Skip to main content

Government and Big Business

You may have noticed a theme running through some of our recent posts on noted investors John Paulson, T. Boone Pickens, and Warren Buffett.

Take a look. It turns out that every one of these posts details the point at which an investor's self interest meets with government regulation. Often to the benefit (or planned benefit) of the investor/business, and at the expense of other individuals, such as yourself.

Now, this theme was apparent in the recent posts on Boone Pickens' foray into the water pipeline business, and Paulson & Co.'s perceived efforts to influence bankruptcy and mortgage legislation for the benefit of their remaining subprime market positions.

However, this theme was not so apparent in our post on Warren Buffett and his continued support of the estate tax. At least, it was not apparent to me until I did some extra reading shortly after making that post.

It turns out that self interest is well represented in Buffett's stance on inheritance taxes, at least according to some observers who feel Buffett's position is a logical outgrowth of his company's investments in life insurance and annuities and his interest in family-owned businesses as acquisition targets for Berkshire Hathaway.

We can argue over the legitimacy of these arguments in each of these instances, but the issue is plainly hanging over them. In a practical sense, we see that businesses and investors seek to use and influence government regulations and legislation to their benefit. They just don't like to advertise that fact.

Having said that, perhaps you will be interested to read the essays, "Government and Big Business", by Christopher Mayer, and, "The Snare of Government Subsidies", by Gary North.

Both articles make some interesting points about the marriage of business and government. Here's a particularly telling excerpt from North's piece:

The idea that businessmen are strong defenders of the free enterprise system is one which is believed only by those who have never studied the history of private enterprise in the Western, industrial nations.

What businessmen are paid to worry about is profit. The problem for the survival of a market economy arises when the voters permit or encourage the expansion of government power to such an extent that private businesses can gain short-term profits through the intervention into the competitive market by state officials.

Offer the typical businessman the opportunity to escape the constant pressures of market competition, and few of them are able to withstand the temptation. In fact, they are rewarded for taking the step of calling in the civil government.

Something to consider the next time someone tries selling our "mixed economy" as a model of the "free enterprise" system.

Still, the situation is not a hopeless one. North concludes his essay by reminding businessmen to first, "avoid sniffing at the bait" of government subsidy, as a matter of principle.

If principle is not enough, he reminds them that the strings attached to government subsidies become chains over time. So, it is better for individuals (even those who are simply pragmatic, rather than principled) to understand this chain of events ahead of time.

Have a look and consider these arguments for yourself.

Popular posts from this blog

Finance Trends 2019 Mid-Year Markets Review

Email subscribers of the Finance Trends Newsletter receive the first look at new articles and market updates, such as the following piece, sent out to our email list on Sunday (6/14).   Hello and welcome, everyone! If you received our last email notice over the July 4th holiday, you'll know that this weekend's newsletter will serve as a mid-year market update and a follow-up to issue #29, " How to Reinvest in a Rising Market ".   Ladies and gentlemen, without further ado, let's start the show...  Finance Trends Newsletter: Our Mid-Year Market Review When we last spoke, back in February, the U.S. stock market was rallying off its December-January lows. As the S&P 500 and Nasdaq reclaimed their 200 day moving averages in February and March, it became increasingly apparent that a lot of retail investors (and perhaps some institutional investors) were left under-invested while watching this recovery move from the sidelines.  The U.S. stock ...

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and...

How to "Pull the Trigger" on Your Trading Ideas

In our last post, I quoted hedge fund manager, Jim Leitner on the importance of following up on your investment ideas.  Today I'd like to follow up and share some thoughts on how you can learn to consistently "pull the trigger" on your best trading setups and investing ideas. In order to help you do that, we'll take from the best and offer up key insights from interviews with top traders and trading psychologists like Alan Farley, Brett Steenbarger, and Doug Hirschhorn .  Now before we get to their key insights on overcoming trading anxiety and pulling the trigger on your trading ideas, let's remember what Jim Leitner said in his interview: "Learn to love to listen to people and when you hear something interesting, follow up on it. Don't just think, "Well that's an interesting idea" only to find out a year later that the company you could've bought shares in is now up 500-fold. You never want to say woulda, coulda, shoulda...