Socialism creating zombie economies

Atlas Is Shrugging In The US And Flexing His Muscles Elsewhere

By Monty Pelerin

Ayn Rand was mostly correct when she wrote her magnum opus "Atlas Shrugged." She was incorrect in one important area. She assumed the final option for the wealthy and entrepreneurial class was to go on "strike" and retire to Galt's Gulch. In the modern world the movers and shakers don't strike, they migrate.

Atlas is shrugging in the US. Capital is relocated to regions where it is treated more favorably. Within the country, we see capital and jobs leaving the overtaxed, overregulated Blue states and migrating to smaller government Red states. That provides partial relief, but onerous federal policies cannot be avoided by moving within the country.

The increasingly adverse climate at the federal level motivates moving outside the country. This motivation and the resulting movement has been underway for years. Initially, much relocation was due to comparative advantages in regions around the world as economics would predict and welcome. Recently, much movement of resources is increasingly a flight from onerous government policies. The process is simple: first parts of businesses leave (outsourcing), then manufacturing and finally intellectual capital (the entrepreneurs).

Intelligent and talented people investigate overseas opportunities. Jobs and opportunities are increasingly more plentiful in some areas of the world. Taxes are less onerous and living conditions have modernized. Dual citizenship is not uncommon and an attractive option for people who want/need to leave the US. Americans renouncing citizenship and living outside the US is at an all-time high. The citizenship decision is made for an obvious reason -- to escape the predatory IRS which claims partial ownership of all income regardless of where earned.

Over the next decade or two, unless we see a change in US governmental policies, a serious "brain drain" is likely to devastate the US talent pool. Our society and economy benefited immensely from the immigration of talent over the last 70 years. It was an attractive place for talented, motivated individuals. That flow is now reversing. Instead of being a destination for talent, we are becoming a departure point. Much of the rest of the world does not punish productive people. According to Wayne Allen Root:

Places like Hong Kong, Singapore, Australia, New Zealand, Monte Carlo, Belize, Costa Rica, Panama, Bahamas, and Cayman Islands are low-tax havens that appreciate business owners and their sacrifices. They welcome wealthy expatriates. They celebrate individual achievement. They reward instead of punish business owners and financial risk-takers. They are wonderful places to live and are aggressively pursuing Americans.

Wealth used to be tied up in steel mills, railroads, automobile plants and other big, physical, fixed assets. This wealth was fixed in place and not easy to move. It was easy for governments to hold it hostage while extorting tribute in the form of onerous taxes and regulations. Wealth is no longer as physical as it once was. It is more intellectual, easily outsourced and highly mobile. This wealth is not easily held captive. Even so-called fixed assets are not fixed forever.

Unless wealth is treated properly, it migrates to places where it is wanted and treated with respect. As expressed by Mr. Root:

The high tech revolution has freed businessmen to run their businesses from anywhere in the world. The same high tech tools and toys that toppled a powerful and invincible 30-year dictator in Egypt and now threaten to topple powerful leaders throughout the Arab world, also offer mobility and freedom to U.S. taxpayers. Obama better learn the lesson of Mubarak before millions more business people decide they do not need to put up with looters, free loaders, and politicians who despise them.

There are three important differences between today's world and the time when Ayn Rand published "Atlas Shrugged."

• 1. Other parts of the world have become more business savvy and conducive to capitalism. Rand's home country Russia, while hardly a bastion of freedom, is an example of where capital is now welcome.
• 2. Technology and transportation advances made decentralized operations across continents feasible.
• 3. Living conditions in many parts of the world have reached or exceeded parity with those in the US.

When Rand wrote her most famous novel, these options were not available to the extent that they are now. As a result, her storyline had the wealthy punishing both themselves and the economies they left when they "dropped out" of the system. Today, the wealthy have other options. They drop out of one society but enter another.

In that sense, it is easier for Atlas to shrug than Ayn Rand imagined. It has already happened and continues to happen. Atlas does not have a binary on-off switch as envisioned by Rand. Atlas shrugs regionally rather than universally.

The economies Atlas abandons suffer, but Atlas does not. Instead of retreating to Galt's Gulch and presumably golf, Atlas moves to that part of the world which will treat him properly. Today there are plenty of places where government and the dependency class do not get in the way and parasitically drain the host. It is to these locations, not Galt's Gulch, that Atlas goes.

Receiving economies are rewarded with economic growth as are the entrepreneurs who join them and produce it. Atlas Shrugging is not an absolute loss of talent as envisioned by Rand. It is a relocation of talent. Atlas is not suffering, he is merely relocating.

Societies that drive Atlas away suffer. Wealth and job creation declines. Living standards decline. People become poorer. Governments become even more active, spending more, printing more and pretend to offset the loss of entrepreneurial spirit. But governments are unable to create jobs, wealth or improve overall standards of living. The more they try, the worse they make matters. When governments assume the role of managing an economy, Socialism kills whatever vestiges of Capitalism remain. As Ludwig von Mises observed:

A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism: is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

Zombie economies and societies result. These hollowed-out shells are merely stages on Hayek's famed "Road to Serfdom." That is the road the US has chosen for the better part of the last 100 years. A heritage of freedom and property rights prevented us from beginning this journey as early and quickly as most other countries. But these protections are now eroded.

Despite government protestations to the contrary, there is absolutely nothing government can do to reverse the process of decline other than to reverse their own policies. That means drastic reductions in both regulations and spending. In order for an economy to return to vitality, wealth creation and higher living standards, conditions must be made attractive enough for entrepreneurs to return.

The madness that passes for government and economic policy must stop now before it is too late. Capital and intellect cannot be held hostage, although governments will try (unsuccessfully). Talent and capital driven away does not return easily or quickly. Even reversing foolish policies today may not be enough to affect the current generation materially.

A reversal of Western governing philosophy that has dominated for over a century is required. If it occurs, it is not likely to occur quickly. It will be incremental and take generations to accomplish. Talent and capital driven away will not return easily or quickly so long as other societies provide more favorable climates for entrepreneurs.

Competitive downsizing of government is likely once some societies decide to compete for prosperity. Few governments look forward to that, but the movement will be driven by those who understand that a smaller piece of a larger pie is better than a bigger piece of nothing.

When the world is viewed from this perspective, it becomes clear why Statists want a One-World government. World government, with uniformly harmful regulations and taxation, make escape impossible. Then Statist predators can impose any kind of poor economic and redistributive policies. Wealth can then be confiscated with abandon because there is no longer any place to hide.

Freedom poses the ultimate threat to the almighty State. Entrepreneurs vote with their feet and pocketbooks. That limits the amount of bad policies any government can impose. That flight may be the only safeguard that stands between us and absolute tyranny.

If that happens, Atlas will head to a remote area in Colorado for golf lessons. Who is John Galt? Why he is the teaching pro at that remote resort in Colorado.