormous respect for your brother who bucked party lines to vote against the Republican monstrosity healthcare bill. The Medicare 2003 bill is perhaps one of the most detrimental pieces of legislation to ever come out of Congress. A one trillion dollar entitlement program over ten years?! And the right calls Obama a socialist!)

Remember that Ayn Rand was a Russian immigrant seeing firsthand the problems with communism. It was the Russian Government that taught her how destructive anti-capitalistic models are, and drove her motivation to push ideas on capitalism. I don’t think anyone would question Greenspan’s dedication to free markets, but even he saw a flaw with the current capitalistic model stating that “he had made a “mistake” in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that “a flaw in the model that defines how the world works.” This contradicts Adam Smith. This also demonstrates to me that Ayn Rand needs some revision.

Tuesday, February 16, 2010

Education - Capitalist Style

Written in response to a challenge for privatized education and protection:

Public schools would be replaced by private institutions driven by profit. In order to meet the demands of capitalism, the only admitted students would be those who can pay. Obviously the quality of education would be directly tied to the amount one could pay, as the most expensive schools could afford to recruit and pay the very best teachers. Currently, the average costs for K-12 grade is roughly $8500 spent per student per year. Let’s assume that through capitalism greater efficiencies are realized and the cost drops by 30% (this is very generous). This would equal about $5900 per student. Let’s say since education is now privatized we now spend half on property taxes (savings of $800 on a $300,000 home in AZ). This would equal a net cost of $4900 for one student, $10,800 for two students, and $16,700 for three students.

Obviously households would have to be in the upper middle income bracket to afford the average education premiums, and for the best education, they would need to be an upper income household bracket. With half of the American households making less than $50k a year, paying little to no taxes, this incremental cost would solicit very tough choices. You could send you child to a below average school, at a lower cost, with poor quality teachers, shorter hours, and little to no resources. Or you could elect to forgo substantial costs like healthcare for your family which will then be reflected in emergency room costs skyrocketing (not to mention a poorer quality of life). You could also choose to educate from home, if there is a non-working parent willing to make the sacrifice. In any of these scenarios there is a guaranteed certainty that crime will spike given the lack of education and time spend in a productive environment.

Ultimately privatized education will drive increases in poverty, widening social class divides, and the absorption of the middle class. Even more unfortunate you will not see children from broken homes in Arkansas, become Rhode Scholars, and Presidents of the US. There is a reason that every advanced industrialized nation offers education in a socialized, not capitalistic, manner. Even for-profit institutions like The University of Phoenix rely almost exclusively on government subsidized student loans to generate 80% of their revenue (think about that for a second, your tax dollars are going right to the pockets of UOP shareholders).

Now, there is also the subject of vouchers which mixes government capital with private institutions. However, based on our current conversations about governmental spending, I am guessing government funded vouchers are not the ideal scenario.

There would be similar consequences for privatized protection. Imagine getting charged $200 every time you called 911. If you couldn’t afford the premium then calling 911 for help wouldn’t even be an option. Police wouldn’t even respond if you did not have a payment form on file, and those in danger would weigh whether or not the calling risk is worth the cost. Sounds like potential anarchy to me.