Today’s guest is Arthur McQuaid, President and Chief Investment Officer, Columbia Wanger Assset Mgmt, LLC. Mr McQuaid discusses Atlas Shrugged by Ayn Rand.
Squirrel Chatter II
I read a lot as part of my job and I also enjoy reading for pleasure. I typically read non-fiction—largely books on history, economics and politics. I haven’t made time for fiction, until recently, when I read my first fiction in decades, Atlas Shrugged by Ayn Rand.
Written in 1957, the book has a curious history. In 1991, it was ranked a distant second to the Bible as most influential to readers of the Book-of-the-Month Club.2 Its sales have recently been surging, hitting a record of over 500,000 copies sold in 2009.3 What I see as the book’s eerie parallels with recent events have likely caused its resurgence in popularity.
The heroes in Atlas Shrugged are entrepreneurs who create prosperity, and its villains are federal government bureaucrats who regulate and tax. Characters tend to be caricatures; entrepreneurs are cast as handsome capitalists while bureaucrats are cast as ugly, corrupt and dumb. The bureaucrats never let a crisis go to waste and use each crisis to obtain more power and create more regulations. The bureaucrats are economically illiterate, so new regulations further hurt the economy.
Ridiculous laws are passed in Rand’s tale, including the Equalization of Opportunity Bill. The law forbids entrepreneurs from owning more than one business or operating in more than one location, an attempt to spread the wealth around.
Numerous businesses fail, but those with friends in Washington get bailed out. Rand’s bureaucrats provide favors, based on perceived need, to mediocre businessmen who can’t compete. When railroads are about to collapse, bureaucrats freeze payments on their bonds. Friends get their bonds unfrozen (which to me seems kind of like certain General Motors and Chrysler debt holders who recently received preferential treatment). Dissenters are labeled greedy or selfish.
In the book, bureaucrats adopt Directive 10-289, which requires that no one change jobs, all production remain unchanged, all goods and services continue to be sold, and all prices, wages and other income remain constant. Patent rights are to be given to the government “voluntarily” (reminiscent to me of how bailout loans were recently forced on some apparently solvent businesses). The bureaucrats in Atlas Shrugged who wonder whether the Directive is legal figure that it is covered by the many emergency laws.
Eventually entrepreneurs, egged on by the engineer John Galt, get fed up with the bureaucrats and go on strike, causing the economy’s final collapse. In the book, “Going Galt” refers to productive people dropping out rather than serving the “mooching” bureaucrats and their “looting” friends.
It appears to me that Atlas Shrugged may be as much prophecy as fiction. The Cato Institute notes that as of early 2009, there were 1,804 subsidy programs in the federal budget, up nearly 80% since 1985.4 This spending and regulatory environment drives increased lobbying expenditures, regardless of rhetoric to the contrary. According to the Center for Responsive Politics, lobbying spending reached $3.46 billion in 2009, triple the amount spent just 10 years ago.5 It seems to me that money buys friends.
The next luck-inducing principle is to expect good fortune. This is consistent with our investment philosophy. We put money into stocks with the expectation that they will make money over time. We tend to expect continued good fortune from our successful investments and, when it makes sense, let our winners run.