Senior Analyst Evan Golden on Ayn Rand and the COVID-19 Economy
New York City’s Rockefeller Center-famed Atlas statue was fitted out with a mask as the city entered its second phase of reopening.
Abstract from Evan Golden, Senior Analyst
The article I submitted was written to establish a sense of Ayn Rand’s economic freedom philosophy and depict what the current economy looks like during the pandemic. Ayn Rand and the COVID-19 Economy also illustrates how Ayn Rand’s Objectivism could stall any recession, as well as prove that economic freedom and laissez-faire governments could work in our current climate. Throughout this article I investigate government stimulus packages and how they interact with the economy; recent and historical packages, possible industries with economic freedom and how they operate, and what economic freedom means and how real-life examples can be used for analysis.
Ayn Rand and the COVID-19 Pandemic
July 4, 2020, Independence Day, was one for the record books. My wife, my two children and I were on our way from Austin, Texas, to my in-laws’ ranch near Lampasas, Texas, when I heard a song on the radio: “School’s Out for Summer” by Alice Cooper. As often happens to me, the music sparked a memory of a movie I truly loved and enjoyed. The memory resonated within me the movie “Dazed and Confused” (1993), which was actually filmed in Austin, Texas where my family currently resides and had left for the weekend. The second element of irony is what sparked my interest in writing this article. A line in the movie states, “Okay guys, one more thing, this summer when you're being inundated with all this American bicentennial Fourth of July brouhaha, don’t forget what you’re celebrating, and that’s the fact that a bunch of slave-owning, aristocratic, white males didn’t want to pay their taxes.” This quote struck a nerve and made me realize the irony of the Independence Day holiday during COVID-19.
The United States of America was founded on the principles of economic freedom; freedom from paying taxes to Great Britain, freedom to work in any industry we prefer and as often as we want to, freedom to achieve greatness on our own without regulations, and so on. On July 4, 2020, the nation was celebrating Independence Day during a time the government had taken our economic independence away from us. Out of fear of spreading the virus, the nation had been forced into economic recession caused by closures of retail businesses that were deemed “non-essential,” construction workers had been forced to stop their projects, airline passenger jets had been grounded, and many hourly employees in the restaurant and hospitality industry were unable to make a living wage. The very nature of what this country was founded on had been taken away. Objectivism and laissez-faire economics need to be relished and brought back into the world.
On January 20, 2020, the Center for Disease Control (CDC) announced that three U.S. airports would begin screening for the coronavirus. These three airports were JFK, LAX, and SFO, based on experiences and the assumption that these airports would receive the largest incoming traffic from Asian countries. This date also marks the first time the U.S. recognized the coronavirus as a possible threat to the nation. On January 21, 2020, the CDC confirmed the first U.S. case of coronavirus in Washington state and this person had recently returned from Wuhan province.
On February 3, 2020 the U.S. was turned upside down and the Trump administration declared a public health emergency. Around the same time, there were 9,800 confirmed cases of—and about 200 deaths from—the virus worldwide. What followed shortly thereafter was a series of individual states declaring a state of emergency, followed by “stay-at-home” orders. The first state to declare a state of emergency was California on March 4, followed by their “stay-at-home” order on March 19. By April 7, 2020, forty-four states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands had followed suit with either a “stay-at-home” order or an advisory. Wikipedia defines a “stay-at-home” order as: “…an order from a government authority to restrict movements of a population as a mass quarantine strategy for suppressing, or mitigating, an epidemic, or pandemic, by ordering residents to stay home except for essential tasks or to work in essential businesses.”
A key question is the definition of the word “essential” and what each state considers “essential.” For instance, Colorado deemed recreational marijuana dispensaries “essential” businesses and they were allowed to remain open; however, cigar and tobacco shops were not considered essential, along with bars, taverns, and breweries. Restaurant dining rooms were closed but were allowed to fulfill takeout orders and deliveries.
“The U.S. government restrictions during the COVID-19 pandemic created an unnecessary economic downturn... Ayn Rand, who conceived the concept of Objectivism, would be appalled by what she saw in 2020 and would undoubtedly protest...”
Restrictions put in place by government agencies can make a large impact on the citizens of that municipality, whether directly or indirectly. When bars and restaurants are closed without expectation, wage earners at these businesses have no ability to plan for their short-term financial future and their living expenses remain the same but their income decreases; we call this a negative cash flow problem where more money is theoretically going out the door, thereby causing a cash deficiency. The U.S. government restrictions during the COVID-19 pandemic created an unnecessary economic downturn, causing harm to the country’s citizens and businesses by creating a negative cash flow problem for many households throughout the country. Ayn Rand, who conceived the concept of Objectivism, would be appalled by what she saw in 2020 and would undoubtedly protest the actions taken by the national, state, and city governments during the pandemic crisis.
The question of restrictions during COVID-19 can be fruitfully approached by using a framework created by Ayn Rand. Her book Atlas Shrugged sparked the most notable philosophical system, now known as Objectivism. The Objectivism movement was born out of this philosophy, and it was contributed to by many of her admirers, including Alan Greenspan, the former Chairman of the Federal Reserve, and Leonard Peikoff, a Canadian philosopher. Peikoff inherited Rand’s estate when she passed away in 1982, and he created the Ayn Rand Institute in Los Angeles, which still exists to this day. The Ayn Rand Institute, as described on their website, was created to provide education to create a greater understanding of Ayn Rand’s philosophy.
Objectivism, the philosophical system that Ayn Rand created, has rational selfishness and a laissez-faire economics as its core. Rational selfishness can be summed up with a quote from Ayn Rand herself: “My philosophy, in essence, is the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute…” (Rand, 1999, Appendix to Atlas Shrugged).
In the above quote, Rand is stating that human beings can achieve happiness by striving for the things they want—whether materialistic or intangible—and that individual has a right to work towards these goals at any cost, as long as they are not hurting someone else’s ability to work towards the goals which that person wishes to achieve. Rand’s definition of rational selfishness, accompanied with her ideas about a laissez-faire economics, have contributed to the never-ending debate on the government’s role in the economy. Should the government be allowed to restrict a person’s ability to achieve their own happiness by doing whatever is necessary to obtain their goals? What would happen if the government were to remove all trade restrictions and allow the economy to be truly free and operate on its merits and innovation? These questions are asked frequently and have never been truly answered.
“…Ayn Rand’s philosophy could have avoided a government-forced recession.”
The goal of this article is to provide real examples that show how Objectivism and Ayn Rand’s philosophy would have maintained the country in an economically progressive state during a crisis such as the COVID-19 pandemic. To my readers, I would like to emphasize that this article, and my thoughts as-written on these pages, in no way insinuates that the thousands of people who have lost their lives during the pandemic are immaterial. I am deeply saddened by the tragic loss of their lives and my prayers and thoughts go out to their families. Instead, this article is meant to provide an economic perspective on the crisis that has taken place and how Ayn Rand’s philosophy could have avoided a government-forced recession.
Economic Freedom
Yaron Brook, who is Chairman of the Board for the Ayn Rand Institute and has a Ph.D in Finance from UT-Austin, and Don Watkins, a fellow of the Ayn Rand Institute, have defined economic freedom as, “…people’s ability to engage in production and voluntary exchange without government barriers” (Brook & Watkins, 2012, p. 10). Brook and Watkins are saying that economic freedom gives buyers and sellers the right to choose to do business with each other, and the government should not be allowed to choose for them. When the Trump administration decided to declare a state of emergency, states took matters further with their stay-at-home ordinances and their listings of essential businesses, which determine who can and who cannot do business during the stay-at-home orders and states of emergency, declared in March and April of 2020. When the government influenced the business practices of retailers, doctors performing elective surgeries, gyms, and even privately-owned tech companies, it took away the freedom to buy, sell, and trade with other individuals and businesses, forcing an economic recession, when it was not necessary. At the time of writing this article in September 2020, there had been roughly 10 million cases of COVID-19 in the United States, of those cases, there were around 215,000 deaths. Per data compiled by the Center for Disease Control, of the roughly 215,000 deaths, 125,000 of those were linked to the age group of seventy-five years or older and 47,000 were of sixty-five years or older with a total being 172,000 of the 215,000 deaths being over the age of sixty-five. Why is this important? The average retirement age for the U.S. is sixty-two years old, which means the nearly 80% of COVID deaths were in the retirement age and not working full-time and were not dependent on forty-hour work week wages. Now, if one were to look at the unemployment rates during the COVID-19 pandemic, they would see that the unemployment rate in September 2020 was 7.9%. This is more than double the September 2019 rate of 3.5%. This number was up as high as 14.7% in April when the stay-at-home orders were being implemented and the economic shutdown began. To connect the dots; the government shutdown the entire economy to help the 80% of individuals who would primarily be effected by the virus but in turn caused economic hardship on 8-14% of the labor work force. Economic hardship can cause many other internal hardship, for example, increased suicide rates. Based on information from the Center for Disease Control, suicide is the second highest cause of death for the twenty-five to thirty-four-year old age group and the fourth highest for the thirty-five to fifty-four-year old age group. These are professionals in the work force with responsibilities, families, desires, and needs. When adding economic hardship on to the already existing laundry list of items on ones plate, mental health becomes a large factor in safety. Per the CDC, 41% of adults say that they had at lease one negative mental change during the pandemic which includes anxiety and depression.
The word “voluntary” in the quote by Brook and Watkins is a key adjective that I would like to discuss further in this section. If I were to try and define the word voluntary for the purpose of this article, I would simply describe it as “of one’s own free will, without coercion, obligations, and restrictions.” The U.S. government, has forced the removal of whatever small amount of economic freedom the citizens of this country had before the COVID‐19 pandemic, thereby leading the country into a recession that was unnecessary. In this section, I will try and use real‐life historical examples of how allowing companies the freedom to operate as they see fit during a pandemic would have been beneficial. I will argue that if the businesses did not operate with their consumer in mind, their business would be hurt and they would have a hard time recovering from the pandemic, once everything is cleared for normal operations again.
On September 29, 1982, reports told of three people dying from ingesting Tylenol laced with cyanide. This turned into a poisoning spree that would claim seven lives by October 1, 1982. This case study has become a very popular teaching tool in business schools, used to show how companies can be faced with an issue and—by having the correct reaction—can not only save face, but also save the company.
Before the deaths by cyanide, Tylenol was the most successful over‐the‐counter product in the U.S. and was directly responsible for 19% of Johnson & Johnson’s (J&J) corporate profits for the first three quarters of 1982. Besides being a major product for J&J, Tylenol also accounted for 37% of the total painkiller market share, making it the “Kleenex” of over‐the‐counter pain medications. Given its market share and how dependent J&J’s stock value was on Tylenol, one could only imagine the difficulty of having to explain why their namesake drug was responsible for seven deaths in the Chicago area. This is where the example becomes relevant to the current COVID-19 pandemic and allowing companies to adapt to current market and consumer needs.
James Burke, who was J&J’s chairman at the time, decided that putting together a task force was the first step in reacting appropriately to the negative perceptions brought on by the media on the surrounding the deaths. The task force decided that the first course of action was to determine how to protect the people, and the second was to save the product. The team alerted customers across the nation about the tampering of the product by using the media as an outlet. Next, the team halted production and removed all capsules from the shelves, first in the Chicago area—and eventually nation‐wide—after finding two more bottles of capsules with poison.
The question that emerges at this point is, how does this relate to economic freedom? The short answer is: J&J recalled all Tylenol capsules throughout the entire country, spending millions to make sure that their product would not be responsible for any more deaths and poisonings. J&J was not required to react as they did; they reacted out of selfishness. For if they were to be responsible for more cyanide deaths, they could potentially lose millions on lawsuits, litigation, and even through market share drops—if consumers connected Tylenol to death—instead of pain relief and thereby opted for a direct competitor of the Tylenol brand. (Consumer brand loyalty, as any retail employee or producer will say, is key to the success of a brand. If consumers lose trust in products, they will stop using them). After money has been injected to the research and development of a product, losing market share and sales could hurt the company in just a few short years, causing the company to have a negative cash flow and become insolvent.
To be clear, Tylenol was number one in the market, and losing that spot would be detrimental. To ensure that J&J and their Tylenol brand remained trusted by consumers, J&J also developed a brand-new way of triple‐sealing their packaging. This method of gluing the box shut, adding a plastic seal over the neck of the bottle, and placing a foil seal over the mouth of the bottle, has now become the standard in packaging for all over‐the‐counter medications, similar to Tylenol’s method. Tylenol, just six months after its crisis, was the first to use such tamper‐proof packaging, which helped maintain their trustworthiness in the consumer market. J&J invested millions to retain their consumer base and market share, knowing well that spending the money at that point would be a much better choice, than trying to spend money after consumers had already veered away from their product.
It is hard to see the benefit of Tylenol’s investment, without seeing the sales numbers of before the cyanide poisoning, during the media shock, and after the cyanide poisoning. This example can be contrasted with another case study: Arthur Andersen and its connection with Enron. Arthur Andersen LLP was an American company based in Chicago and was famously known as one of the “big five” accounting firms. In late 2000, it was one of the world’s largest multinational companies. In 2002, it voluntarily surrendered its license to practice as Certified Public Accounts in the U.S., which effectively put the firm out of business. The company’s demise was centered, initially, around the 2001 Enron scandal. This then had a domino effect on accounting practices with other large companies, such as Waste Management Inc., Sunbeam Products, and of course, WorldCom (which eventually went bankrupt as well). The Enron scandal, caused by Enron creating special‐purpose entities to hide liabilities from its balance sheet, ended with Arthur Andersen found guilty of obstruction of justice on behalf of Enron.
Even though the guilty conviction was overturned in 2005, the damage was nearly impossible to recover from. The 2005 ruling would have allowed Arthur Andersen to resume operations, but rumors said the firm had only about 200 employees left, down from its peak of 28,000. This effectively, did not allow Arthur Andersen to recoup any of its clientele, and it therefore had to permanently shut its doors.
Arthur Andersen lost its strong reputation because it was outed as an accounting firm that will “cook the books” for a client if the price is right. Arthur Andersen’s inability to be accountable, and it being shown to be an immoral and unethical company, gave its client base reason to jump ship. Clients could not be associated with unethical practices such as those by Arthur Andersen, as their bottom lines would pay the price as well. Stockholders could have lost trust in Arthur Andersen’s clients, thereby decreasing stock prices after a large exodus of shares being sold on the market and skepticisms about the financials reported to the U.S. Securities and Exchange Commission (SEC).
The Tylenol and Arthur Andersen scandals provide two very different perspectives on how the world would cooperate under economic freedom. It is hard to see, without actual data, how these types of scandals would have affected other companies. If Tylenol and J&J had handled the cyanide scare differently, there could have been more deaths. This would have resulted in fewer consumers—which, in retrospect, is allowing the consumer to choose which products to use. Arthur Andersen, proven to be unethical when it agreed to cook the books for Enron and WorldCom, lost all its clients because of the fear that each client’s company would be the next Enron or WorldCom. As publicly traded companies, being associated with unethical financial practices could cause detrimental harm, and the management of these client companies could not afford to take that chance. The management teams of the client companies must have thought, I presume, that even being associated with Arthur Andersen could potentially bring in auditors, which in turn provides a chance for auditors to find issues.
Public perception of Arthur Andersen and Tylenol (J&J) is the reason for where the two companies stand today. Consumers decided to stick with Tylenol and bail on Arthur Andersen, even after Arthur Andersen was acquitted. This form of economic freedom chose which company lives and which one dies: the company that survived is the one that had the consumer in mind, in addition to its bottom line—not the company that was unethical and harmful to Enron and WorldCom, by not being a fiduciary to the companies. The Pareto principle, or the rule of 80/20, is relevant here as well: 80% of effects come from 20% of the causes. This theory implies, that if 20% of the market share is lost by Tylenol, or if 20% of Arthur Andersen’s clientele leaves the firm, 80% of the revenue generated will be lost, directly or indirectly.
Government Subsidies and Bailouts
Brooks and Watkins have argued that, “Bailouts are fundamentally unjust: They reward unproductive companies at the expense of productive ones, they destroy wealth, they foster bad behavior, and they generally wreck the market system…” (Brooks & Watkins, 2012, p. 156). What Yaron Brook and Don Watkins are trying to convey is that government bailouts are a crutch for poor operators, and can also be used by the unethical and immoral to benefit at the expense of others, which contradict Ayn Rand’s theory of economic freedom and rational selfishness. The COVID-19 government subsidies, past bailouts, and other economic stimulus packages make the theory more apparent to the average economics theorist and political activist.
“…government bailouts are a crutch for poor operators, and can also be used by the unethical and immoral to benefit at the expense of others, which contradict Ayn Rand’s theory of economic freedom and rational selfishness.”
On March 27, 2020, President Trump signed the $2 trillion CARES Act into effect. The goal of this program was to provide checks to Americans and forgivable loans to small businesses. It was the largest economic stimulus package in U.S. history. The Act was to provide relief to businesses in the form of low-cost loans; $500 billion to the Economic Stabilization Fund (“Main Street Lending Program”) for assistance to eligible businesses, states, and municipalities; and $669 billion to a small-business loan program called the Paycheck Protection Program (PPP). The PPP loans are forgivable if the businesses that receive the funds keep their payroll the same, or use the funds to increase their payroll by increasing the number of employees.
Since I work in the baking industry, I have access to a wealth of resources and a decent knowledge-base on how government-specific loan programs work and what is available to the general public and U.S.-based businesses. Using the current CARES Act as our first example, we can see how the government, despite good intentions, may have hurt—rather than helped—the general public when this Act was put into place. The Small Business Administration, which is a government entity, set aside $2 trillion to help keep small- and potentially hurt-businesses afloat and maintain their pre-COVID-19 employee count. To put the CARES Act into perspective, the $2 trillion stimulus plan was $1.4 trillion greater than the 2009 stimulus plan that created the TARP program to bail out investment banks during The Great Recession.
As I mentioned earlier in this section, I work at a Commercial Bank branch in Austin, TX, as a Banking Officer and Senior Credit Analyst. My role is to hold fiduciary responsibility to the bank and assess risk to potential credits for either commercial real estate projects or general business operation needs, such as inventory purchases and general liquidity needs. As one can imagine, in my position I see much of the credit origination side that comes through our bank, and this includes applications for the Paycheck Protection Program (PPP) created by the CARES Act. The PPP was established to allow commercial banks, such as my current employer, to provide funds for current and new customers to keep their staff intact during COVID-19 shutdowns and stay-at-home orders. These loans are priced well below any normal consumer pricing that a commercial bank would provide, the loans are guaranteed by the Small Business Administration (SBA, a government entity), and they can be completely forgiven if all the forgiveness criteria are met. Let me repeat that last part: completely forgiven if all forgiveness criteria are met. The criteria are set by the SBA, the commercial banks that fund these loans are required to monitor the criteria and then submit an application for the funds to be forgiven, and any leftover funds that are not forgiven remain in the banks’ loan portfolio. Due to the low cost of the PPP loans, the margin the bank receives from what the loan’s interest rate is and what the bank’s cost of capital is close to zero, thereby creating a loss on the bank’s books.
The cost of holding these PPP loans is higher than the revenue being generated by the commercial banks, but I am more interested in the forgiveness portion and the lack of criteria for who is eligible for these specific loans. On the SBA website, eligibility is described as:
· Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
· Sole proprietors, independent contractors, and self-employed persons
· Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
· Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of: 500 employees, or That meets the SBA industry size standard if more than 500.
As one can see, a wide range of businesses can be considered “eligible” for PPP loans. In fact, nearly every business in the country could fall into one of these categories. This is where the problem lies. Throughout the entire PPP loan process, there have been reports of publicly traded companies taking in millions in PPP loans: Ruth’s Hospitality Group received $20 million between two subsidiaries (Ruth’s Chris Steakhouse), Shake Shack, Inc. received $10 million, Xeris Pharmaceuticals (makers of the Gvoke HypoPen for diabetes) collected $5.1 million, and my personal favorite, Fiesta Restaurant Group (Pollo Tropical and Taco Cabana restaurants), received $10 million.
These are just some examples of the PPP money distributed, totaling to $45.1 million and anticipated to be forgiven by the SBA department.
I understand that the reader may be thinking, These seem mostly to be restaurants which had to close their doors and cut wages because of the government shutdowns, and these readers are not wrong. The question is whether the companies needed the money to allow them to pay the wages due to their employees. Let us use Fiesta Restaurant Group as an example, mainly because Taco Cabana is a personal favorite. Based on the SEC 10-K filings for Fiesta Restaurant Group at the end of fiscal (FYE) 2019, the company had a cash balance of roughly $13,413,000. Using the same filings and fiscal year, the company paid out $179,178,000 in wages, which equates to $14,931,500/month. Based on these numbers alone, Fiesta Restaurant Group would not have been able to afford even a month’s worth of wages. However, if one looks at their notes on their Statement of Cash Flow, one can see that the company has a $150 million revolving line of credit that is meant to be used for liquidity purposes. At FYE 2019, the balance was $75 million, leaving $75 million to be used for expenses. Instead, the Group decided to use a credit facility backed by the U.S. government, and the credit will be forgiven and will not be on the company’s balance sheet, but will instead will be debt paid by the government. How does the U.S. government pay this off? By raising taxes for U.S. citizens.
I would like to pose a question: Who is at fault for causing the U.S. taxpayer a larger burden, due to Fiesta Restaurant Group taking $5 million in forgivable funds? Is it Fiesta Restaurant Group’s fault for using all the resources offered to them within the boundaries of the law? Fiesta Restaurant Group saw this as free money to help keep their current operations intact. I would say this is very similar to individuals accepting and receiving the $1,200 stimulus check.
The government made a mistake by providing money to keep everything “as was” before COVID-19 and hope not to hurt the economy by flushing capital into the market. Would it be the fault of the U.S. government trying to flush capital into the market to allow for current operations to stay afloat? The U.S. government wanted a quick answer without understanding the inherent risks and rewards of a sudden influx of capital into the system.
The $5 million lent to Fiesta Restaurant Group will need to be paid by someone, and if it is forgiven, the company wipes their hands clean of the loan and moves along. The U.S. government is now left trying to determine how to pay the money back, and most governments only have a select few ways of generating income. The primary method is taxation of their citizens.
When President Bill Clinton was in office, the U.S. saw some good times: people were buying homes at a rapid pace and creating wealth at the same time. Bill Clinton, apart from his infidelities, has been portrayed as one of the greatest U.S. presidents. What many do not know is that the Clinton administration wanted all American citizens to own a house, and what the administration didn’t do was ask whether all American citizens could afford to own a house. The Clinton administration de-regulated underwriting standards and mortgage-backed securities, allowing banks to be less stringent in their underwriting and to expect to be able to unload the mortgages to investors down the road. This was the beginning of the path leading to The Great Recession in 2008 and 2009.
Adam Tooze, a British historian and a Professor at Columbia University, wrote that, “Martin Wolf, the Financial Times’s esteemed chief economic commentator, dubbed March 14, 2008, ‘the day the dream of global free-market capitalism died.’ That was the day the Bear Sterns rescue was announced. It was only the beginning…” (Tooze, 2018, p. 166). Bear Sterns received a $25 billion loan to help provide liquidity to the bank, due to Bear Sterns’ inability to turn over mortgage-backed security assets. Two days later, Chase Bank bought Bear Sterns’ assets at $2 per share, a drastic decrease from the $170 Bear Sterns shares were trading at a year earlier. The U.S. government then repurchased Bear Sterns’ assets from Chase, speculating they could unload them down the road at a higher price per share.
On March 12, 1999, the Gramm-Leach-Bliley Act of 1999 was passed by Congress and the Clinton administration. This act repealed the Glass-Steagall Act of 1933 that prohibited commercial banks from offering financial services, such as insurance and investment products.
This paved the way for mortgage-backed securities (MBS) that banks later would pool together and sell off as investment products. These MBS products would include thousands and thousands of mortgages. Some of these mortgages were be subprime, meaning they were less than desirable. When these subprime mortgages started to fail due to the homeowners’ inability to afford their houses and make their mortgage payments, investors began to lose money and eventually needed cash on hand to pay out to their customers that were trying to save their own assets. Why were these subprime mortgages even embedded in MBS, one might ask? The deregulation of the commercial banks allowed to offer MBS enabled these banks to make risky loans, sell them off to investors, and wash their hands clean of the loan completely, thereby making money on the margins of the loans. Commercial and investment banks saw an opportunity to make money, without holding on to the risk for too long. Commercial banks originated the subprime loans, sold them off, and made a profit. They did this knowing well that they did not underwrite the borrowers strictly enough and that if the loan were to stay in the bank’s portfolio, the loan would have never been originated in the first place.
In October 2008, TARP funds were passed into law, with support from 74% of House Democrats. This required nine of the largest investment banks to accept capital from the U.S. government, and the U.S. government received preferred shares in each bank. For some, this was cheap debt; for others, it was unneeded debt, but each bank was required to take it. These funds were distributed, and the capital raised by the U.S. government cost taxpayers billions of dollars, on top of subprime mortgage homeowners losing their homes due to foreclosure.
It is worth mentioning the Great Depression here, as some readers may be thinking, “Well, we did away with laws and that’s why there was a financial crisis…”— and yes, this is true. However, the Great Depression also brought us the exact legislation that the Clinton administration deregulated, the Glass-Steagall Act. This act was created in response to the Wall Street Crash of 1929. The Roosevelt administration created government-sponsored enterprises, the most famous one being Fannie Mae. Fannie Mae was established as a secondary market for Federal Housing Authority mortgages, which are mortgages insured by the U.S. government.
“In December 1995 the government issued targets for underserved areas and low-income housing. Many of the new homeowners in the 1990s and 2000s were ethnic minority families who had been denied mortgages for decades under the regime of ‘redlining’ institutionalized by New Deal housing policy…” (Tooze, 2018, p. 47). The post-WWI era also saw a new term enter the mortgage financing industry: redlining, which is a great example of unethical behavior brought on by government intervention. Redlining refers to banks and lenders staying out of certain areas or communities because they were considered minority and low-income communities.
Economic freedom does not only mean allowing a business to operate as it sees fit; economic freedom is freedom from safety blankets as well. Bailouts and subsidies provide crutches to poorly-operated, mismanaged businesses and industries. The saying, “You made your bed, now you have to sleep in it” comes to mind when speaking about the government’s infusion of capital to help companies stay alive. If one pulls up to a gas station on their way home from work and doesn’t want to cook, the gas station sushi in the cooler might look like a good idea. One weighs their your options, as any smart human would do, and determine the risk versus reward of digesting the sushi. One knows that the sushi is not fresh and that there is a good chance of getting sick from it, but they buy it anyway. The repercussions of one’s actions will only impact them, and possibly their loved ones at home, but that person still took the chance. Whether one becomes become sick or not is not really the point. Rather, they chose to eat the sushi and decided the risk associated with it did not outweigh the reward. Whatever happens to someone is their own fault, and there is a good chance they will not make the gas station sushi mistake again.
What Does a Free Market Look Like?
On the prior sections of this article, there was a great deal about free markets and economic freedom. We have seen some examples of how not applying Ayn Rand’s theory of economic freedom to industry can cause heartache and economic depression. The goal of this section is to discuss the positive outcomes hypothesizing laissez‐faire markets and how they regulate themselves. As we all learn in Econ 101, a laissez‐faire government is one that abstains from any role in the free market and enterprise. It does not regulate trade and allows for the normal course of action to occur. The concept boils down to a lack of government interference in the free market.
“Achieving stardom through social media platforms is the closest our civilization can get to a truly free market and an Ayn Rand-type industry.”
Examples of current industries are hard to find when trying to compare which industry is free to take its own course, versus one that has regulation and to find a current example. In trying to think of an industry that is regulated by peers and private regulations, rather than government‐funded regulations, we may look at the example of a social media influencer. Achieving stardom through social media platforms is the closest our civilization can get to a truly free market and an Ayn Rand-type industry. Becoming a successful social media influencer provides a certain expert status which at the root lies the desire to be an expert and the person to seek on a specific topic or domain. This should be considered a healthy selfish goal.
For baby boomers, a social media influencer is someone that uses their own likeness to obtain followers on social media platforms. The more followers they have, the more successful they are perceived to be in the eyes of the public. This may seem like quite a stretch but I ask the reader to suspend their disbelief in how they might feel about the social media industry. Personally, I find the industry to be very similar to TV and commercials: the better the TV show, the more viewers it has; the more viewers, the higher the likelihood that advertising companies will buy ad space to get those viewing the show to view the company’s advertisements.
While I personally am not fond of social media, I mostly post about my two kids wreaking havoc and sometimes projects and topics that are truly important to me. In order to find out more about the social media influencer mindset, I went directly to the source. I reached out to a handful of influencers on Instagram and received some lovely feedback that helped with my research on this article. I asked each of them the same series of questions, ranging from, “Why did you become an influencer?” to “Do you make money doing this?” and even, “Are there any regulations or regulated barriers to entry?” What I gathered from their answers is that the job is fulfilling, and in order to be successful you must be committed and have a good product (entertaining content being the product here). Lastly—and this is crucial for connecting social media influencers to laissez‐faire and Ayn Rand’s free economy, the following section is not about freedom of speech. Ayn Rand’s philosophy advocates for healthy selfishness: being selfish to get what you want without hurting anyone in the process.
Let’s start from the beginning, in becoming a social media influencer. Anyone can do it as long as they have a smartphone with Internet connectivity, or even a computer with Internet. I found out that a lot of influencers started out as bloggers. To make comparisons easy on myself, narrowing down the number of social media platforms to use as examples makes quite a bit of sense. I chose Instagram as my example. When signing up on Instagram, I remember having multiple options for how to create an account; linking my account to Gmail, linking the account to my personal Facebook, manually creating an account with email and username, and so on. Just one of the options, linking to Gmail account, would allow roughly 1.5 billion Instagram accounts to be created, as you could have an Instagram account for each Gmail account. That is one’s barrier to entry: being up-to-date in the 21st century. Simply having an account doesn’t make one an influencer. They need followers first, but if there are 1.5 billion Instagram accounts, at least one of their friends has an account that they can start following you on. From there, a domino effect begins as Instagram shows one suggestions on who to follow and friends can see other friend’s content. Once content is shared by a user and any followers, one starts gaining a network of followers. At the snap of fingers, one follower has turned into 100 followers. Now, given all one’s new followers, the posted content needs to be entertaining to keep them and to possibly increase the number of followers. This is a perfect way to transition into my next point about economic freedom: if one product stinks, their company won’t be around very long. That is decided by consumers, not government.
As an influencer, there is a ton of pressure to keep up with one’s content and their platforms—otherwise there is potential for losing viewers and then losing their “influencer” status. As mentioned earlier, to understand influencers better, I sent out a questionnaire to influencers. One of the most generic questions posed was, “How often do you make posts?” The answer to this question shouldn’t come as a surprise: “Every day.” To elaborate, one influencer mentioned posting on Instagram every day and posting on Instagram Stories multiple times a day, in order to stay fresh and at the front of the followers’ minds. Consistently posting entertaining content keeps the followers coming back for more. A follow‐up question tried to gauge the difficulty of remaining an influencer. Heather Bien, a travel blogger or Washington, D.C. lifestyle, responded to a question about the biggest challenges she faces on a day‐to‐day basis: “Balancing it with a fulfilling job and my freelance work. Finding the time to fulfill requirements of sponsored posts and nurture those relationships. Taking notes of details on anything and everything I’m going to post about so that I can answer questions that will come in from followers.” This seems like a full‐time job, and clearly a person must be committed to achieve influencer status.
Considering the level of commitment, there must be a return on investment (ROI), investment being time and level of commitment. That is where the truth comes into play and the questionnaire was able to shine some light on the ROI for time and the pressures of being an influencer. One of the most common answers when asked about what brings them fulfillment as influencers was receiving positive feedback from, “followers who had taken their advice or tried something the influencer posted about and had had a positive experience with the item. This allows the influencer to be a trusted source of advice and recommendations and thereby obtain industry expertise,” and as professors Jean Bédard and Michelene T.H. Chi further state about expertise, “…it is not merely the fact that experts have more knowledge that is important; more crucially, they have their knowledge organized in particular ways, ways that make that knowledge more accessible, functional, and efficient.” (Bédard & Chi, 1992). What Bédard and Chi are stating is that yes, experts by definition know more about their domain than others, but they are also organized, perform better in their domains, and their industry expertise is transferable inside the domain.
Sherwin Rosen of the University of Chicago and NORC has said about the value of being an expert: “…the rate of return is increasing utilization and is maximized by utilizing specialized skills as intensively as possible” (Rosen, 1983, p. 43). This quote from Rosen suggests that specialization and expertise can maximize the rate of return on the education and experiences obtained along the way to becoming an expert in a specific area. Herein lies the influencer’s goal: specialization provides a return on investment, and the investment (time in this case) provides the influencer an asset, whether tangible or intangible. Obtaining expert status takes practice, research, implementation of knowledge, and so on, and these items are solely based on the influencer’s desire to achieve expertise. An investor can rely, to a small degree, on outside individuals’ research and question‐and‐answer sessions, but it is up to the investor to put in the time and effort to obtain prudent information. The freedom to become an expert allows the influencer to consume their own time and money and be harmless to other individuals. As an expert, one gives advice based on knowledge gained, while the advice-seeker is responsible for their own actions and decides that they can or cannot use the advice obtained.
Blogs are not just about creating an internal worth but creates a network of other experts, as depicted by cultural sociologist Felicia Wu Song when she stated, “…‘Mommy blogs’ have become a significant source of support and community for contemporary mothers. They have also become an appealing means of making money, as major corporations seek to capitalize on bloggers’ influence to promote their brands…” (Song, 2016 p. 49). Becoming an influencer is hard work, and the influencer must be cognizant of the time and effort that is involved but also understand that their investment of time and effort could pay dividends.
Corporations see the value that influencers can bring to their brands and are willing to pay for an influencer’s expertise in a specific domain. Everyone has heard stories of YouTube stars, Instagram models and others becoming millionaires. Again, these stories are true and achieving stardom through social media platforms is the closest our civilization can get to a truly free market and an Ayn Rand‐type industry.
Conclusion
The COVID‐19 pandemic brought up many questions regarding civilization—from the role the government should play in the economy, to individuals and their treatment of their peers when faced with a mask-or-no mask situation—and even an individual’s reaction to such a pandemic and how they handle the stress of the pandemic. Using Ayn Rand’s philosophy of working toward a healthy selfishness can help provide some ideological themes for the world of COVID‐19 and offer some context on what a truly capitalist free market really means.
The role the U.S. government and statewide governments took to try and slow down the spread of COVID‐19 was noble, but misplaced. The economy should not have been shut down, as more civilians were harmed through their inability to earn wages and maintain their previous lifestyle. By providing economic stimulus packages, the government provided a false sense of economic support. This is called negative cash flow, and anyone who has had a job in high school understands that the wages earned are spent on goods and services such as gas, clothes, food, etc. The stimulus gave wage earners some cash help, but closing down stores and restaurants provided no way to spend the stimulus money. If wages are not being earned, there is less and less money for goods and services and eventually there is a complete depletion of any cash and reserves. If businesses could stay open and operate, operators would have to adapt to the needs of their potential consumers, which may or may not not entail a need for health precautions and investment in capital expenditures to maintain their current client base. When businesses are given autonomy to adapt to current consumer needs, the consumer is the driving force. Their desire to either remain a loyal customer or to go for the direct competitor allows for the “Darwinism” (survival of the fittest) of free market capitalism, allowing the companies that were able to adapt and change to survive, and the companies that did not adapt, to fail.
Evan Golden, Senior Analyst and Banking Officer
Evan Golden was born in Minneapolis, MN where he watched both his mother and father become successful businesspeople in Pharmaceuticals and Engineering. Evan received his bachelor’s degree from University of Kansas in Economics in 2008, was the Associate Director of Finance for Tel Aviv University’s Overseas programs, received a Master’s in Business Administration with a concentration in Finance from Loyola University of Chicago in 2013, and is currently a Senior Analyst and Banking Officer at a $1 billion asset commercial bank in Austin, TX where he resides with his wife, daughter, and son. Evan gained interest in Objectivism following Yaron Brook after watching Dr. Brook’s interview with Ben Shapiro on The Daily Wire publication and reading Ayn Rand’s Atlas Shrugged.