Saturday, November 21, 2009

Objectivism & Politics, Part 34

Politics of Human Nature 18: Economic interests and “rationality.” The current economic debacle has once and for all refuted the belief in the rational actor model, otherwise known as Homo economicus, and for that at least we can be thankful. That everyone pursues economic interests, and some pursue them to the exclusion of other interests and passions, is well testified by basic facts observed by all; and that some people pursue these economic interests with a modicum of “rationality” and good sense, is also eminently plausible; but the idea that many people either do or can pursue economic interests with the sort of full fledged rationality imagined by economists and preached by Rand and her disciples is no longer tenable. It is only due to the optimist view of human nature, propagated by reality-evading sentimentalists, that this rational actor theory was ever allowed to elude the scorn it deserved. All the best authorities on human nature have stood against it, from Machiavelli to the Founding Fathers; from Pareto to Steven Pinker.

The view of man as a nonrational animal is hardly the invention of Freud or Pareto. It was well known, for example, well before these alleged pioneers of the non-rational, that wishful thinking, rather than reason, plays an enormous part in human affairs, and that man, far from being a “rational animal,” could more accurately be described as “a nonrational rationalizer.” “The passions always seek to justify themselves and persuade us insensibly that we have reason for following them,” wrote Malebranche. “When one loves, hates, fears, desires, one has an imperative wish to have a reason for loving, hating, fearing, desiring … and by the force of one’s wish for it, one imagines that one has found it,” wrote Jean La Placette. Pascal wrote: “I think, not that a thing offends us for the reason which we find afterwards, but that we find the reasons because the thing offends us.” And John Adams wrote: “There is nothing in the science of human nature more curious, or that deserves a critical attention from every man so much, as the principle which moral writers have distinguished by the name of self-deceit.”

What was widely believed in the seventeenth and eighteenth centuries has been confirmed by scientific research in recent decades. As psychologist Daniel Gilbert explains:

Whether by choosing information or informants, our ability to cook the facts that we encounter helps us establish views that are both positive and credible…. When Democrats and Republicans see the same presidential debate on television, both sets of viewers claim that the facts clearly show that their candidate was the winner. When pro-Israeli and pro-Arab viewers see identical samples of Middle East coverage, both proponents claim that the facts clearly show that the press was biased against their side….

When facts challenge our favored conclusion, we scrutinize them more carefully and subject them to more rigorous analysis…. Volunteers in one study were asked to evaluate the intelligence of another person, and they required considerable evidence before they were willing to conclude that the person was truly smart. But interestingly, they required more evidence when the person was an unbearable pain in the ass than when the person was funny, kind, and friendly.” [Stumbling on Happiness, 185-186]

So it’s well established that human being’s are prone to rationalizing. There is plenty of evidence for it in everyday life and, if that doesn't suffice, we find even more evidence in countless psychological experiments. Rand herself would not deny the pervasiveness of rationalizing. She would only insist it is not an innate tendency in human nature. Yet given the ubiquity of rationalizing throughout human history, Rand’s view is grossly implausible. She cannot, after all, blame Kant for all this rationalizing, for it existed long before the sage of Königsberg began spinning his pedantic webs.

Now when we combine this insight with the issue of economic interests, we have another potential source of opposition to laissez-faire. Nor is it opposition merely from the usual suspects, such as civil servants, welfare recipients, and socialists. No, the opposition comes from the very class that one might think would be most prone to supporting laissez-faire: the business class.

There’s a long tradition of businesses receiving financial assistance from state and local governments in America. In 2006 the federal government spent $92 billion in direct and indirect subsidies to businesses and private- sector corporations. With the corporate bailouts of 2008 and 2009, this number obviously rises dramatically. Tariffs are another source of economic assistance to business; and while these tariffs have been relatively light in recent decades (despite recent tariffs on steel and tire imports), historically, they have been quite high in the United States, and even constituted a secondary cause of the Civil War. Nor should we forget altogether the efforts made by the Federal Reserve and the Treasury to encourage reckless speculation during the last two decades and exasperate market failures brought on by portfolio theory, over-securitization, and wildcat leveraging.

Now of course we all know that Objectivists oppose all these pro-business interventions as contrary to laissez-faire. “None of this will be a problem under laissez-faire, because it wouldn’t be allowed,” they would be eager to tell us. The problem is, first you have to reach laissez-faire, and how will this be possible when many businessmen are against it on account of economic interests?

If it is argued that these businessmen can be educated, by or through “reason,” to understand that corporate welfare and other government sponsered favors are not in their “real” or “true” economic interest, then I would simply point back to what I presented earlier in this post: human beings are rationalizers and self-deceivers. Whatever irrationality there may be in accepting government assistance, it’s easy to rationalize it away, particularly for those benefiting from it. Rand tried to argue that “rationality” (i.e., agreement with Objectivism) was necessary to life, as if to suggest that anyone who is not rational will simply die. But for better or worse, corporate subsidies in America have not killed anyone who has benefited from them. Nor have they destroyed the economy. At worse, they have made the economy somewhat less efficient and somewhat less prosperous; at best, they may have had a slight beneficial effect. The tariffs in the nineteenth century transferred wealth from farmers, who probably would have spent most of it, to industrialists, who invested most of their protectionist-derived loot in the development of the economy.

The general logic of so-called “corporate welfare” works like this: such transfers of wealth provide large benefits to a small number of people, causing a slight loss to everyone else. To try to convince the few who benefit from these transfers that it is “irrational” and contrary to their “enlightened” self-interest to enrich oneself (or one’s business operations) in this manner is, for all intents and purposes, futile. On the one hand, the benefits of the corporate welfare are obvious, tangible, and immediate; whereas its potential long-range costs are abstract, uncertain, and theoretical. As the old cliche has it, A bird in the hand is worth two in the bush. When placed against the power of rationalization, the Objectivist arguments against corporate subsidies and for laissez-faire will likely have no effect. And indeed, that is precisely what we find in the real world. How many businesses (or people in general) turn down subsidies, grants, privileges from the government? Very few. And on those rare instances when government money is rejected, it is usually because of some proviso in the handout that greatly reduces its attractiveness (as when corporations turned down bailout money because they didn’t want the government cutting their salaries).

Thanks to the power of rationalization, even an Objectivist can convince himself that his theoretical commitment to laissez-faire should not be allowed to get in the way of a chance to stick his snout deep into the public trough and begin chomping away. John Allison, the chairman and CEO of BB&T, the largest bank in West Virginia, rationalized the $3 billion he accepted in federal rescue money as follows. "While we feel these proposals are slightly negative for healthy banks like BB&T,” he said shortly before accepting the loot, “we are evaluating the extent to which we will participate. Frankly, it is difficult not to participate when your competitors are benefiting from the program. Consistent with our values and philosophy, we will make the decision that is in the best long-term interest of our shareholders and clients."

If even Objectivists accept corporate welfare and rationalize about it, what hope is there for the rest of us?


Darren said...

When it comes to the John Allison and BB&T situation you bring up, consider this situation:

A robber points a gun at me and says, "Your life or your money." I believe that I have a right to my own money.

Am I contradicting my values by handing my wallet to the robber? I'd say no, of course not. Ethics only apply to those situations where one has a choice, and my ability to make a choice went away when the robber pointed the gun at me.

Objectivism does not hold that one must be a martyr to the first individual or government official who applies force. Objectivists drive on public roads. Objectivists (at least those that I know) pay their state and federal taxes. Objectivists (at least those that I know) even cashed their Bush "stimulus" checks that came a few years ago. What Objectivists don't do, though, is cross the line and advocate for these types of things.

gregnyquist said...

Darren: "Objectivism does not hold that one must be a martyr to the first individual or government official who applies force."

No sensible person expects Objectivists to avoid public roads, to cheat on their taxes, or not to cash their stimulus checks. But accepting $3 billion in "bailout" money is another matter altogether. This is well within the province of choice: no one's forcing Allison to take the money. He is not a martyr if he doesn't take it, but merely a "man of principle"—which is what Objectivists are supposed to be, right?

"What Objectivists don't do, though, is cross the line and advocate for these types of things."

So it's okay to steal as long as one doesn't advocate stealing? Yeah, I know to stock response: the money (all $3 billion) was originally stolen by the government, and Allison is just stealing back. But this is a problematic mode of reasoning. What else can't you justify by such rationalizing? Why not seek tariff protection? After all, you are merely stealing back what was originally stolen from you? Why complain about the Fed's easy money policies? After all, the Fed is just giving back to banks what the government stole in form of taxes? Where is such reasoning to end? Where does one draw the line on such matters?

It seems to me that an Objectivist must be committed to the view that it is possible to convince enough people in the "rightness" of laissez-faire to make that policy politically feasible. Otherwise, what's the point? But how can an Objectivist argue against corporate subsidies while profiting from them? Doesn't this bring up a serious public relations problem?

Now I don't believe it is possible to convince enough people of the so-called "rightness" of laissez-faire to make it politically feasible; so it really doesn't matter to me whether Allison undercuts his convictions by his actions—that's his affair. But there's a somewhat more sinister side of this issue that deserves comment. Allison claims that BB&T is financially sound. Let us assume this is correct. So why is the government bailing out a financially sound institution? Now there have been rumors going around that Paulsen (Bush's treasury secretary) wanted to get as much of the bailout money into the hands of sound banks as he could manage. Why? I can think of only one reason: he wanted to get credit markets going again, and he understood that sound banks were more likely to be in a position to lend money than banks on the verge of going belly up. The problem here is that this type of intervention, designed largely to stimulate credit markets, constitutes one of the main causes of the 2008 economic debacle. In other words, Paulsen was trying to reinvigorate the very credit bubble that got us into this mess. Allison and BB&T, by accepting this money, is therefore, in effect, cooperating in a disreputable scheme that will likely make conditions worse in the long run. I find it hard to fathom how any honorable person could do such a thing.

Xtra Laj said...


To be fair to John Allison, BB&T were shown not to be in need of the money (from a capital perspective) by later reports and studies (I reviewed them myself when they were posted) and I'm fairly sure that they paid back the bailout money at the first opportunity.

I believe the reason why Paulson wanted to get the money in the hands of sound banks was that he wanted to make it harder to tell which banks were in serious trouble just by looking at whether they had loans or not.

I think that the whole question of whether Objectivists/libertarians find it practical or not to act in accord with this or that government policy just shows how ethics is usually an after-the-fact rationalization for many people. We don't have all the facts, but if I'm permitted to speculate a little, BB&T probably had no idea how the future would turn out. would you like to face an uncertain future with opportunities and risks with $3billion extra in cash or not? I think the answer is clear.


Xtra Laj said...

For me, the more difficult question, after accepting the fact that human beings rationalize all the time, sometimes to the point that they deceive themselves that they are being reasonable/rational, is how to distinguish between honest or truth seeking motives and dishonest motives, given that all motives are for the most part self-interested. To dismiss motives does not accord with common sense, but can we tell that a motive is the "true" one or a rationalization?

Anonymous said...

Xtra laj wrote :

"BB&T probably had no idea how the future would turn out. would you like to face an uncertain future with opportunities and risks with $3billion extra in cash or not? I think the answer is clear. "

Why, what was Gregs answer when he was offerred $3 billion from the US government?

Anonymous said...

It’s really not that difficult. If you are on objectivist you can eat your cake and have it. I mean the standard response is that you don’t stop a juggernaut by lying down in front of it. So, that means they can sign on welfare, getting ‘free’ education and health care from the state etc whilst at the same time denouncing these things. A bit like borrowing money from a guy, spending it down a bar and calling him rotten whilst drinking beer his money paid for! The objectivist answer? Well, once things are run their way…erm…well it all gets a bit vague; something about every employer will voluntarily provide health care for each and every worker. To which we say oh yeah?

gregnyquist said...

Laj: "I believe the reason why Paulson wanted to get the money in the hands of sound banks was that he wanted to make it harder to tell which banks were in serious trouble just by looking at whether they had loans or not."

An interesting take—I hadn't heard that. My source at the local employment development near where I live heard that Paulsen was trying to get money into the hands of sound banks because (1) he didn't give a damn about the bad banks, and (2) he wanted the good banks to start lending money so the credit markets would unfreeze and the economy could start revving up again. I still tend to find this view matter more convincing, more in keeping with other information I know. But perhaps my source was given erroneous information. Who knows?