A Reflection on Ayn Rand and Consumer Protection
Over the last five years I have written books and lectured around the country about the real estate and credit industries -- particularly those sectors that apply to consumers.
And I have had an up close and personal vantage point to observe (and reflect on) whether there is any merit to Adam Smith's "invisible hand" or Ayn Rand's "hands-off" capitalism -- specifically whether institutions acting selfishly will eventually result in a fair and productive economy.
Although I wish it were so, it just ain't.
The problem is the tremendous disparity between corporate power, influence and wealth -- and that of the average consumer. This disparity causes disruptions in the invisible hand which presumes a fairly even playing field.
When corporations are doing what they should do -- maximize profits -- they have no vision for the consumer. The drive to maximize the bottom line and shareholder value takes precedent over a sense of fair play. Since all institutions are similarly motivated, the idea that the consumer can move from one provider to the other, and find differences in treatment, is theoretical but not practical.
That is why we had many people in mortgage loans they should never have been sold. That is why we have lots of people in credit card debt who should have been treated differently well before a crisis arose. Mortgage lenders -- both banks and nonbanks -- steamrolled their way to profits, let the buyer be damned. Credit card issuers spent hundreds of millions of dollars on tremendously clever marketing campaigns yet next to nothing on educating consumers about the risks and dangers of credit and debt.
The free-wheeling "invisible hand" can only work when there is a relative equality between the players in the game. When the consumer is up against a slew of behemoths, the consumer will lose.
At the same time, shame on the consumers who did not expend even the minimum amount of time and energy to educate themselves about mortgage products, home-buying conflicts, credit card protocols and the risks and rewards of debt. An educated consumer can at least keep the institutions at bay. Still, the wealth and power that the big lenders have is hard for any individual to keep up with. Powerful marketing campaigns, confusing loan products, non-responsive customer service and changing protocols will be too much for almost any of us.
Jim Randel is the founder of The Skinny On book series, a concise and entertaining approach to an understanding of consumer products. His first book, The Skinny On the Housing Crisis was just awarded the Gold Prize in a book competition sponsored by NAREE (a group of 650 journalists). Randel received the award last month at a ceremony in Washington, D.C.
Follow Jim Randel on Twitter: www.twitter.com/jimrandel
Robert Wright: Why the "New Atheists" are Right-Wing on Foreign Policy
It must strike progressive atheists as a stroke of bad luck that Christopher Hitchens, leading atheist spokesperson, happens to have hawkish views on foreign policy.
Tallulah Morehead: The Insanity of Ayn Rand: The Fountain-Brain-Dead.
This movie is pro-selfishness and egoism (which is just egotism misspelled), and anti-altruism. It preaches, at length and in a superior tone, that Altruism is Bad. And it means it.
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Capitalism has become too complex, with too many mega corporations, and too many middle men for Smiths' invisible hand to weed out the jerks. You cannot punish a company with your wallet if you have no other options (insurance), and if the their business practices were specifically designed to disempower you, or if you can't find the parent company. The vigilance it takes to know who you're dealing with or toget through to someone, would be a second full time job.
Any capitalist who talks about the invisible hand after say 2005... is a shyster, or clueless.
I think she meant Capitalism with integrity, not this feeding frenzy.
I notice that a preponderance of the critics of capitalism have made up their mind that people are on balance uninformed and lacking in intelligence. This is a segue to government intervention on a large scale in the private lives of individuals. Since you are too stupid to make your own financial decisions the statists must exercise control for your own good (Social Security, Consumer Protection Agency and so on...). Social Security is a perfect example of a scam, you pay into a system which has nothing but IOU's and have to pay for it AGAIN because the government has to make good on the IOU's. No corporation could get away with this.
I don't worry about corporations taking advantage of me. I shop around, do research and ask questions. If I don't like what they are selling I go elsewhere. Is it asking too much for everyone to do the same or should we just condone laziness?
Love your terms:
"....Ayn Rand's "hands-off" capitalism..."
Cute, but erroneous. No thinking to be exerted here! Right?
Let's just get the folks riled up. Right?
Ayn Rand comments (yes, this is from one of her many books,
believe it or don't):
"...they are the new type of businessmen, the product of a
"mixed" economy, who make fortunes, not by productive
ability [did you get that? "productive ability"--the little art shop
down the street--the mom and pop grocery around the corner-
-the receptionist at the hospital--the young kid working on your
car's motor] and competition in a free market [not "free" as in
dragging a little girl into court and forcing her to buy a permit to sell
lemonade on a street corner!], but by political pull (uh, does GE,
EXXON, COMCAST, AT&T, VISA, the Pharma's, Futures, etc., ring
any bells?), by government favors (just continue listing), subsidies,
franchises and special privileges..." (keep adding to the list
of "Whiz Corporations.")
You say:
"...whether institutions acting selfishly..."
uh, are you writing about businesses or government?
Are we a little confused?
".... will be too much for almost any of us."
Well, aren't you just a ray of sunshine for mom and pop.
So, we just give up, right?
Uh, who sent you? Really.
Capitalism and free markets are being confused with the concept of public goods which is basic Econ 101.
Letting the market determine success and survival is a great regulator for the selling price of an apple, but who is to decide whether the businessman uses pesticides, detours a local river for irrigation, depletes and pollutes the soil while using 6 year olds to produce that apple?
Government exists for the public good. WIthout government, you have tyrannies of the powerful over the weak...just like Somalia and any 3rd world bananna republic.
The apple itself is a market commodity, but if left t
Clean Water, clean food, affordible utilities transportation infrastructure, safe building and fire codes, all of these are public goods the private sector has no incentive to provide.
If a firestation is privatized, does it only put out fires for its subscribers and let the others burn? THere will always be someone refusing to pay for a public good, and that is why we have government.
Applying Ann Rand slogans are too simplistic and her vision of the powerful dominating the weak would result in Somalia or any third world bananna republic.
And you have totally misunderstood Rand.
Go back, read it all again, please.
I have seen the "You have misunderstood Ayn Rand" retort flung often enough to conclude that Rand's philosophy remains conveniently incomprehensible unless translated by a priest from the cult.
No translation needed: Ayn Rand's is a completely discredited worldview. Better to pursue the science that concludes a 6000 year old earth.
Capitalism left to its own without concern for the human condition is just a tool for enslavement.
In my opinion getting rid of the stock market would be a good thing. How much further up can one drive the stock values? We know about productivity increase but in the end you end up with no employees. Productivity is determined by dollars coming in versus manhours. So people complain why there is no customer service these days but say nothing when their stock increases. That is
actually detrimental to us. Then after you maxed out productivity, you can gain by buying up all the competition but I thought we had a law against that. Think about it, more and more gains are demanded yet where and how. Seems like we are shooting ourselves right into the foot!
Simple enough, you don't pay the people, you have no economy. Profits only come from people spending! What don't they get?
Neither of these writers considered "crime," either. They both seemed to be living in an idyllic world that failed to consider the depths to which otherwise-intelligent human beings can, and will, plunge in their quest for "filthy lucre."
But the writers of our Constitution did. (Article 2, Section 4 lists "bribery" next to "treason," as the only two high-crimes that it actually names.)
And the writers of the fairy-tale of Rumpelstiltskin also did. And the story of King Midas. And King Tantalus (from whence cometh the word, "tantalize"). And the handwriting on the wall.
This is the sort of thinking that would have the players walk away from a burning, demolished sports stadium ... blown apart with 307 million people inside ... and say, "well, we won the game, didn't we?"
Uh huh. You "won..."
Competition is supposed to involve choice. Name me one national bank that doesn't play with your account like it's just money to be taken? When I went to open an account, where was the ethical bank that was looking out for my best interests? It didn't and doesn't exist. Where is the mortgage agreement that favors the homebuyer over the financiers? We didn't make the rules, and if we had, we wouldn't have chosen those rules. It is incredible how "the consumer" is chastized for trying to survive in a system that is consistently stacked against them. Is a $35 fee fair for a $5 overdraft? To whom is that a legitimately fair punishment? Is it fair for someone's mortgage to double in a month?
The problem with Capitalism is that it undermines many of the goals it purports to accomplish. In health care it is more profitable to keep people sick. In finance it is more profitable to charge astronomical interest rates and fees than it is to help people manage their money. In our justice system it is more profitable to lock people up (in the for-profit prisons) and charge them fines based on "infringements" than it is to implement systems that deal with dysfunctions in a healthy way. In pure Capitalism, money becomes more important than anything, because it's tied to individual survival. And that is a very deep instinct.
The mega banks are mercantile not capitalist as are credit cards. They broke up the old small local bank system to allow the mega government sponsored banks that lock out competition. The mercantilists are not as much about profit as they are about control.
Capitalism is the small local store who serves the local customer and competes to give them her best. The mercantilists hate and crush this type of business. They send lobbyists to pass new regulations and costs to crush the local guy.
"They broke up the old small local bank system to allow the mega government sponsored banks that lock out competition. "
Unregulated free market capitalism.
Competition is about maximizing market share any way you can. The idea of the consumer being a brake on unethical or even criminal behavior in that pursuit is a myth because the informed consumer is a myth.
There are several distinct strategic choices for competition. You only note one, that has tended to fail over the long run. Historically, those who capture mega market share eventually fail. Those who learn to innovate and serve the consumer continue to survive.
Some choose to compete by innovating.
Others choose to compete by cutting supply chain costs and providing the lowest delivered cost.
Some choose to compete by hiring lobbyists and writing bills for Congress to pass and lock in their position. An example would be big tobacco who chooses to compete via regulations that lock out any competition, get it deemed a drug and lock in your share and profits. Add more regulations so that no one else can enter the market. They are satisfied to print money.
There are several other strategic choices for competition.
But, this does not make for good sound bites.
nothing is stopping you to buy shares in tobacco companies and get some of that juicy dividend.
stop complaining and join the winning team !!
I mostly agree with this article, but this is gratuitous:
"At the same time, shame on the consumers who did not expend even the minimum amount of time and energy to educate themselves about mortgage products, home-buying conflicts, credit card protocols and the risks and rewards of debt."
Let me translate into another parable of victimhood:
"At the same time, shame on the woman for wearing a short skirt in a dangerous neighborhood at night."
Yes, it's stupid. And it's still wrong for the corporations to take advantage of the consumer.
"At the same time, shame on the consumers who did not expend even the minimum amount of time and energy to educate themselves about mortgage products, home-buying conflicts, credit card protocols and the risks and rewards of debt."
And what about the consumers who relied on the information provided to them by the "experts"? We can't, all of us, be experts in every single area of practice that affects our lives. When the "experts" are in collusion, there is no way the consumer can educate himself. If the banker, mortgage broker, etc. all tell you "You can definitely afford this house comfortably" is the consumer going to have to become a banker, mortgage broker, etc. just to verify their statements?
While Adam Smith believed in the "invisible hand" of the market, he was neither a laissez-faire capitalist nor amoral loon like Ayn Rand. Among other things, Smith believed in progressive taxation so that the wealthy paid a greater proportion of taxes. He also believed that speculation was harmful to the economy because it diverted capital to non-productive uses (if he had been a laissez-faire capitalist, the mere fact that someone might get rich by speculating would be considered a productive use of capital).
That's interesting, how little you know of Rand. Rand believed that those who
made more and consumed more of, say, public services, should either pay
more 'per use' or pay higher taxes, proportionately, for their maintenance.
You didn't know that, did you?
She also believed that it was damn near a 'sin' (or at least as close to sinning
as she could get) for a business to receive ANY gratuities from government--
(aka her definition of laissez-faire)--unlike todays form of "Whiz Kid capitalists."
Keep reading, you'll catch up.
Yes she did believe it was damn near a 'sin' for business to receive gratuities from government. But you leave out the salient point that this belief came from her deeper feeling that government had no business interfering with businesses at all. No regulation, no consumer protection, no environmental protection, nothing. Rand had a good start on some interesting ideas that she then took to their extreme insane conclusions. I agree with a previous poster, it is not all or nothing. All regulation or none. There is a middle ground to be found there.
Left to itself, the "invisible hand" of Adam Smith quickly turns into a closed fist. If objectivist philosophy was true, then the wealthiest Americans, who own far more wealth both in raw numbers and as a percentage of the overall wealth of the nation than they did thirty years ago, would have provided more and more jobs. Instead, they hoard the money and leave the rest of us to fend for ourselves. And they are never satisfied. Having a billion dollars, they want two billion. Getting that, they want four. No amount is enough, no amount will ever be enough. Thucydides wrote about this 2500 years ago, the only thing that's really changed in human society is our level of technology.
If you want to label people as parasites n this country, we should start looking at the top and not at the bottom. Millions of "welfare queens" could not cause the kind of damage that a few hundred of the country's wealthiest.
Excellent - thank you for a great post.
Well then, there's your answer!
The wealthiest Americans are obviously NOT the product of the objectivist
philosophy! Actually, they would run from it because it would mean giving
up their dependence on the government dole.
Read this:
http://aynrandcontrahumannature.blogspot.com/2007/02/basic-fallacies-of-objectivist.html
I have to agree with you here. In fact, Rand would be disgusted with most of the wealthy in this country becuase she believed that wealth should be earned. She didn't treat "trust fund babies" very well in her books becuase she believed all wealth should come from some productive enterprise and not from capital gains on investments that were inherited from mommy and daddy.
The number one fundamental flaw in Capitalism is that competition is for sporting events not business. Business and their big brother Corporations seek to destroy their competitors always. If you are a naive business person who merely seeks to compete, you will ultimately fail.
Competition does not exist in the business world. Competition is for suckers.
I have noticed however that those companies that spend an awful lot of time trying to destroy the competition often get destroyed themselves in the process. The reason that I have seen for this happening is that too much time is put into destruction and not enough time into improving product, delivery or customer service. The negative destructo approach is quite costly in terms of resources, funds, time and personnel. From what I have observed these assets are better to use on building a solid foundation and basically not paying attention to competition. No one likes competition in business and the best way to win is to stick to the knitting while your competition wastes resources trying to do you in. This is not easy to do in the heat of the game but after years of experience I can say that focusing on what you can do to make a better product or service is the real key.
Not all businesses are 'big brother Corporations' nor do they all act to
destroy other businesses. And competition does exist. How many restaurants
are in your town? How many laundry/dry cleaners? How many independent
convenience stores? How many churches? (there's a good one!) How many
Pawn Shops?
Your local hardware store is in business because they think they can do
what they do better than anyone else.
And I appreciate Competition because it gives me lower prices, and that's all.
The next time you're in the grocery store, check out the items on the top shelf,
say, cereal. Post and Kelloggs.
Then check out the bottom shelves. Off brands, House brands, Generics
Check the contents of the packages, ozs., price per oz., vitamins, ingredients, etc..
Now, check the prices. Big difference.
That's competition.
What were you expecting?
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