Objectivist Brook: Excessive Government Regulation Caused Current Crisis

On May 14, Executive Director of the Ayn Rand Institute Yaron Brook came to Stanford to present “Capitalism Without Guilt: The Moral Case for Freedom.” In the event, hosted by Objectivists at Stanford, Brook argued that the current financial crisis was the result of excessive – not insufficient –government regulation of the markets. He then claimed that opponents of free markets are quick to blame capitalism for the recession because the pursuit of self-interest that drives capitalism makes it incompatible with altruism.

Dr. Brook was emphatic in dispelling the current mainstream belief that deregulation was the central cause of the recession. He noted that the industries most responsible for the economic downturn, banking and housing, were two of the most regulated industries in America.

According to Brook, the government “wants us to own homes, whether we think it’s a good idea or not.” To achieve this, it provides numerous incentives, such as allowing tax payers to deduct payments on mortgages but not on rent; keeping interest and mortgage rates artificially low, especially for low income families; and subsidizing loans through the government sponsored entities Freddie Mac, Fannie Mae and the Better Home Loan Bank. Furthermore, the Community Reinvestment Act forces banks to lend in low income neighborhoods when they would otherwise not do so. “It’s all government policy,” Brook concludes.

Similarly, Brook argued that banks were also heavily regulated. “Banks are the most regulated industry in the United States. Maybe if you are a nuclear power plant you are more regulated than a bank. Maybe.” He explained that the government decides who can run a bank, who can start one, who can invest in one, and how much capital each bank can raise. Moreover, banks are regulated by several different agencies, including the Federal Reserve (Fed), the General Comptroller, the Federal Deposit Insurance Corporation (FDIC), and state regulators.

Brook contends that the most damaging regulations to banks are those done by the Federal Reserve, which he describes as “a government monopoly that controls the money and the interest rates.” Brook states, “Interest rates are incredibly complex, they capture the time value of money. We have twelve men who intuit. They don’t get it right. You can’t get it right. Central planning doesn’t work.” Instead of allowing the FED to control interest rates and money supply, he suggests that private banks should set their own interest rates and print money using the gold standard, the system used until 1933 where currency could be exchanged for fixed quantities of gold.

According to Brook, the cause of the crisis was excessive borrowing, especially mortgages for the purchase of real estate, by American firms and individuals resulting from Fed policies. He concludes that it was “a crisis generated by the Federal Reserve that was pumping money and lowering interest rates and a housing policy that funneled that money to housing.” Brook added that even President Obama’s Treasury Secretary, Timothy Geithner, in an interview with PBS’s Charlie Rose, agreed with him. “He actually said that it was Fed policy [from 2003 to 2005] that probably caused this mess.”

In the second phase of his presentation, Brook turned his attention to the morality of capitalism. He stated that every economic crisis has been blamed on capitalism because “ultimately businesses are about profits.” This makes supporters of capitalism uncomfortable defending it, as it is inconsistent with the values instilled in our society for the last 2000 years.

However, in one of his most controversial claims of the night, Brook strongly defended the ethics of capitalism. He argued that “morality is making the best out of your life” as opposed to being altruistic and helping others. He describes the pursuit of one’s own happiness and well-being as everyone’s personal responsibility, and not that of the government or other individuals.

Brook added that under free markets, the poor live better than under any other system, including where redistribution of wealth policies are in place. “Throughout history, capitalism raises the bottom faster than it raises the top.” Furthermore, Brook explained that the proponents of socialism were not poor and that socialism “never was and never will be a proletarian movement” because the proletarians understand that they benefit the most from capitalism.

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