Ayn Rand, Thomas Malthus, and the High Cost of Terrible Ideas

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Pity the philosopher. Underpaid and underappreciated, professional thinkers are doomed to a terrible dilemma: in the best case, their ideas are likely to be ignored. In the worst case, they will all-too-often be misunderstood, misapplied, and used to seriously screw up society.Strong ideas can have devastating consequences. In the recent recession, for example, money-besotted bankers and indifferent policymakers abused three popular economic philosophies. Along the way, they transformed interesting, useful ideas into seriously destructive ideologies.

T
he Wisdom of Crowds

James Surowiecki's 2004 book The Wisdom of Crowds argued that the masses, far from being mindless, often predict information more accurately than experts. He proposed that prediction markets, which reward users for making correct guesses, could harness the wisdom of crowds for decisionmakers.

The idea took off: Major League Baseball teams tapped the hive mind to choose draft picks, while Hollywood Stock Exchange and YooNew harnessed it to determine the value of big-screen actors and Super Bowl tickets. On Wall Street, devotees took the idea to extremes, trying to use the masses to determine the proper value of stock shares, derivatives, and political candidates.

Surowiecki's premise is based on a few preconditions, including the idea that users have a diversity of opinion and that their decisions are not affected by others' opinions. But in a financial market, these ideas don't hold true. For example, before the meltdown, many financial gurus shared the supremely flawed assumption that real estate would eternally rise in value.

And markets don't operate in a vacuum: fluctuations can become a self-fulfilling prophesy, inspiring further increases or decreases in price. The wisdom of crowds often evaporates in the face of a rational bubble, which makes the market a terrifyingly bad predictor of value.

The Economics of Starvation

In late January, South Carolina Lt. Gov. Andre Bauer tried to justify a reduction in school lunch spending, arguing that: "You're facilitating the problem if you give an animal or a person ample food supply. They will reproduce, especially ones that don't think too much further than that. And so what you've got to do is, you've got to curtail that type of behavior. They don't know any better." Bauer later tried to explain that he didn't actually view the poor as animals, but the damage was done.

Bauer's comparison of underprivileged students to wild animals was a nod to Thomas Malthus, who argued that populations increase geometrically while the food supply increases arithmetically, leading to overpopulation, disease, pestilence, and famine. By this scenario, Malthus argued, supporting the poor artificially boosts the population and ultimately endangers society.

Malthus's ideas have been widely rejected for their lack of humanism, and revolutions in agricultural production have largely foiled his dire predictions of famine. But it isn't hard to find policies that leave the poor on the margins: Bauer's attack on school lunches, Bush's attack on Social Security, and the determination that victims of "exotic" mortgages should be left to absorb their losses all reinforce the resilient notion that the underprivileged are somehow less worthy than the wealthy.

Ayn Rand, and the Ultimate Bad Idea

Ayn Rand's philosophy of objectivism argues that the purpose of life is the pursuit of happiness, and that the purpose of government is to aid that pursuit. Laissez-faire capitalism, objectivism argues, is the only system that truly protects individual rights. In Atlas Shrugged, Rand extends this idea to divide humanity into two groups: creators, who should be given free rein to do anything, and consumers, who should be tolerated if possible and crushed if necessary.

Rand's followers include Supreme Court Justice Clarence Thomas and News Corp.'s (NWS) Fox News host John Stossel. But her ideas are especialy popular in business, where her disciples include BB&T (BBT) CEO John Allison IV, HDNet chairman Mark Cuban, Cerner (CERN) CEO Neal Patterson, and Comcast (CMCSA) Spectacor chairman Edward Snider. Hedge-fund managers Jonathan Hoenig, Victor Niederhoffer, and Monroe Trout, Jr. love her too.

Reading Rand is a rite of passage for young intellectuals. Given enough time, most Rand junkies eventually shrug off their addiction. But some never heal. Former Fed Chairman Alan Greenspan joined Rand's inner circle in the 1950's and, until recently, pursued her ideas of a completely free market. Greenspan even wrote a letter to the New York Times responding to a damning book review: "'Atlas Shrugged' is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should."

The mind reels.

In October 2008, Greenspan belatedly hinted that he may have finally seen the dark side of Rand. In a speech to Congress, he said he had found a "flaw" in his "ideology" of how the free market worked. He had always hewed to the Randian belief that companies left to their own devices would work in their best long-term interests. But the real-estate bubble demonstrated that many companies had actually favored massive short-term profits over long-term sustainability. In the process, they laid the groundwork for the biggest recession in sixty years.

Mamas, Don't Let Your Babies Grow Up to Be Philosophers

In the list of least-respected job in society, philosopher generally ranks somewhere between poet and ditchdigger. Yet these three thinkers, toiling in relative obscurity, came up with ideas that completely changed -- or, some would say, destroyed -- society.

Of course, compared to Marxism, Maoism, and the ravages of Rousseau, even Ayn Rand seems relatively benign. But the excesses and meldown of our economy over the past few years prove that we need to take philosophy -- and the way it's taught -- a lot more seriously.

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