Objectivism - Ayn Rand - Khanan's Posterous

Objectivism - Ayn Rand

I have been reading Ayn Rand "Capitalism: The Unknown Ideal" and while it's fascinating, there are two fundamental arguments that it fails to answer. (These are two that I see, there may very well be more)

The argument that the world should be left to laissez faire economics is a fine one, however:

1. How will laissez faire work to resolve negative externalities? An externality is an outcome of an economic transaction where there is an impact on a third factor that is not directly involved. For example, a power plant that deals with supply and demand of its business negatively affects pollution of the air. While say, unregulated, power plants compete for business: figure out the cheapest way to produce most power - what is the incentive for them not to pollute the air? More on economic externalities here.

2. While I'm a huge believer in free, unregulated markets: how does this hold up in third world countries, specifically where there is a high death rate from malaria? Bill Gates interestingly said that more money is being invested in R&D of male pattern hair loss vs. curing malaria victims in poor countries. After all, people in those countries do not have the money to afford drugs - hence what is the incentive to invest in producing drugs to those countries from a free market perspective? Free markets thrive on only one factor: markets. This, among other reasons, is why Bill Gates formed the philanthropic foundation: address those where free markets fail. I cannot find the link, however remember reading where Bill Gates & Warren Buffet talk of 'creative capitalism' to address these failures in great detail.

I wonder how fans of Ayn would approach these two points. Overall, I highly recommend reading the book as it's super thoughtful and stimulating.

Below are videos I found posted by Brad Feld. It's a fascinating interview of Ayn Rand by Mike Wallace on Objectivism in 1959:

about 2 years ago Khanan Grauer responded:

Hi Charlie,

With respect to #1 - "Let people demonstrate an actual harm, and then sue the individual polluter."

This is just too vague and does not address the argument. Looking at the premise that markets should be free and unregulated, what happens is profits are the core driver. For example, company A transacts with company B and pollutes the atmosphere in the process. The process continues, until company A or B figures out that pollution is having a negative effect on its market. (By negative, I mean literally people stop purchasing products or services from either companies because of the damaging effects – which impacts profits). This would be a reactive move, and may produce tons of environmental damage that's too late to mitigate. Matter of fact, we know cars pollute the air and continue buying them… so much for the 'suer.'

With respect to 2 - I think we misunderstood each other. I understand Ayn's position on charity: altruism and especially what she calls out as self sacrifice of man...

This is not what's in question here. I'm challenging the very premise: pure laissez faire fails where there are no markets. By no markets I mean no money to buy products/services. I have not seen her address this (I've read Atlas Shrugged and a ton of essays in the book I mentioned earlier.) This is why Bill Gates (which by the way we can probably equate to John Galt) calls to attention 'creative capitalism' to address people in third world countries. Creative capitalism is a model that companies build up a reputation for voluntary contribution to poor countries, i.e. investment in research by drug companies in providing vaccines cost effectively even though they don’t expect a high ROI. This in return would make them look more 'attractive' to consumers in rich countries and hence, be able to sell more products/services to these consumers. This comes back to the fundamental point: produce models to solve problems that generate profits. This is how Bill believes capitalism can address these problems. A pure free market would not address these folks.