Too bad innovation is against the law

Oct 26, 2015

- By Bill Bonner

Bill Bonner
Dublin, Ireland

We met Charles Koch 40 years ago. In the meantime, he has gotten very rich and accumulated many enemies. The leftists seem to think he is a manipulator, pulling strings, passing out his money, and rigging the system for his own benefit. They must not have met him. As we recall he is a nice fellow, upright and sensible, with an earnest and well-meaning disposition.

The circumstance that put us in contact with Charles was that we were running the National Taxpayers Union and Charles was eager to help. He offered advice and some financial support. And then, from memory, he withdrew when he saw that we would be unable to halt or even slow down the growth of big government. So Charles went back to his business...and we went on to start one of our own. And now, 4 decades later, Charles has written a marvelous book, "Good Profit."

More about that in a moment...

We spent the weekend back in Normandy, renovating an old farmhouse. The weather was delightful, cool and clear.

Now we are on the road again...taking a son, Henry, on a magical mystery tour of our own little business world, visiting friends, partners and colleagues throughout Europe. Last week, we went east, to Germany and Switzerland. This week takes us west, to Ireland and England. More about that, too, as it develops.

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Meanwhile, stock market investors are playing a dangerous game. Mario Draghi gave out the word last week, that he would follow the US, Japan and China with another round of Quantitative Easing. That is, he proposes to shift more of the world's wealth to people like Charles Koch. This larceny is justified as a 'stimulus measure.' But since there is neither any serious theoretical nor experiential evidence that QE in any way stimulates a real economy, we have to assume that he knows that what he is up to is theft. The grandest larceny in history.

There's no mistaking the purpose of it. A man who points a gun at you and pulls the trigger can be presumed to want to kill you, despite the fact that his psychiatrist may later testify that it was 'just a call for help.' Central bankers claim to be helping the world economy. They admit that the gains are 'unevenly distributed.' This inequality, they say, is merely the price we pay to get the economy growing again.

But it's not new wealth, instigated by the central planners, that is being unevenly distributed. It's old wealth that is being stolen from some people and given to other people. In big, round numbers, the stock market added about $12 trillion to stockholders' wealth in the last 7 years. The economy added only about $1 trillion. There was only about $1 trillion in new wealth to divide up, in other words. But the wealthy scored $12 trillion. Where did the money come from? It had to be existing wealth...and it had to come from someone.

But Draghi is not the only stick-up man at a central bank. The aforementioned US, Japan and China have been at it too. And China just announced that it would undertake more QE too.

Just to remind us how it works, central banks can set short term rates more or less directly. But they have less of a purchase on long rates. So they go into the marketplace to buy long-dated bonds...raising the price of debt and thus lowering the cost of long-term borrowing. This is supposed to make it easier for businesses to borrow to expand production and to keep mortgage rates low - thus stimulating, in particular, the very important housing industry.

We've already spent a lot of time explaining why it doesn't work economically. But it DOES work financially. That is, it is a fraud and a failure as a way to stimulate real, Main Street commerce and industry. But it is a delightful flimflam for the financial sector. The Fed put in a giant bid for financial assets. Was there really any doubt about where the money would end up? Not in investors' minds. They are pleased as punch...and already bidding up the market in anticipation.

Imagine instead that they set out to buy up the world's financial newsletter outfits. You wouldn't expect us to complain, would you?

But that is the difference between us and Charles Koch.

Hardly anyone resents Al Gore's fortune...or his political influence. Because he comes by both in a scammy, but popular way. He takes positions in 'green' energy projects and then lobbies the feds to provide subsidies and tax incentives. Nor does anyone seem bothered that Bill and Hillary Clinton gained $125 million in net worth while supposedly devoting their entire adult lives to 'public service.' Not that we're faulting them; they peddled their influence and got a good price for it.

But Charles has the misfortune to come by his money honestly -- providing real goods and services to people at fair prices - and the strength of character to resist chicanery, even when it serves his own interest. For more than half a century Koch Industries has given the world with fuel, chemicals, industrial materials...the basic products and services that make a modern economy work. The company is based in Wichita and employs more than 100,000 people around the world. Charles and his brother are said, by Forbes, to be worth $100 billion.

Neither in Wichita nor in Koch Industries will you find the glamor of Hollywood, the gee whiz wonder of Silicon Valley or the honeypot bonuses of Wall Street. Koch Industries is a real business run by real people producing real products for real buyers.

And a very successful one. If you had invested $1,000 in it in 1961 (it is not a public company, however) you would have $5 million today, a return that Charles says is 27 times more than what you would have gotten from the S&P. His new book explains how he did it.

Great wealth is forgivable...even America. Free enterprise, too, is laudable, when it is described in campaign speeches and high school civics classes. But practicing it is unpardonable and promoting it is widely considered to be immoral.

This how easily it would be for Charles to stash his principles in a safe-deposit box somewhere and enjoy his money. Think how important he could feel too, if like Sheldon Adelman, he used his money to buy politicians rather than alienating them. And think how much public praise he could garner by saving whales or reducing carbon output...and maybe hiring a transgender person as spokesperson for his business. He could easily spend a billion dollars on a worthy cause without having to move to the economy section on his next flight out of Wichita.

Instead, Charles asks no favors from government. He is no crony. He wants no corporate welfare. No bailouts. No special treatment. All he wants is to be left alone to be able to work, to produce, to innovate and to serve his customers. Too bad that's against the law.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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