Is Atlas Shrugging? The Disappearance of Ninety-Three Million American Workers and Business Startups. (As Seen in the Houghton Star April 15, 2015).

Is Atlas Shrugging?

“Who is John Galt?” and why is the US economy experiencing a large loss of job participation coupled with the lowest numbers of new business start-ups in decades?   John Galt was a fictional character in the novel Atlas Shrugged by Ayn Rand.  Rand emigrated from the Soviet Union in the 1920s and was tainted by her own experience in a communist system.  Rand demonstrates how a mixed economy ushered in by Roosevelt’s New Deal would become like the system she fled.

In Atlas Shrugged, John Galt is an inventor of a self-sustainable engine that can run without fuel.  Galt knows his new invention will either be confiscated by the government for the “good of society” (because no man should profit off of his ideas) or possibly the invention will be heavily regulated (because it would displace workers at engine factories and energy producers).

Rather than subjugate his invention to the will of the bureaucrats, Galt scraps it. Then he secretly plans a strike against the government with an unlikely group of people consisting of innovators, entrepreneurs, inventors, talented professors, upper management, and gifted college students.  Instead of demonstrating or rioting, Galt simply makes these people “shrug” by vanishing, while the government levies a war against the innovators by coercion of excessive taxes and regulations. These policies enable the bureaucrats to confiscate wealth, seize control of companies and compel innovators to give up their intellectual property rights.  As the government takes control of industries it becomes incapable of running complex organizations in a safe and efficient way. The economy collapses and society slips into anarchy.

Today, John Galt seems to lurk inside the Bureau of Labor Statistics (BLS) participation rate numbers; in the last decade we have seen disturbing job participation rates. People not participating in the labor force have hit a record 93 million high. The BLS has shown that men’s participation rate has dropped from 87% in 1948 to 70% in 2013. Women, who have made great strides in the participation rate since 1948, have also faced participation rate declines.  In 1999, the participation rate of women reached its high of 60% now it is 57%.

While the retirement of the baby boomers accounts for some participation losses, the vast majority of age appropriate workers go unaccounted for. Also blue-collar work has dropped significantly in the two decades, but the number of Americans collecting disability benefits due to injury has more than doubled since 1995.  According to Scott Winship of the Manhattan Institute, the government “passed new reforms in 1984 that in time made it much easier to receive SSDI (Social Security Disability) benefits and keep receiving them until retirement.”

Workers seem to disappear and, at an alarming rate, businesses do as well.  New business startups have dropped significantly due to burdensome regulations.  The number of young firms going under within the first few years has increased. Consequently, according to the U.S. Census Bureau, for the first time in 30 years, business failures now outnumber business startups. The federal government has many outdated and contradictory regulations that hurt the entrepreneurial spirit.

Jonathan Ortmans of the Kauffman Foundation noted that “as new regulations are enacted on top of existing rules, businesses are faced with the challenge of navigating an increasingly complex regulatory regime.” Complex taxes have weakened the entrepreneurial spirit also. Ortmans said, “Tax complexity and uncertainty, like regulatory complexity and uncertainty, divert the time, attention, and energy of entrepreneurs away from the essential tasks required to successfully launch and grow their businesses amount to mortal threats to new businesses, particularly in the critical early years.” Regulations stifle startups in banking. For instance, there has only been one new bank created since the passing of Dodd-Frank–a bank regulation bill–in 2010.

When our current political leaders, such as our President, tell entrepreneurs that “you didn’t build that, somebody else made that happen”, one must question if Ayn Rand’s writings were a warning.  Lawmakers and regulators should remember government is funded by tax revenues from workers, owners, and companies.  Not the other way around.  American innovation and industrial strength were built by entrepreneurs who carry the weight of American job expansion upon their shoulders.

We need to stop passing laws, regulations, fees and taxes that injure our enterprise system.  If we do not stop, we are doomed to a similar plot found on the pages of Atlas Shrugged.  In 1942, to encourage hard work for the war effort, the Westinghouse Corporation created a poster later called “Rosie the Riveter.”   In the illustration, Rosie rolls up her arm sleeves, flexes her muscles and says, “We Can Do It”. We need that can-do; we can build that, American spirit in our own vocation and in our political leadership once again.

FDR vs. The Small Businessman’s Revolution

FDR’s belief in experimentation scared business away.  FDR’s broad rules provided ambiguity of regulatory uncertainty through what Kiplinger’s “Why Businessmen Fear Washington” states as “a great state of indefiniteness and confusion ” (378) , the possibility of more laws struck down on them, and his mistake of mistaking macroeconomic problems with microeconomic problems through alphabet agencies such as the NRA all “frightened away capital, and they discouraged employers from hiring workers…businesses decided to wait Roosevelt out, hold on to their cash, and invest in future years” (Shlaes8).   The New Deal, on contrary belief, was actually accepted by many businessmen in open arms, but it disappointed many businessmen through its favoritism to big business and its favoritism to labor.  Under FDR, the US saw the rapid consolidation of power from local governments to federal governments, the power and wealth from local businesses to national corporations, and the wealth of small farmers and tenants to a farming elite.

FDR though had mixed sentiment amongst businessmen.  Favored rent seekers loved FDR while the majority of businessmen detested him such as “Hanna Coal executive George Humphrey always spelt Roosevelt with a lowercase ‘r’; dinner guests of banker J.P Morgan were forbidden to mention the ‘R’ word at all” (389). FDR provided a rent seeking atmosphere and favoritism that has never been as prominent in any other time period in the United States.  Gordon provides examples through JP Morgan and George Humphrey that big industry did not like him, but the reason was primarily that both of them were not favorited by the FDR administration and would have provided exultation if they were favorited.  Even the left leaning Gordon writes that “New Deal programs benefited some interests at the expense of others, and left the price of organization to be paid by regional or marginal competitors” (391).  These regional competitors are the small businessmen who were the true forgotten men of the 1930’s.

Most businessmen saw the New Deal as a failure because it failed consistently, provided a cartel for each industry led by the big elites in each, and higher labor costs due to the NRA.  The NRA “created innumerable problems, including increased prices, contradictory jurisdiction, and inconsistent interpretation” coupled with elitist big business favorites running each industry cartel and higher labor costs which led the NRA to be painful towards small business (391).

The small businessman’s revolt finally gained traction in 1938 during the midterm elections where the pro-small business Republicans gained 72 seats in the House and 7 seats in the Senate. In 1940, FDR would have lost the election if not for the threat of war. FDR himself said “You know, if the war should be over before the election and I am running against Willkie, he would be elected.” On August 3^rd 1940, “George Gallop, the pollster, reported that Willkie would have the edge over Roosevelt if the election were held that day” (Shlaes374). On Election Day though, FDR defeated Willkie because as Europe was slipping into war, FDR seemed like the better choice since he had more credentials through being the President for eight years and also being the Assistant Secretary of the Navy for seven years.