A Musk Inspired Anti-ESG Takeover Wave?

Robert E. Wright – May 16, 2022 @ American Institute for Economic Research

 

It’s fun to see memes suggesting that Elon Musk should buy Alphabet, Amazon, Coca Cola, Disney, Meta, Netflix, YouTube, and so forth, but of course he cannot afford all that. But we can. By we, I mean value investors. Musk’s purchase of Twitter has validated my critiques (see here, here, here, and here) of ESG-based investment (environment, social, governance), which despite its weak financial record currently constitutes about $2.7 trillion globally. And it has demonstrated the potential power of anti-ESG funds, which I have called Friedman Funds, after Milton.

An anti-ESG Friedman Fund would, firstly, short companies overvalued due to capricious or government-dictated ESG metrics and buy companies undervalued due to said metrics, and, secondly, buy controlling interests in potentially valuable companies that are going broke, or at least earning less than they could, because they went woke, as Musk and his investors recently did. 

The goal of the fund would be to earn above average risk-adjusted returns, period.

The effect of the fund would be to increase financial market efficiency and economic productivity by punishing deviations from rational valuations and rational business decision-making processes.

The first approach is widely called value investing. Although understood in general terms by investors since at least the 18th century, Benjamin Graham popularized and quantified the approach in the first half of the 20th century. The gist is to buy stocks when their market price falls below their rational value and to sell or short them when their market price exceeds their rational value. Value investors tend to buy and hold, ignoring daily price gyrations so long as the market price remains near rational value, the price toward which the stock will gravitate in anything approaching an efficient market.

A stock’s price might deviate somewhat from its rational value because investors like or hate the company because of what it makes, or how it makes it, or who runs it, or something its executives say or do. In other words, the shares of presumably “good” companies can gain from a “halo effect,” while shares of allegedly “bad” companies sometimes languish due to a “devil’s horn effect.” Some investors overestimate the importance of those various soft factors on other investors, causing them to value the stock higher (halo) or lower (horn) than the rational investor does.

ESG funds and ESG ratings – given regulatory teeth by the Securities and Exchange Commission directly, or indirectly through bond rating agencies – could produce significant halo/horn effects that value investors could exploit for their own gain while reducing financial system fragility in the process. Because ESG represents politicized and largely subjective concepts, ESG ratings can diverge significantly from reality. Unless checked by value investors, they could easily lead to bubbles (too much investment in certain assets, like dotcoms or mortgage-backed securities) or anti-bubbles (too little investment in certain assets, like fossil fuels). 

ESG bubbles could be particularly costly because the overinvestment might go into companies that actually hurt the environment or the downtrodden. As scholars like Ozzie Zehner, author of Green Illusions, have been arguing, and as Michael Moore tried to explain to fellow progressives in his 2019 documentary Planet of the Humans, very few “green” technologies provide net environmental benefits because they are inefficient, rely on tax subsidies, need rare earth metals to work, have major environmental side effects, and so forth. Similarly, as recently pointed out by Harvard Business Review, ESG ratings are not correlated with better environmental or labor regulatory compliance! 

Moreover, many social justice initiatives at major corporations, like many government programs, aid Democrat politicians but do little or nothing to help American Indians, blacks, Hispanics, women, or the poor. Once exposed, ESG darlings could become dogs overnight, hurting investors and potentially sparking a financial crisis.

The second approach that a Friedman Fund could take is typically frowned upon. According to the so-called Wall Street Rule, investors who do not like management decisions should sell instead of raising a stink. It’s a good rule of thumb because corporate management is usually well-entrenched. Most stockholder proposals fail because managers dominate corporate elections due to their control of the proxy mechanism and employee-owned shares.

A few simple rule changes, like cumulative voting, secret ballots, proxy mechanism reform, and larger board member and executive stock holdings, would make it easier for individual shareholders and institutional investors to pressure management to maximize long-run stockholder returns by making more rational business decisions, like not alienating their median customer to please vocal extremists.

Until then, Friedman Funds have to be willing to purchase underachieving companies like Twitter through stock market purchase of controlling stakes, tender offers, or proxy votes. Yes, such tactics are often derided as “corporate raiding” but the poor state of corporate governance can render such raids economically necessary. In the 1980s and 1990s, the takeover of poorly performing corporations by funds led by corporate raiders like Carl Ichan and leveraged buyout firms like Kohlberg, Kravis, Roberts reinvigorated the US economy by forcing rational changes at stagnating or inefficient companies.

It was no accident that the classic film on corporate takeovers, Other People’s Money, hit theaters in 1991. Its famous climax pitted Lawrence “Larry the Liquidator” Garfield (played by Danny DeVito) of Garfield Investments against Andrew Jorgenson (played by Gregory Peck), head of the failing New England Wire and Cable Company, the biggest employer in a small Rhode Island town. At the company’s annual stockholder meeting, Jorgenson argued, like every other adherent of the “stakeholder” theory of the corporation, that “a business is worth more than the price of its stock. It’s the place where we earn our living, where we meet our friends, dream our dreams.” 

After being derided by Jorgenson as a greedy, big city corporate raider who “builds nothing” and is basically committing “murder,” Garfield retorted:

This company is dead. I didn’t kill it. Don’t blame me. It was dead when I got here. It’s too late for prayers. For even if the prayers were answered, and a miracle occurred, and the yen did this, and the dollar did that, and the infrastructure did the other thing, we would still be dead. You know why? Fiber optics. New technologies. Obsolescence. We’re dead alright. We’re just not broke. And you know the surest way to go broke? Keep getting an increasing share of a shrinking market. Down the tubes. Slow but sure.

You know, at one time there must’ve been dozens of companies makin’ buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead. Let’s have the intelligence, let’s have the decency to sign the death certificate, collect the insurance, and invest in something with a future. …

Me. I’m not your best friend. I’m your only friend. I don’t make anything? I’m makin’ you money. And lest we forget, that’s the only reason any of you became stockholders in the first place. You wanna make money! You don’t care if they manufacture wire and cable, fried chicken, or grow tangerines! You wanna make money! I’m the only friend you’ve got. I’m makin’ you money.

Take the money. Invest it somewhere else. Maybe, maybe you’ll get lucky and it’ll be used productively. And if it is, you’ll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves. And if anybody asks, tell ’em ya gave at the plant.

Granted, Musk’s play on Twitter is somewhat different. Unlike buggy whips, microblogging isn’t a doomed industry yet. But clearly Twitter, despite its sizable first mover advantage, was losing market share to direct competitors like Parler, as well as newer “social media” concepts like Clubhouse and Mastodon, because it was alienating many customers with its over-the-top censorship of demonstrably true “misinformation” and opaque account shutdowns and throttling. That is what Musk meant when he told Twitter’s board that he could unlock the platform’s value in his offer letter. And it turns out that Twitter was overstating the number of its users by over a million, too!

Many other companies also appear to underperform their potential in the name of progressive politics. When executives and board members earn big salaries but own little stock, they have strong incentives to downplay the importance of share prices while catering to tiny but vociferous and even vicious progressive cabals. If incentives cannot be better aligned between management and stockholders from within, then somebody from the outside, like Larry the Liquidator, Musk the Magician, or Friedman Funds, must step in so that the economy doesn’t suffer the large costs associated with underutilized assets.

Thanks to occupational licensing rules (e.g., Series 65), sundry regulations, and other startup costs, I cannot start a Friedman Fund myself. But I can, and would, invest in an ably led one, as would many others interested in making Adam Smith proud by reducing economic irrationality by profiting from it.

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Robert E. Wright

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review.

Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.

Books by Robert E. Wright

 

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Socialist Darwinism

Robert E. Wright  – October 24, 2021 

Occasionally, a human being of more than median understanding of the social world will say to me something like “Libertarianism smacks too much of Social Darwinism.” Such comments always strike me as absurd because all environments, including social(ist) ones, create selective pressures. In other words, societies necessarily encourage the reproductive success of people with certain traits more than people with other traits. The strength of those selective pressures, however, varies inversely with each society’s productivity (roughly, its real per capita output).

Selective pressures manifest as differential probabilities of reproductive success (living to sexual maturity and successfully raising offspring who also achieve reproductive success). Anything heritable, from physical traits to behavioral tendencies, is subject to selection. Old debates about “nature vs. nurture” have, thankfully, finally fallen by the wayside. We now understand that almost everything that contributes to reproductive success is partly due to genetics, partly due to environmental factors, from culture to nutrition, and largely due to the interaction between the two. And, again, selective pressures are probabilistic so no one’s reproductive outcomes are preordained, just more or less likely within a complex, stochastic system. Luck still matters, come to find out..........To Read More........

 

Has America’s Third “Civil War” Begun?

Robert E. Wright  – October 8, 2021 @ American Institute for Economic Research

The question of whether a third American “civil war” has begun occurred to me after reading a recent New York Times piece (deliberately unlinked as it fails fact checking) that claimed that the president can mandate a vaccine today because George Washington did so during America’s first “civil war,” more commonly called the American Revolution (1775-83).

That much is true, but the article misses a few key differences: it was a wartime measure that applied only to soldiers; it was for smallpox, which was orders of magnitude more deadly than Covid; it was variolation — introduction of small amounts of the live virus into the bloodstream — not experimental gene therapy. (I again call for a Covid variolation option on a voluntary basis.)

Did the New York Times admit too much by analogizing from a wartime scenario, or is it simply grasping at straws as usual? Maybe inadvertently some of both?

The Revolution and the Civil War (1861-65) were both “civil” in the sense of being internecine struggles but both were extremely uncivil in the sense that they were violent shooting wars that rent asunder families, towns, counties, and even entire states. Some people call the latter conflict the War Between the States or the War of Yankee Aggression, partly for political reasons but also following the logic of Guns N’ Roses: “What’s so civil about war anyway?” 

Some claim that America is already in a civil, in the sense of non-shooting, “war” with China, which purportedly has deployed its “Three Warfares” strategy of legal, psychological, and public opinion distortion. That would not be surprising. The USA of course waged a long non-shooting conflict, typically referred to as the Cold War, against the Soviet Union. During the decades-long conflict, the two superpowers shot at each other only indirectly, in places like Korea and Afghanistan, while also trying to destabilize each other with espionage, propaganda, and such.

A non-shooting, internecine “war,” a civil civil war if you will, is also not unprecedented but it is also not just “politics as usual.” There used to be rules and proportionality. It increasingly appears now that one side wants to annihilate the other at any cost, and that the sides are not drawn along strict party lines.

America’s civil civil war seems to pit “sheeple” against people, the brainwashed against those capable of independent thought, and “safety first” authoritarians against civil libertarians, left, right, and center. To admit that such a conflict exists does not require a conspiracy theory, just recognition of marginal incentives. Nobody planned America’s first two civil wars either; they arose spontaneously from circumstances and incentives in ways so complex that historians still fight over the causal webs that ensnared people and governments in mortal combat.

Of course few Americans today want to “throw down” physically. We’ve got too much cool stuff and too many followers on social media to risk our lives. It would be a shame to get blood in our hot tubs, pools, or EVs. Moreover, although the sheeple might outnumber the people, the people have more guns, but they really don’t want to use them.

Cancel culture was the first weapon deployed. Shame people on social media in the hopes they will turn into sheeple and begin to follow the crowd, or at least injure their income. It often worked, but some people will not or cannot be canceled. If they lose their jobs they sue their former employers or slanderous media outlets, jump to more lucrative careers on Substack, and so forth. Millions of others simply avoid social media, or keep it strictly to sharing videos of crazy cats or laughing babies. 

Vaccines are a new weapon in the civil civil war because they can be used to reach anyone and everyone. Mandates are not a perfect weapon because some rational free thinkers have gotten the stab after due consideration of their individual situations, while some sheeple consider doctors their alphas and follow individualized medical advice not to get the Fauci ouchie. (No weapon kills all of the enemy or prevents all collateral damage, so those instances do not militate against vaccine weaponization.)

That Covid vaccine mandates are about sorting sheeple from people and not about public health is made clear by several facts. 

First, if public health were paramount, the mandate would be to test regularly for effective immunity, not shot compliance. Some people do not need a vaccine because they have already survived Covid and have natural immunity far superior to that provided by even the most effective vaccine. In addition, vaccines are not equally effective for everyone. Health officials therefore should be testing front line healthcare workers for immune response levels, not mere vaccine compliance. 

Second, the mandates apply to remote workers and others who present no danger to the public. If a Covid-19 Survivors NGO has 100 or more employees, they all have to get vaccinated even if surviving the disease is a prerequisite for employment and even though scientists have warned that taking the vaccine probably does not help, and may even hurt, those with natural immunity.

Third, encouraging the termination of noncompliant employees is unduly punitive. The chances of an unvaccinated employee, especially outside of healthcare, “killing” anyone is vanishingly small and virtually impossible to trace, at least if what public health officials claim about the vaccines is true, i.e., relatively few vaccinated people get Covid, few of those need hospitalization, and almost no vaccinated people die from, or even with, Covid. How is a miniscule risk of barely harming others worth somebody’s livelihood?

All the more amazing are reports that people terminated for noncompliance may not be eligible for unemployment insurance because they are being fired “for cause.” That will lead to some fun lawsuits, because “for cause” traditionally means for doing something wrong, like stealing, or not doing something right, like showing up for work on time. Sufficient “cause” was a concept that employers and employees worked out together, not a dictate from the executive branch of the federal government.

It’s a blatantly unlawful dictate at that! Corporations must start to contest unconstitutional federal policies. Imagine if Biden, in one of his delirious tantrums, said that corporations need to execute non-compliant employees. Would they do so? Presumably not! But by the self-styled progressives’ own claims, firing (or not hiring) people is tantamount to slowly strangling them to death. I mean they call it termination, right? (Seriously, Newsweek in 2010, citing “research,” claimed that “layoffs literally kill people.”)

Corporations should team up, hire the fanciest of fancy lawyers, and defeat mandates (and vaccine passports), or be counted as an enemy of the people. They can fund the legal expenses out of their oversized charitable donations budgets because saving the Constitution is the most important cause of them all.

Has a civil civil war begun in America? I can’t reject that hypothesis so long as irrational wars on the vaccine non-compliant, innovation, and small business, continue. If the authoritarians win those battles, free thinking people who believe in human rights may have to capitulate, or worse.

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Robert E. Wright

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review.

Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.

Books by Robert E. Wright

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Liberalism Then and Now

Habi Zhang  – October 3, 2021 @ American Institute for Economic Research

Kenneth Minogue’s The Liberal Mind first appeared in the 1960s, an era when “the young and the radical in the Western world were in a restive condition.” As Minogue correctly diagnosed, the restiveness had two sides, “one cynical, the other sentimental.” Six decades later, the modern liberals’ restiveness has become far more vexatious, and their cynicism and sentimentality far more hysterical. I sense that Minogue’s book bears larger significance now than in the Sixties.

According to Minogue, around the 16th century in the English-speaking world emerged Lockean liberalism—a political philosophy that rests upon the natural rights of man. At its birth, this liberal morality was tolerant, egalitarian, and peace-loving; liberals exercise great self-control and excel in compromise. For Minogue, this was a political system that unleashed previously repressed individual energy and allowed for responsible political opposition, which led to prosperity and stability.

Modern liberalism, in contrast, “is a new understanding of politics;” it treats politics “as a technical activity like any other.” All social problems are thus turned into political problems, “inviting a solution by state activity.” Plan, control, command, and mobilization, all those large-scaled and all-encompassing state activities, have turned liberalism from a political philosophy, one built on the doctrine of natural rights, to a political movement that sees political life only as a struggle aimed at ultimately making society more just and equal. Or, to use the 21st-century parlance among our cultural elite, “we” are building a DEI world: Diversity, Equity, and Inclusion.

Cynicism and sentimentality are the trademarks of the modern liberal mind.

“The cynical side was irresistibly seductive,” says Minogue, and rightly so. Parodists and satirists of the 1960s, in both America and Britain, established themselves by mocking “censorship, respectability, prudery, and the rule of old man.” The swaggering Bohemians of the Sixties went to universities, believing that to think was to question or criticize, and taking conceit in ridiculing the pomposities of the Establishment.

Decades later, probably having realized that derision has exhausted its original novelty and hence its appeal, the same people now carve a niche for themselves in “decomposition”—to dismantle the Western civilization to ground zero, as evinced in the latest ludicrous debate on whether two plus two equals four that was sparked by woke tweets claiming such statements “reek of white supremacist patriarchy.”

At once vitriolic and compassionate, the liberal mind seems to be constantly angry at the world only because “it (the world) contains suffering,” Minogue aptly observes. The cynic lashes out at the world with contempt and even hatred, whereas the sentimentalist propagates his tears “as proof of a compassionate sensibility.” The liberal mind presupposes that suffering is ubiquitous, entirely externally-induced, and categorically bad; hence to eradicate it is the highest calling. To use Minogue’s much apt metaphor, the liberal “St. George” hurls his lance immediately at the sight of a dragon (i.e., the suffering situation), real or phantom.

To relieve the sufferings of others is a natural human disposition, but the liberal mind has standardized this sensibility, elevating it into a principle of politics, which renders it less an admirable altruism but more a tyrannical moralism. As Minogue so eloquently wrote, “Liberalism is goodwill turned doctrinaire; it is philanthropy organized to be efficient.” This standardization requires abstraction, treating humans not as real beings but “generic men” that can be conveniently put into the camp of “oppressors” or “victims.” Ironically, the suffering situations must undergo constant transmogrification in order to keep the dragon alive and feisty—and thus more satisfying to slay. With standardized sentimentality and cynicism together, according to Minogue, one has “the politics of melodrama of victims and oppressors.”

When reading Minogue’s anatomy of the moral character of the liberal mind, I recalled an exchange I had with a classmate three years ago. She is a former journalist and proudly-avowed global citizen—a modern liberal one might say. She mentioned that her home country, Switzerland, accepted most immigrants but her countrymen rarely interacted with them or helped them. When I asked her why individual Swiss exhibited so little personal compassion, she shrugged her shoulders: “There is government.” The truth is, as Minogue reveals, the people who focus on cultivating feelings or crafting images that provoke either hatred or tears are usually not those who actually help the needy around them. Thus, an unintended consequence of the excessive exploitation of real or crafted “suffering situations” of the classes of people taken to be “oppressed” is apathy among the masses.

A puzzle remains; namely, what has transformed liberalism from the staunch preserver of liberty, with John Stuart Mill being its most celebrated spokesman, to “St. George,” the righteous zealot, who vows to slay all human sufferings? Minogue’s devastating dissection of the liberal mind offers us some hints.

Following T.E. Hulme, Minogue differentiates between two views of life, one classical and the other romantic, in order to better explain why liberalism is “a thin and narrow doctrine.” Classical view understands humans as beings with limited capacities and shaped by social and political institutions. Established institutions take precedence over individuals. We ought to treat them with great care. The romantic view sees innocent individuals, born free and endowed with unlimited capacities, “but everywhere they are in chains.” We must, therefore, unchain ourselves from the bonds of the past so that we may live a “full life.”

Moreover, liberalism conceives of humans as desiring, rational, and calculating individuals who see the world only in terms of “function, end, satisfaction, rights, and the rest of the rationalist vocabulary.” This romantic doctrine of humans makes the liberal mind “implacably hostile to any notion of permanent natural differentiation between individuals.”

The corollary of such a theorization is an ethics of progress, a politics of needs, and above all, human happiness as distributing benefits. The perennial task for the liberal mind is what Minogue calls “the standardization of the notion of a full life.”

This obsession with a full life cannot but result in self-pity and self-reproach, says Minogue. Self-pity and self-reproach are universal emotions but the “self” of the liberal mind may concern others beyond the individual—they may be anybody for whom the liberal weeps. In a word, the self can be a collective self. Minogue’s insight sheds light on why ten years ago, Barack Obama would embark on months-long international confession tours to apologize for America’s sins, and why ten years later, Greta Thunberg would condemn all carnivore humans for ignoring the thoughts and feelings of fish (yes, the fish!), feeling justified and morally superior.

Are those two liberals arrogant or righteous? Take your pick. But Minogue reminds us that the full life that liberals think is, or ought to be, universalized is “a kind of life which is, in fact, lived by a minority of people mostly situated in the western world.”

Liberalism has for five centuries anchored the imagination of its Western descendants to a hypothesis of human nature that would make sense only insofar as we situate humans in a state of nature, stripped of all accidental attributes. But is it true? Some people like Patrick Deneen boldly claim that liberalism has failed. For Deneen, liberalism has failed because the logic of the Lockean liberalism inevitably leads to the demand for the complete liberation of the individual from a particular time, place, and relationships. This total liberation has in effect rendered “emancipated” individuals rootless and atomized, drifting in a sea where common experiences have lost their force. People are alone and powerless and permanently chained to the state.

Minogue seemed to remain ambivalent, as revealed in the 1999 preface to the Liberty Fund Edition, though he was optimistic decades ago when he had confidence in the commonsense of his world. Most significantly, he believed in 1963, because institutions were still mostly intact at that point, such as universities, churches, the military, and cultural academies, all of which were powerful checks on liberal ideas.

But it seems to me that those institutions are nothing if not the engine of the liberal mind.

Reprinted from Law & Liberty

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Habi Zhang

Habi Zhang is a doctoral student in Political Science at Purdue University. She holds a master’s in public policy from Pepperdine University.

Her main research interests are political thought, political culture, and quantitative methods.

She is currently researching totalitarianism, political tolerance, and public opinion.

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Beware the Rise of Scamerica

Robert E. Wright  – May 19, 2021 @ American Institute for Economic Research 

 

 

Scams, frauds, flim flams, and grifts are nothing new to America. In fact, confidence games were old hat when Clifton Wooldridge published his 1906 classic, The Grafters of America: Who They Are and How They Work, which describes common cons in fin de siecle Chicago. The recent death of notorious investment scamster Bernie Madoff should remind Americans that if it sounds too good to be true, it probably is. 

As America descends into policy disarray, the scamming of others is increasing. Wire fraud is rampant, as is the impersonation of government workers, apparently because Americans now expect government officials to accost them for quick cash at least occasionally. I focus here on a much more insidious type of scam that also seems to be on the rise, something that I will politely refer to as “substandard work,” but that in informal adult conversation usually goes by a fecal four-letter word followed by “job.”

Much of the substandard work being conducted across the country right now ultimately is the government’s fault, specifically a set of policies seemingly deliberately designed to induce Americans not to work: extra unemployment pay; major school systems remaining virtual until fall; bizarre summer camp masking requirements. The first entices lower income people to stay out of the labor market and the latter two make parents think twice, or thrice, about returning to work.

As a result, many usually reliable businesses cannot find any workers, much less good ones. Robin Jones, a regional manager for a major fast food chain in the Upper Midwest, recently told me that April and May of this year have been the tightest labor market he can remember in his 43-year restaurant career, which includes stints in Arkansas, Missouri, Montana, South Dakota, Tennessee, Texas, and Wyoming. His back is giving out because his desk job has turned into a role as a stopgap line worker in the cheap taco wars. While he does what he can, he is only one man. The extreme dearth of workers means much longer wait times than usual and substandard service overall.

A restaurant in a resort town in New Jersey recently purchased a robot called Peanut to deliver food to customers. It reportedly “can open kitchen doors, deliver orders to tables, and bus the dishes when everyone is done eating.” It works until it breaks down and doesn’t demand tips.

The labor shortage is hardly restricted to food services. The pool business pictured below, for example, had a good reputation until recently, when it charged a friend of mine $260 to remove the cover from her pool. Just a regular cover. U.S. dollars, not Zimbabwean ones. Inflation is relatively high, but it ain’t that high! 

If the company had added some suddenly hyper-expensive chlorine to the pool, maybe it would have been okay but it appears the workers were inexperienced newbs flummoxed by simple problems. They removed and stored the cover successfully (bravo!) but couldn’t figure out how to get the pump pumping, got frustrated, and left. But they didn’t want to tell their new boss about their pathetic failure so they charged for the full spring opening service even though they didn’t provide it. 

Not so smart.

All manner of employee malingering and moral hazard appear to be on the rise because every low wage worker knows that they can get fired one morning but hired elsewhere that same day, usually at higher pay. Although full official statistics are available only through 2019, it appears that sexual harassment and other types of employment-related complaints have increased of late. 

 Some of the increase is due to stricter laws and enforcement and more awareness of workplace harassment issues but some may be due to employees hoping for a quick, lucrative settlement, confident that they will be able to find work elsewhere even if their claims are found meritless after investigation. Even remote workers are pressing harassment claims. Unwarranted harassment complaints are simply a more sophisticated type of pilfering than taking home office supplies or using Zoom rooms for personal use, which is also likely on the rise.

Unlike the hapless pool company described above, some companies deliberately overbill lots of their customers less flagrantly, in the hopes that many won’t notice or care enough to complain. When some inevitably ask for refunds, such companies stall repayment or simply credit customers on the next bill and thereby finagle free loans. Investment bank Morgan Stanley got spanked for overbilling in 2017 but if inflation increases nominal interest rates will rise along with it, or if lending tightens due to various new banking regulations now in the works, more companies may give in to the temptation of cheap short-term financing by overbilling.

Yet other companies with even deeper problems push boundaries between sharp business practices and outright fraud. They need to book business today or go under tomorrow and hence are unconcerned about bad reviews or negative publicity in the short run. 

One such company that I personally recently fell victim to is a long distance moving and storage broker based in America. A portion of my possessions eventually made the long trip from South Dakota to the east coast but pickup was two weeks late, which cost me dearly, and dropoff was delayed several times as well, which inconvenienced my poor, hard working spouse. 

Maybe some bad luck was actually involved but over the month it took to complete the job, the moving broker told me more half-truths than Fauci has about Covid. An industry insider revealed to me its original sin: when they get a mark, I mean customer, on the phone, they pretend like they have scheduled a pickup when in fact they have simply estimated when they expect to be able to sell the contract to a long-haul shipper, who then gets blamed for the inevitable delays.

Large, unexpected increases in the prices of inputs, from gasoline to timber, means that many construction contractors are also getting hit hard. They want to pass along the added costs, so owners need to watch out for “change order artistry,” sundry excuses contractors use to increase the contract price. When owners push back hard on change orders the contractor might not show up at all, or do substandard work/use substandard materials, so often it is better to negotiate a new price or not contract in the first place until some stability returns.

The recent ransomware attack on Colonial Pipeline is more malicious than substandard work but the purported perpetrator, a shadowy group called DarkSide, claims to be a business that gives its “customers” incentives to improve their cybersecurity protocols. While the precise vector of the ransomware infection remains unknown or under wraps, Covid restrictions and/or the tight labor market is likely the root cause of the colossal cluster. As AIER’s Peter C. Earle pointed out last year, lockdowns make countries more vulnerable to attack and, as freezing Texans learned this past winter, more vulnerable to natural shocks as well.

Natural immunity and vaccines have scotched Covid, at least in the U.S. If only Americans would develop immunities against overreaching government! Right now, Uncle Sam is more likely to stab you in the back than to have your back. Scamerica will grift ever more fraudulently until government sheds its paternalistic mask and once again lets children be children, employers employ, innovators innovate, teachers teach, and workers work.

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Robert E. Wright

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019).

Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.

Books by Robert E. Wright

“The” Science Is Coming for You Again!

Robert E. Wright  – May 2, 2021 @ American Institute for Economic Research

(Editor's Note: I think smoking is second only to illegal drugs as a human disaster.  But this piece highlights the Big Brother concept, even if you agree with the logic.  I posted this because the issue isn't whether you agree or disagree, it's exposing another step of Big Brother taking over the lives of the nation's citizens.  RK )

 

I was recently driving east from Omaha for sixteen hours and there was nothing much to do so I let the radio linger on a “public news” show that consisted of two rational-sounding adults discussing how “the” science is now clear, the government must ban the production and sale of menthol cigarettes.

In 2019, I would have busted out laughing but now that America’s authoritarians have so clearly revealed their cloven hooves I figured I better pay close attention. I have never smoked and all my friends and relatives who did are now dead (none from smoking-related illnesses interestingly enough) so the matter interests me only as an example of the use and abuse of state power and the rhetoric of science.

According to the discussants, one of whom apparently is funded by the Kochs (who pay federal taxes), the Food and Drug Administration (FDA) wants to ban all “combusted” tobacco products but it is statutorily banned from eliminating an entire class of goods, so for now it is targeting just menthols and flavored cigars.

Before I could muse too deeply about that logical solecism, the Koch-funded guy said the ban was specifically designed to help African-Americans as four out of five of the smokers among that group prefer menthols. The host pushed back modestly, suggesting that menthols could become the new marijuana, i.e., the excuse to accost, arrest, and convict African-Americans for possessing or dealing something that should never have been illegal in the first place. Oh, the G-man said, law enforcement would never do that. The ban, he claimed, presumably with a straight face (but again it was radio so …), is all about stopping production.

Okay, let’s think this through. A ban will not appreciably diminish demand and in fact may increase it because, you know, people be people. And while there is no doubt that the FDA can crack down on mass manufacturing, it is almost powerless to stop smaller scale production. A ban will increase production costs and prices for African-American smokers and cause some to be hurt by botched illegal batches.

After all, tobacco would still be legal so nothing could be done about growing, processing, or shipping it. Tobacco turns menthol by adding synthetic chemicals, all legal for other purposes like mouthwash, or oil made from mint plants (Mentha arvensis), which can be farmed but also naturally grows throughout temperate Eurasia and North America. Even with concerted human effort to eradicate it, mint will go extinct the same time cockroaches and sharks do.

Because some mathematicians now claim that one plus one does not equal two, let me explain what those facts mean in the real world that policymakers, of all people, are supposed to inhabit. Anyone can easily make menthol cigarettes. In fact, entrepreneurs right now are probably planning on making menthol conversion kits that will allow smokers to soak legal tobacco in mint oil, dry it, and roll it by machine (here is an example of the last mentioned technology if you are unfamiliar), for self-consumption or under the table sale.

So to effectively ban menthol cigarettes, the FDA will have to ban tobacco entirely, something it has admitted is not in its power to do. Or it would have to destroy the environments in which mint grows naturally throughout the world and ban all possible chemical substitutes and their constituent parts. This is why liberty lovers always warn about the “slippery slope” of regulatory authoritarianism. Effectively banning just one simple thing usually requires widespread repression.

The racial component of the FDA’s argument is extremely troubling. Too much of anything, even water, can be harmful. (No joke, it is called water toxemia among other things.) Apparently, nothing could stop the FDA from banning monosodium glutamate (MSG), matzo balls, Buffalo wings, or anything else. All it needs to do is to find “scientists” willing to publish studies showing such things to be harmful — and again everything, even MSG, is harmful to some extent — while carefully parsing the category so as not to include all sodium salts, dumplings, or chicken wings.

But the FDA would never have an incentive to ban such things, you might think. Well, what motivation, other than paternalistic control over others, does it have for banning menthol smokes and cherry blunts? Whatever happened to our bodies, our choice? Where does the government think that its power ends? How many Americans agree with that line? What is to become of those who disagree, who still believe in freedom and individual responsibility? Banishment? Reservations? Soft execution by forcing them to smoke seized menthols?

There exists only one thing that needs to be banned that I can think of — big, intrusive government.

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Robert E. Wright

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019).

Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.

Books by Robert E. Wright

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Cancel Culture Is Just the Beginning

Robert E. Wright – April 1, 2021 @ American Institute for Economic Research

 

 

 

Imagine the jackboots kick in your door at midnight and haul you off to a reeducation camp because of that tweet. (Which one? Does it matter?) You think about resisting but then you realize that your assailants are not government employees but rather the hired henchmen of MegaX corporation, so you relent. The right of MegaX to forcibly reeducate you was probably in your user agreement, so it’s all good. Right?

Wrong! Especially if you understand what the members of the Founding generation had in mind when they used the term “phalanx.” The reference was as familiar to them as “flash mob” is to us, though a phalanx, a tight formation of ancient Greek infantry with overlapping shields, was much more disciplined than any flash mob. While individual infantry men were relatively easily dispatched, when arranged in a phalanx they became formidable, even to cavalry, and phalanxes won many battles, including at Marathon.

America’s Founders used the term phalanx metaphorically to signify any powerful combination of forces allied to achieve some (usually nefarious) goal. Powerful individuals, especially ones concentrated in moneyed corporations, could defeat a divided government but of course a tyrannical government could form a phalanx against the people.

In the Constitutional Convention, for example, some delegates feared that the three largest states, then Massachusetts, Pennsylvania, and Virginia would “carry every thing before them.” If power were partitioned solely by population, as in one early draft of the Constitution, Virginia with “her sixteen votes will be a solid column indeed, a formidable phalanx.”

In early 1791, House Rep. Josiah Parker of Virginia predicted that an excise tax on whiskey would “let loose a swarm of harpies, who, under the denomination of revenue officers will range through the country, prying into every man’s house and affairs, and like a Macedonian phalanx bear down on all of them.”

In late 1803, President Thomas Jefferson feared that the Bank of the United States, a by then completely privately owned joint stock corporation with branches spread across the country, posed an existential threat to the federal government. “Suppose a series of untoward events should occur sufficient to bring into doubt the competency of a republican government to meet a crisis of great danger, or to unhinge the confidence of the people in the public functionaries,” he wrote to Treasury Secretary Albert Gallatin. “An institution like this, penetrating by its branches every part of the union, acting by command and in phalanx may, in a critical moment, upset the government.”

The Bank of the United States never did “upset the government” and financial historians like Richard Sylla believe that the nation would have done better in the War of 1812 had its charter been renewed in 1811. But arguably America is under threat from tax-collecting harpies and big states. Instead of “upsetting” the government, big banks and other large corporations have joined with it in a fascist phalanx depriving Americans of liberty.

For too long, Americans have divided into tribes Left and Right. The former fulminates against big business and the latter against big government. Busy jostling against each other, they have missed the big problem, that it’s the combination of big government and big business that has proven formidable to liberty, the right of every human being to do what they want within the confines of constitutional and just laws, lawfully promulgated.

I invoke fascism knowing full well the dangers of reductio ad Hitlerum. So let me be explicit: Biden (Trump) is not Hitler, the non-crisis crisis at our Southern border is not another Holocaust, and so forth. All Nazis are fascist but not all fascists are Nazis. One need not claim racial and cultural superiority to fuse big government and big business into a single force aimed at the authoritarian domination of all major aspects of life.

“If the power to tax involves the power to destroy” as SCOTUS Chief Justice John Marshall argued in McCulloch v. Maryland (1819), then the power to tax and regulate is the power to dominate. Big businesses stand to make or lose billions based on policy decisions, some conspicuous like bailouts or large government contracts but most innocuous lines thrown into multi-thousand page laws or negotiated understandings with administrative agencies like the EPA, IRS, or SEC. 

Many economists fear that businesses might “capture” their regulators but few worry about regulators capturing businesses although only the government can wield the legitimate use of violence to enforce its claims. Essentially, big business and big government have become codependent, merging in an informal but very real sense into a single entity with the single goal of maximizing the utility (income, power, safety) of those on both sides of the nominal public/private divide. They did not capture each other so much as they captured liberty.

Nothing but the merger of big government and business can readily explain some of the crazy Covid restrictions like those of many U.S. states and other fascistic nations, including Australia. As you watch this funny video and this one, note how business interests have clearly influenced what the government has deemed “safe,” watching commercial sporting events, flying, and eating and drinking, and what it deems a public health risk, non-commercial entertainment.

But Covid restrictions are only the most salient aspect of the emerging fascist phalanx. If some part of the U.S. government wants to censor somebody, it doesn’t have to pass embarrassing laws like the 1798 Alien and Sedition acts, it can backchannel Twitbook into doing its dirty work, like suppressing the Hunter Biden laptop story just before the 2020 election or silencing famed scientists all while claiming to follow “the” science.

Similarly, if some inconvenient fool demolishes plans for a national mask mandate, the government can induce big corporations with market power to enforce its immoral and unconstitutional whims using the carrot of tax inducements and/or the stick of regulations, both of which abound. Many people will acquiesce because a private business mandates it, and a business is not the government, except when it essentially is.

All fascists must be resisted, like the too-little-known White Rose movement that opposed Hitler and the Holocaust. The question is how. One big part of the answer, in the present case, appears to be federalism, or, as critics will surely tar it, States’ Rights. Federalism, or the division of power between the federal and state governments, was once the illiberal tool of slaveholders. Their “slavocracy” controlled local and state governments in the South but as their slower growing section lost representation in Washington, DC they increasingly jealously guarded the power of state governments from federal encroachments.

For some time, though, federalism has stood more as a bulwark of freedom than a bastion of slavery, as shown in books like A Less Perfect Union: The Case for States’ Rights by Adam Freedman, a Dickensian name if there ever was one. States filed 156 multi-state lawsuits against the Trump administration, about twice the number filed against the two-term Obama and George W. Bush administrations, which doubled the number filed against Clinton, which doubled the number filed against the one-term Bush administration, or just ten fewer than filed during the two-term Reagan administration (30). Recently, states like Texas and Alaska have sued the federal government over border control issues and federal energy policies, while Florida has been outright defiant over federal Covid restrictions and Big Tech rules.

It’s possible that the increasingly obvious existence of a fascist phalanx is spurring the formation of a liberty-loving phalanx consisting of “Red” state governments like that of South Dakota, what is left of the commonsensical, largely centrist small business sector, pro-liberty nonprofits, like AIER, the Center for American Liberty, FEE, the Independent Institute, and Judicial Watch, and civil/economic/human rights activists fleeing former affiliations.

The outcome of any nonviolent struggle pitting the federal against a subset of state governments may well hinge upon another concept well understood by the Founders, the power of the purse. Right now, the bulk of Americans’ taxes go to their local governments and the federal government, which then doles out funds back to the states, often with strings of dubious constitutionality attached. 

In fact, the current arrangement defies the revolutionary credo that there should be no taxation without representation. The notion was that instead of taxing the people directly, large, distant governments, like those in London and later Washington, should tax only indirectly, like with tariffs or imposts, lest the harpies feared by Jefferson, Parker, and the other Founders multiply and eat out the people’s substance. 

Distant imperial governments, the Founders believed, should receive requisitions from colonial (later state) governments. That way, taxes were raised locally, according to local economic conditions and traditions. In addition, the requisition system gave colonial and state governments the power of the purse by allowing them to withhold taxes from corrupt or incompetent imperial governments, as many did from both the Mother Country and a bungling Congress during the Revolution.

Perhaps we should consider returning to a system where state governments operate revenue systems designed to pay requisitions to the federal government to fund the constitutional core (basically courts, national defense, and some international trade infrastructure and border controls) while leaving the provision of other government services to the wisdom of the voters of each state? 

Once states face hard budget constraints — they cannot print money and hence cannot borrow as much or as cheaply as the federal government and of course will no longer be subsidized by other states as they are now — they will have to pay for their own foibles. Presumably then they will look to successful states for better policy ideas.

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Robert E. Wright

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019).

Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.

Books by Robert E. Wright

 

The Final Push to Restore Freedom

Robert E. Wright  – March 22, 2021 @ American Institute for Economic Research

 

Have you noticed that the good guys are on the verge of winning the great struggle, certainly intellectually but also politically and culturally? It’s become nearly impossible for the lockdowners even to muster salience. Their statements on TV and writings in newspapers have become sheepish, hedged, pointlessly verbose and insulting – all signs of weakness when there is essentially no case left to make. 

We can all sense it: we are almost done. What can make the difference? Those who have been silent need to step up. Fact is, too many ostensible defenders of freedom (on the left and right: for example, where has the ACLU been? have sat out the greatest humanitarian crisis since World War II. A few have even joined with lockdown authoritarians. This article offers all a form of redemption.

I shan’t call out any fair weather friends of liberty by name as the aspersions I could cast upon them would be nothing compared to the shame they must feel, the same sort of deep and abiding shame, I suspect, felt by those who silently watched the chains go round the necks of human beings being added to a slave coffle, who stood by, impotently, as the Trail of Tears commenced, who said nothing when innocent Japanese-Americans were being interred, or who countenanced segregation and other racially-motivated laws and policies.

Trust that I understand and empathize. A year ago it was difficult, especially for members of a tribe known for intellectual humility, to grasp fully the enormity of the situation, or to discern truth from lies from uncertainties spawned by a dearth of quality data or models. I know that people have careers, families, and reputations to protect and that some of us, myself included, were busy making bank by being willing to go places where less rational people feared to tread.

But today, thanks to the efforts of the Independent Institute, Judicial Watch, and, especially, AIER, there can be NO QUESTION that lockdowns were disastrous policies that imposed enormous costs for no discernible benefit and that government mask mandates have no scientific basis. I understand if you don’t want to follow me into abjuring private mask mandates but it does follow logically in this land of many laws that businesses with market power should not be allowed to impose medical devices on customers, even voluntarily.

AIER has tried to buck you up with optimistic articles every now and again and there are reasons for optimism, like the California recall effort. The forces of tyranny, though, remain too strong in some places and none of us can be truly free while some remain shackled to transparently unscientific “scientific” impositions on commerce, gatherings, travel, and so forth. 

So we need every lover of liberty, regardless of past (in)action on the Covid crisis, to now stand up and add his or her shoulder to the millstone and push! Push nonviolently of course, through letters to editors, social media posts, peaceful acts of civil disobedience (even smiling at masked people without a mask can work wonders), attendance at government meetings, making travel plans, dancing, social closening, rewarding businesses that don’t enforce mask mandates, and whatever other tactics you can think of. Then publicize what worked, when, where, and your estimation of why so that others less bold or creative can try as well.

What we do not need right now are internecine squabbles as if it were 2019 or scholarly writings aimed at purely sectarian audiences. What we need are rational people who believe in the precepts of liberty communicating with other human beings in a way that may induce those others to stop pestering their neighbors about masks and vaccines and maybe even to tell their leaders that enough is enough, that the time has come to live again.

If for whatever reason you cannot bring yourself to come out of the Covid closet so openly, I propose instead a Classical Liberal Green Corn Ceremony fashioned after the Cherokee Green Corn Ceremony. (For context and details, see Meg Devlin O’Sullivan, “A Family Affair: Cherokee Conversion to American Board Churches, 1817-1839,” Tennessee Historical Quarterly 64, 4 (Winter 2005): 270.) Similar to some Christian rituals, the Green Corn Ceremony was one of redemption and spiritual rebirth, a sacrifice that brought one back into the good graces of the community despite having sinned. 

The ceremony I have in mind is much simpler though. Just sign the Great Barrington Declaration and donate one percent of your 2020 income to AIER and/or one of the other organizations, like Judicial Watch, that have been fighting daily for an entire year for your liberty, and quite frankly, your safety from Covid, which can only be tamed by natural immunity and effective vaccines, not theatrical virtue signalling.

The Liberty Train is leaving the station, ultimate destination unknown but surely a better place than its current location. Climb aboard, or at least chip in for the fuel.

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Robert E. Wright

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research.

He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019).

Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.

Books by Robert E. Wright

Get notified of new articles from Robert E. Wright and AIER.

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