MARK SKOUSEN, Editor of “Forecasts & Strategies.” Paul asks Mark if he has any predictions about the Dow. Mark also offers some new stock recommendations. Push play to watch the interview. (You need Flash installed to watch video.)
“This was the best FreedomFest yet. Congratulations!” –John Mackey, CEO, Whole Foods Market
Highlights of FreedomFest 2009:
- Nearly 1700 people attend this year’s FreedomFest (21% increase)
- More than 200 register at the door
- All Star Prediction Panel forecasts more pain ahead
- Charles Gasparino, CNBC’s #1 reporter, calls for abolishing the SEC
- Las Vegas Mayor steals show at Trial of the Century
- Liberty Editors Conference is SRO
- Amazing “mathemagician” is this year’s mystery speaker
- Five historic figures inducted into the Free Market Hall of Fame
- Steve Forbes attends all 3 days and dances to the music of the Beatles
- Sing a libertarian version of John Lennon’s “Imagine”
- Media coverage by C-SPAN, LA Times, Reasontv, Newsmax, and more!
Dear Friends of Liberty,
One attendee called this year’s FreedomFest a “phenomenon.” Over 100 speakers, 95 exhibitors and 1700 attendees showed up at “the world’s largest gathering of free minds” July 9-11, 2009, at Bally’s Events Center in Las Vegas — a record turnout, 21% increase over last year. (This number does not include several hundred supporters of Ron Paul’s Campaign for Liberty who attended FreedomFest on Friday and Saturday.)
They attended some 150 sessions on geo-politics, the economy, investments, philosophy, science & technology, art & literature, and healthy living. As June Arunga said, “FreedomFest is a festival of ideas — exciting, new, and refreshing.”
John Mackey calls it “The Trade Show for Liberty.” Mark Mullins (Fraser Institute) identifies it as “the new Mecca for libertarians.” I see it as the “focal point for free thinkers,” where independent thinkers and free minds break away from their busy schedule to come together once a year to learn, network, socialize, and re-energize their spirits.
The fight for freedom has never been more apparent since the end of the cold war. As one attendee put it, “This is THE year to attend FreedomFest, when our freedoms and financial assets are threatened more than ever.”
Given the deep recession and uncertainty this nation faces, I was surprised by the record turnout. According to a local Las Vegas business leader, FreedomFest was the only conference this year with higher attendance.
Many more will see the Friday general sessions on C-SPAN (to be aired soon).
Attendees came from every state of the union, and as far away as Australia, Japan, Argentina, and Kenya. Dozens of students took advantage of the $99 student discount rate.
You could feel the electricity as soon as you walked into the Exhibit Hall and the giant Laissez Faire Bookstore, run by Jim Peron and Jim Elswood.
One attendee told me, “FreedomFest changed my life and my entire way of thinking.”
I learned a lot myself as a moderator, speaker, and attendee. For every one who comes, FreedomFest is a personal creation, because so much is going on that no two people experience it the same way. As Jerry Cameron says, “It’s like having access to all the greatest intellectual food in the world and you just couldn’t eat fast enough to sample it all!”
Many buy the CDs of the entire conference every year just to keep up. (The first thing I do when I arrive is sign up for all the recorded sessions. If you are so inclined, check out the list of audioCDs here, or call 1-866-254-2057 to order by telephone.)
The program was huge, with over 150 speeches, panels and debates. “Liberty Watch” published the entire program in its July issue. I recommend you subscribe to this top quality libertarian publication. Go to http://www.liberty-watch.com.
The World Economic Summit:
“The financial crisis is not over!”
The first day of the conference, entitled “Clear and Present Danger,” was devoted to the on-going financial crisis. Many of the financial sessions were standing room only. Charles Gasparino, CNBC’s #1 reporter, was our first keynote speaker. He told the audience not to depend on the government to protect their wealth from losses or fraud. “The SEC has failed to uncover a single major scandal in the past 30 years,” he said. “It should be abolished.”
Other speakers throughout the conference included Steve Forbes, Larry Kudlow, Congressman Ron Paul, bestselling author Tom Woods (“Meltdown”), and John Fund. Rick Rule (Global Resource Investments) moderated a panel on energy, telling attendees to expect oil & gas supplies to be tight in the future. I gave a special 3-hour pre-conference seminar on “EconoPower: Seven Power Tools for Investors, Managers, and Citizens” that was well attended.
In the “All Star Prediction Panel” last year, all the participants (Peter Schiff, Bert Dohmen, Fred Foldvary, Dennis Slothower) warned attendees about the impending crisis while the media was painting a rosy picture. What were our prognosticators saying this year? They remained pessimistic and recommended staying heavily in cash, gold, or foreign stocks. Some are still shorting the market. Bert Dohmen, editor of the highly-acclaimed Wellington Letter, remains bearish, adding as an example, “How can a company like Boeing stay in business when they have received only one major order so far this year?” His breakout session attracted a large crowd.
Author Charles Murray (American Enterprise Institute) was more optimistic in the long run. In his luncheon address, he spoke of three factors that will work in favor of liberty — technology that liberates individuals from centralized institutions, a coming moral crisis among social democrats, and rediscovery of the role of freedom in imbuing life with meaning.
The Trial of the Century: Free-Market Capitalism on Trial
What caused the 2008 crisis: free-market capitalism or bad government policies? Friday night was the “big event” with defending attorney Steve Moore (Wall Street Journal Editorial Board) taking on prosecuting attorney Jeff Madrick (Emmy-award winning author of “The Case for Big Government”), with star witnesses Steve Forbes, Charles Gasparino, John Mackey, and Doug Casey.
Colorful Las Vegas Mayor Oscar Goodman was the Judge, and he stole the show with his irreverent remarks throughout the trial. What a showman. (He’s the former criminal defense attorney for the mob in Las Vegas!) The ending took everyone by surprise (see the C-SPAN coverage to find out what happened). The entire audience gave the judge and everyone involved a long standing ovation. (Thanks to estate planning attorney Jeff Verdon for arranging for Mayor Goodman to come.) As one attendee, Brandon Bond, said, “I’ve been attending these kinds of events for 30 years–and this one was the best ever!”
Another attendee enthused, “The Trial of the Century was so good it should be made into a Broadway play!”
Steve Forbes and John Mackey Attend All 3 Days
Steve Forbes has caught the vision of FreedomFest and makes a point of staying all three days. At a luncheon on Friday, he spoke about his penetrating new book “Power Ambition Glory,” which applies Greek and Roman history to today. He also appeared on several panels and spoke at the gala Saturday night banquet.
John Mackey, CEO of Whole Foods Market, is also a big fan who attends the entire conference. He appeared on the always popular Libertarian Entrepreneurs Panel (with Newsmax president Chris Ruddy; Rick O’Donnell, president of the Acton Foundation for Entrepreneurial Excellence; and successful New York money manager Donald Smith). In the debate between “Randian vs. Conscious Capitalism,” he noted significant differences between his philosophy of “conscious capitalism” and that of Ayn Rand. “Randian capitalism is all about making profits; conscious capitalism is about seeking a greater purpose.”
John also spoke to a SRO audience about the “Whole Foods Longevity Diet: How to Live to be 100 and Avoid Heart Disease, Cancer, Obesity, and Diabetes.” John is a vegan. Based on the findings of a group of health experts, he recommended reducing or eliminating meat and diary products from one’s diety, and emphasizing fruits and vegetables. He surprised everyone when he said, “The more vegetables you eat, the more you lose weight.” And according to John, eating vegetables and fruit is the least expensive diet.
The $100 Trillion Zimbabwe Dollar vs. the American Eagle Silver Dollar
There were lots of sessions for investors, entrepreneurs, and retirees. In one of the tax planning sessions organized by Vern Jacobs, international tax attorney Marshall Langer spoke to a SRO crowd about “Saving Lots of Taxes by Moving to Another State or Country.” When asked the crowd which part they were interested in, Langer was surprised that 90% said they were more interested in moving “offshore.”
Investing in gold and silver was as popular as ever. In the closing panel, I showed a $100 trillion Zimbabwe dollar bill and asked the panelists, “Are we headed toward hyperinflation in the United States?” David Boaz (Cato Institute), Steve Forbes, and Richard Viguerie didn’t think so, but Peter Schiff and Doug Casey thought it was a real possibility with the government bent on out-of-control spending and entitlements (Scott Tips of the National Health Federal and Michael Tanner of Cato warned attendees about the dangers of nationalized health care).
Rick Rule, president of Global Resource Investments, offered guidance in investing in mining and natural resource stocks in several well-attended sessions. Other investment specialists included Frank Trotter (Everbank) on the future of the US dollar (not good), Keith Fitz-Gerald on what Chinese insiders are buying now (Taiwan stocks), Van Simmons (David Hall’s Rare Coins) on the benefits of private collecting….Lou Petrossi on finding good money managers, Martin Truax on income investing, Jon Nadler (Kitco) on investing in gold, Paul Wigdor (Superfund) on beating the market with futures, Michael Checkan (Assets Strategies International) on currencies and precious metals, Peter Zipper on banking in Belize, and Adrian Day on foreign markets. Joe Bradley (Investors Hotline), Gary Alexander, Ron Holland, and Jon Golding served as moderators.
Peter Schiff, president of EuroPacific Capital and author of the bestseller “Crash Proof,” was adamant that investing in foreign stocks and commodities was the best way to go, and that investors should “get out of the dollar.”
I suggested that the US government could readily shift to a sound money system by circulating its own gold and silver bullion coins. I held up a American Eagle silver dollar, and gave one to each of the panelists. I told the audience that the silver dollar is our symbol of sound money and freedom, and encouraged each attendee to buy one from the coin dealers in the exhibit hall to keep as a good luck piece, a tip, a gift, or a nice bonus to employees.
Douglas R. Casey, chairman of Casey Research, was controversial as usual. His luncheon speech on “My Misadventures in the Third World” included an update on his efforts to privatize a small country and take it public on the New York Stock Exchange. He said it’s now a real possibility.
Estate and tax planning is always a major topic at FreedomFest, with experts Jeff Verdon, David T. Phillips, Joe Gandolfo, Vern Jacobs, Marshall Langer, and Bill Black, among others.
Conservative marketing guru Floyd Brown led a 4-session series on powerful techniques in email, blogging, and other new media, with the world’s most successful experts. Richard Viguerie (American Target) spoke on “Magnify Your Business or Resign!”; Craig Huey on 16 strategies for business owners; and Marsha Friedman on her new book, “Celebritize Yourself”…and Nathan Tabor on “Building a Political Following on Twitter, Facebook and Blogosphere.”
Chris Ruddy (Newsmax) also moderated a popular panel, carried on C-SPAN, called “The Future of Conservatism,” with Richard Viguerie (American Target), Jon Utley (American Conservative), Tom Phillips (Eagle Publishing), and Tom Fuente (California Republican).
Sacred Text Project: A Muslim Makes the Case for Pacifism!
Attendees had the unique opportunity to hear sessions by Jewish Mel Hecht, Christian minister Joseph Fuiten, Muslim Aslam Abdullah, Sikh Gurucharan Khalsa, and BYU Professor Dan Peterson shed light on their sacred scriptures, and then debate the role of religion in a no-holds-bar roundtable with Michael Shermer, editor of Skeptic magazine and Scientific American. Abdullah, director of the Islamic Center of Nevada, made the case for a peaceful coexistence with Muslim neighbors, and all the panelists seemed to be in a forgiving mood at FreedomFest.
In the exhibit hall each morning, Sikh Gurucharan Khalsa led about 30 individuals in yoga exercises.
Big Debates on Wal-Mart, Illegal Immigration, and the Fed
FreedomFest wouldn’t be complete without some great debates. This year, “Wal-Mart, Good or Bad?” pitted Ohio professor Richard Vedder against anti-Wal-Mart activist Al Norman. I was surprised to learn that many Wal-Mart employees are paid so little that they are subsidized with Medicaid, low-income housing, and other government welfare. In “Immigration: Will Mexico Explode?,” Roberto Salinas (Mexico Business Forum) defended his country against Dr. Eric Olsen, a Tucson chiropractor. In “Fed Up with the Fed?,” Gene Epstein (Barron’s economics editor) and Tom Woods took on Warren Coats (former IMF official) and John Fund (Wall Street Journal); and, as mentioned earlier, John Mackey (Whole Foods) and Michael Strong (FLOW) debated the Objectivists Ed Hudgins and Rob Bradley in “Randian vs. Conscious Capitalism.”
The Liberty Editors Conference is a perennial favorite, and every session was packed, with people hanging out the doors. Speakers included Stephen Cox, Drew Ferguson, Jim Walsh, Randal O’Toole, David Friedman, and Jo Ann Skousen. The panels were especially popular — on the Obama administration, the bailout, and a debate on religion and liberty. There was also a spirited debate on “Anarchy vs. Limited Government,” with me defending limited government against anarchists David Friedman and Doug Casey. I said that we now have a case study of how well anarchy does, since the African state of Somalia has had no central government since 1991. (The results are a mix of private services and poor public services, and a deteriorating economy.) I challenged Friedman and Casey to provide evidence of how utopian countries would deal with (1) disease control, (2) inefficiencies in public transportation and utilities, and (3) the justice system, i.e., how to deal with criminals who refuse to acknowledge private courts. At one point, I heard David Friedman say that a criminal who refuses to come to court would be “forced” to do so. That sounds like some form of government to me!
Major Media and Think Tanks at FreedomFest
We had representatives from most of the major financial media at FreedomFest, including the Wall Street Journal (Steve Moore and John Fund), Barron’s (Gene Epstein), and Investors Business Daily (Terry Jones and Michael Ramirez). Think tanks and freedom organizations were well represented: Ed Feulner and Teri Ruddy from Heritage: David Boaz, Dan Mitchell, Richard Rahn, and Michael Tanner from Cato; David Nott, Matt Welch, and Brian Doherty from Reason; Larry Reed from FEE; Julian Morris (IPN in London); Robert Enlow from the Friedman Foundation for Educational Choice; Charles Murray from AEI; Byron Scholmach from the Goldwater Institute; John Taylor from the Virginia Institute; and Holly Jackson from State Policy Network (SPN).
Ron Paul’s Campaign for Liberty at FreedomFest
Over 1,200 attendees came to the Bally’s Events Center Friday night, July 10, to hear bestselling author Tom Woods and Congressman Ron Paul update us on the machinations of Death Star (Doug Casey’s name for Washington). Paul is not optimistic about prospects in Washington, but was buoyed by the strong turnout in Las Vegas.
Unusual Speakers at FreedomFest
There’s always something for everyone at FreedomFest, even for those who don’t care about politics or money. We had a science fiction mini-series with Jo Ann Skousen on “Fantasy, Science Fiction and Romance,” commenting especially on Mary Shelley’s Frankenstein, and Brian Doherty on Robert Heinlein. They also participated in a popular panel on libertarian science fiction/fantasy with L. Neil Smith and J. Neil Schulman.
NYTimes columnist and GMU Professor Tyler Cowen answered the question, “Does Capitalism Destroy Culture?” He concluded that global capitalism actually encourages a variety in products and services, including language and cultural differences. Missouri history professor Steven Watts spoke on “Fantasyland, Walt Disney, and the American Dream,” followed by “Playboy, Hugh Hefner, and the American Dream”…..and Don Hauptman gave details on Ayn Rand’s famous Playboy interview, based on his purchase of the original documents with Rand’s own hand-written notes.
We also had several sessions on healthy living, including talks by John Mackey, and George and Mimi Murdock. The Murdocks spoke on “How to Avoid America’s Impending Health Catastrophe,” and recommended the book “The China Study.”
French Canadians Julie Barlow and Jean-Benoit Nadeau spoke on their bestsellers “Sixty Million Frenchmen Can’t be Wrong” and “The Story of French”…..David Wang explained the unusual connection between Confucius and America’s Founding Fathers (especially Franklin and Jefferson)….C-SPAN filmed Alex Green on his new book, “The Secret of Shelter Island”…..FIRE president Greg Lukianoff on “Unlearning Liberty: FIRE on Campus”….Dick Bishirjian (Yorktown University) on the profit potential of “for profit” education….This year we celebrated the 200th anniversary of the birth of two famous individuals, so we had Michael Shermer speak on Charles Darwin, and Hillsdale Professor Tom Krannawitter on “Vindicating Abe Lincoln Against his Libertarian Critics”….Santa Clara Professor Fred Foldvary defended Henry George and his single tax on land….Troy Dayton and John Mackey teamed up to discuss “Should Drugs be Legalized?”….Nelson Hultberg, author of “The Golden Mean,” on the need for a third party….And last but not least, our mystery guest speaker was Harvey Mudd Professor Art Benjamin on “The Joys and Mysteries of Mathematics.” He held the crowd spellbound, and sold dozens of his books and tapes.
Each Room Dedicated to a Fallen Patriot
Each year we dedicate the rooms at FreedomFest to a free-market leader who has recently passed away. This year the rooms were dedicated to: Sir John Templeton; former Congressman Jack Kemp; Habitat for Humanity founder Millard Fuller; Anti-Communist crusader Fred Schwarz; conservative leader Paul Weyrich; investment writer Larry Abraham; private education enthusiast Marshall Fritz; ISIL founder Vince Miller; coin dealer Burt Blumert; and FEE managing editor Beth Hoffman.
Free Market Hall of Fame at Gala Saturday Banquet
Every night was filled with events at FreedomFest: On Thursday, Everbank sponsored a speakers dinner and Newsmax an attendees dinner; on Friday, Campaign for Liberty sponsored a Ron Paul reception and program in the Bally’s Events Center.
The capstone of the conference was the gala Saturday night banquet, led by emcee extraordinaire Chip Wood. After CNBC’s Larry Kudlow spoke for 20 minutes on the current state of the nation, five American writers and economists were inducted into the Free Market Hall of Fame: Henry Hazlitt, Murray N. Rothbard, Rose Wilder Lane, H. L. Mencken, and Booker T. Washington. After each name was announced, Chip Wood rang the Liberty Bell. Following the ceremony, Steve Forbes paid tribute to the five inductees.
Then band leader Billy Tragesser led the audience in the singing of the FreedomFest anthem, “Freedom and Gold,” sung to an Irish tune attributed to an old pirate song.
The grand finale was the appearance on stage of the world’s #1 Beatles tribute band, “Yesterday.” From the first chord of the first song, a large crowd immediately gathered on the dance floor and didn’t quit until an hour and a half later, dancing and singing to the classics of the Fab Four. I’ve never seen anything like it at a libertarian or conservative event. Even Steve Forbes got out there and did a jig.
Everyone sang along with the band singing a libertarian version of John Lennon’s “Imagine”:
Imagine there’s no taxation
It’s easy if you try
No IRS below us
Above us only sky
Imagine all the people
Living to be free.
Imagine no politicians.
Telling us what to do.
No forms to fill out for.
And no inflation too
Imagine all the people
Living without Social Security.
You may say that I’m a dreamer
But I’m not the only one
I hope someday they’ll join us
And liberty will have won.
Imagine no regulations.
I wonder if you can
No need for laws to control us
A brotherhood of man
Imagine all the people
Competing in the world
You may say that I’m a dreamer
But I’m not the only one
I hope someday they’ll join us
And liberty will have won.
Next Year’s Big Event: “Declare Your Own Independence.”
We’ve already set the dates for the 7th annual FreedomFest, which promises to be bigger and better than ever before: July 7-11, 2010, at Bally’s/Paris Resort in Las Vegas. Just think7-11 in Vegas.
We think next year’s FreedomFest will sell out (we have a maximum capacity of 2000). So you might want to take advantage of the “early bird” special ($100 off the retail price).
We’ve also planned several other events for the coming year:
- A world class Mediterranean cruise (3 Greek Islands, Israel, Ephesus, Egypt, and Italy). For details, go to http://www.freedomfest.com/cruise2009.htm
- Our post-Davos World Economic Summit January 31-February 2 at the Atlantis Hotel on Paradise Island in the Bahamas. For more information, call Tami Holland, our conference coordinator extraordinaire, at 1-866-266-5101, or email her at firstname.lastname@example.org.
In liberty, AEIOU,
“The world’s largest gathering of free minds”
7-11 in Las Vegas (July 7-11, 2010)
Mark Skousen appears on CNBC with Maria Bartiromo to talk about the efforts to turnaround Ford Motor Company. Video available through YouTube. Click here to watch the video.
Forecasts & Strategies
By Mark Skousen
The most dangerous advice you can give a child is “Go to school, get good grades, and look for a safe, secure job.” —Robert T. Kiyosaki, author Rich Dad, Poor Dad
I don’t normally write about the same book twice, but I received so many complaint letters about my attack on Rich Dad, Poor Dad last month that a follow-up is necessary. “I was stunned by your review,” wrote one subscriber. “My impression is very different from yours. Robert Kiyosaki comes off as someone who loves life and still has time for his two young boys fascinated by the world of business. Robert says it is the Rich Dad that has time for him, not the Poor Dad who is too busy climbing the job ladder and the rat race. Robert notes that in today’s volatile world there is no financial security—not by employers or government. You have to fill the void yourself through financial education and business entrepreneurship.”
My response: I have a mixed attitude about the philosophy behind Rich Dad, Poor Dad. In many places, he makes a lot of sense. I agree 100% that too many good people earn too little, spend too much and use their credit cards excessively, causing undue financial hardship and unpaid bills. I agree 100% that not enough time is spent in school educating young people on the virtues of self-discipline, budgeting, thrift, business acumen and entrepreneurship. I agree 100% that too many Americans have adopted a “bash the rich” and an “entitlement” mentality, believing that their company or government owes them a guaranteed life of benefits and security.
Kiyosaki favors the Rich Dad who sets his own hours and takes his chances in construction, chain stores and restaurants while he dabbles in real estate and penny stocks. He opposes the Poor Dad whose advice is, “Go to school, get good grades and look for a safe secure job.” He calls it “the most dangerous advice you can give a child” because in today’s global world, there’s no such thing as a safe, secure job. “That may be, but it doesn’t mean that you can’t work for several companies during your lifetime. Going out on your own as a capitalist/entrepreneur isn’t your only choice, and frankly, for most people it may not be the best choice.
Not everyone is cut out to be a capitalist/entrepreneur willing to go out on their own and invest in high-risk ventures. Most people prefer to work for a company. That’s fine—there’s no reason to be guilty about being an employee or executive of a big corporation. My advice is to work hard at that job, get up-to-date training, earn those raises, stay out of debt—and save and invest as much as possible. Many of my subscribers fit in this category.
Kiyosaki belittles his real father who had advanced degrees from Stanford and the University of Chicago but never could make ends meet as a school administrator in Hawaii. He was the Poor Dad who had little interest in “making money.” But Kiyosaki’s criticisms are misplaced. His dad’s troubles were not due to his non-pecuniary interests or in his working for the state of Hawaii. Poor Dad simply didn’t live by George Clason’s basic rules of The Richest Man in Babylon: Always save at least 10%, no matter how much you earn. That way you get richer every year, no matter what your lifestyle. Poor Dad could have been Rich Dad without taking any big risk in high-flying businesses or penny stocks. He could simply invest his 10% in index funds or even money market funds.
Who Gets Caught Up in the Rat Race?
I had to laugh when Kiyosaki accused his Poor Dad of getting caught up in the “rat race” of life with bigger homes and higher credit card bills. Believe me, the Rich Dad is also involved in the rat race. When you start your own business, that’s all you can think about. You will work 14 hours a day or more. Time for the kids and spouse? Forget it! Sure, you may show up to see your son play Little League, but more than likely you’ll be on your cell phone talking business. It’s the nature of the beast.
Rich Don’t Pay Taxes? Get Real!
One final comment. Kiyosaki boastfully declares, “The real reality is that rich are not taxed.” They use corporations and other tax breaks to beat the taxman. “It’s the middle class who pays.” That may have been the case a few years back, but not anymore. The rich are paying through the nose these days. Today the top 1% are paying over 30% of the federal income taxes. I know-I’m one of them. Sure, you may reduce your tax burden through corporations, but it’s harder and harder to escape taxes entirely.
In sum: Kiyosaki’s books are fine for self-employed risk-takers (and I’m one of them!). But for those who like working for others, don’t panic. You, too, can be a Rich Dad by following George Clason’s prudent formula, “A part of all you earn is yours to keep.”
Forecasts & Strategies
by Mark Skousen
“In the midst of the biggest economic boom ever, millionaires are going bankrupt.” – Forbes (October 2, 2000)
Last March, I reported the findings of Professor Thomas J. Stanley, author of The Millionaire Next Door and The Millionaire Mind, that the rich are model citizens-frugal, well-educated, balanced, religious and happily married. But according to the October 2 Forbes, a growing number of millionaires are going bust. Doctors, lawyers, accountants and executives are declaring chapter 7 and 13 bankruptcies at record numbers during this time of prosperity, due to bad business decisions, poor budgeting, overuse of credit cards and divorce. I also know a few financial gurus who continue to dispense advice yet are strapped (but I won’t mention any names).
There are several important lessons here:
(1) An above-average income is no guarantee of financial success. Forbes describes individuals earning $300,000 a year, and some with assets exceeding $5 million, going under. Las Vegas singer Wayne Newton was earning a million dollars a year when he went bankrupt in the early 1990s. (He blamed it on his advisors for getting him into leveraged real estate projects.) Earning more money is not the answer to one’s financial problems-living within your budget is.
(2) Open-ended credit card and business debt is a major source of trouble. If you can’t pay off your credit cards every month, you are headed for trouble. Replace them with debit cards or the American Express card, which requires you to pay off your obligation every month.
(3) Avoid margin debt and leveraged business ventures. The majority of busted millionaires made the mistake of getting in over their heads in leveraged real estate deals and highflying stocks. In many cases, greed drove them to put too much of their savings into one risky scheme.
(4) Most importantly, always spend less than you make, year after year. This advice may sound simplistic, but I’m amazed at how often it is violated.
The Best Book on Avoiding Bankruptcy
There are some excellent books on the subject: Rich Man, Poor Man by Robert T. Kiyosaki, The Wealthy Barber, by David Chilton or High Finance on a Low Budget, by my wife, Jo Ann, and me (all available through amazon.com). But the classic work on the subject is The Richest Man in Babylon (New Library edition). I require it in all my investment classes. It tells the story of Arkad: “In old Babylon there once lived a certain very rich man named Arkad. Far and wide he was famed for his great wealth. Also was he famed for his liberality. He was generous in his charities. He was generous with his family. He was liberal in his own expenses. But nevertheless each year his wealth increased more rapidly than he spent it.”
How could Arkad accomplish this financial miracle of being a big spender and yet still grow richer every year? Simple. Whether he earned a lot or a little, he always set aside at least 10 percent of his income, which he religiously saved and invested. He scrupulously avoided living beyond his means. Thus, in times when he earned more, he could afford to spend more-even as he added to his net worth.
My Financial Life Story
I read The Richest Man of Babylon when I was a young adult and have followed it ever since with great success. I started college with $50 in my pocket, but have always lived frugally. I pay cash for everything, including big-ticket items like cars. I seldom buy stocks on margin. I put aside 10%-20% of my income every year through my pension plan and Automatic Investment Plans (AIP) with various brokers. Like Arkad, I spend money liberally on my family, church, charities and other good causes (such as the Foundation for Economic Education). My only major debt was my home, and I paid off my mortgage several years ago, so I am totally debt free. Yes, I invest frequently in high-risk ventures, but I always diversify enough to keep out of trouble.
If you haven’t read The Richest Man in Babylon, I suggest you do so. It is entertaining and enlightening-and will keep you financially straight.
Economics on Trial – Ideas on Liberty – SEPTEMBER 2000
by Mark Skousen
“Government measures . . . give individuals an incentive to misuse and misdirect resources and distort the investment of new savings.”
– MILTON FRIEDMAN 1
Several months ago, I had the opportunity of speaking before a Miami chapter of Legatus, a group of Catholic business leaders organized originally by Tom Monaghan, founder of Domino’s Pizza. The topic was the outlook for the stock market, which had reached sky-high levels and by any traditional measurement appeared extremely overvalued. Even many experienced Wall Street analysts recognized that a bear-market correction or crash was inevitable and necessary. As the old Wall Street saying goes, “Trees don’t grow to the sky.” Indeed, in the spring the stock market took a well-deserved tumble. What is the cause of this boom-bust cycle in the stock market? Does capitalism inherently create unsustainable growth? Is the bull market on Wall Street real or a bubble?
The Parable of the Wheat and the Tares
To answer these questions, I applied Jesus’ parable of the wheat and the tares (Matthew 13:24-30) to today’s financial situation.
Jesus tells the story of a wheat farmer whose crop comes under attack by an unknown assailant. In the middle of the night this enemy sows tares (weeds) in his wheat fields. Soon the farmer’s servants discover that the farmer’s crop appears to be twice the normal size. Yet the master realizes that half the crop is fake-weeds instead of wheat. But he warns his servants not to tear out the weeds for fear of uprooting the good shoots; they must wait and let the wheat and the tares grow up together until harvest time. Months later, the wheat produces good grain, while the tares are merely weeds and provide no fruit. The servants pull out the weeds and burn them, and store the grain in the barn.
The parable is imminently applicable to the recent wild ride on Wall Street. In today’s robust global economy, the wheat represents genuine prosperity-the new products, technologies, and productivity generated by capitalists and entrepreneurs. It represents real economic growth and when harvested, reflects a true higher standard of living for everyone. Under such conditions, stock prices are likely to rise.
On the other hand, the tares represent artificial prosperity that bears no fruit in the end and must be burned at harvest time. Where does this artificial growth come from? The central bank’s “easy money” policies! The Fed artificially lowers interest rates and creates new money out of thin air (through openmarket operations). This new money, like regular savings, is invested in the economy and stimulates more growth and higher stock prices-higher than sustainable over the long run.
Who is the enemy who sows artificial prosperity? Alan Greenspan! (Or, to be more accurate, central bankers.) The money supply-which is controlled by the Fed-has been growing by leaps and bounds, especially since the 1997 Asian crisis.
But there is no free lunch, as sound economists have warned repeatedly. At some point, the harvest time comes and the wheat must be separated from the tares. This is the crisis stage, where the boom turns into the bust. Harvest time in wheat is fairly easy to predict, but not so in the economy. Clearly economic conditions are heating up, as measured by asset inflation, real estate prices, the art mar ket, and recently the Consumer Price Index. At some point, a “burning” of excessive asset values in the financial markets must occur. As Ludwig von Mises stated long ago, “if a brake is thus put on the boom, it will quickly be seen that the false impression of `profitability’ created by the credit expansion has led to unjustified investments..”2
Lesson: Globalization and supply-side freemarket policies have justified genuine economic growth and higher stock prices over the past two decades, but “easy money” policies have at the same time created an artificial boom and “irrational exuberance” on Wall Street. Ignore this lesson at your own peril. Remember the parable of the wheat and the tares!
1. Milton Friedman, Capitalism and Freedom (University of Chicago, 1962), p. 38.
2. Ludwig von Mises, “The `Austrian’ Theory of the Trade Cycle,” in The Austrian Theory of the Trade Cycle and Other Essays, compiled by Richard M. Ebeling (Auburn, Ala.: Ludwig von Mises Institute, 1996), p. 30.
Economics on Trial
IDEAS ON LIBERTY
What It Takes to Be an Objective Scholar
by Mark Skousen
“It was the facts that changed my mind.” -Julian Simon (1)
During the 1990s we watched the Dow Jones Industrial Average increase fourfold and Nasdaq stocks tenfold. Yet there were well-known investment advisers-some of them my friends-who were bearish during the entire period, missing out on the greatest bull market in history. (2)
How is this possible? What kind of prejudices would keep an intelligent analyst from missing an overwhelming trend? In the financial business the key to success is a willingness to change your mind when you’re wrong. Stubbornness can be financially ruinous. When a market goes against you, you should always ask, “What am I missing?”
Over the years, I’ve encountered three kinds of investment analysts: those who are always bullish; those who are always bearish; and those whose outlook depends on market conditions. I’ve found that the third type, the most flexible, are the most successful on Wall Street.
Confessions of a Gold-Bug Technician
A good friend of mine is a technical analyst who searches the movement of prices, volume, and other technical indicators to determine the direction of stocks and commodities. Most financial technicians are free of prejudices and will invest their money wherever they see a positive upward trend, and avoid (or sell short) markets that are seen in a downward trend. But my friend is a gold bug and no matter what the charts show, he somehow interprets them to suggest that gold is ready to reverse its downward trend and head back up. Equally, he always seems to think the stock market has peaked and is headed south. As a result, throughout the entire 1990s he missed out on the great bull market on Wall Street and lost his shirt chasing gold stocks.
I also see this type of prejudice in the academic world. Some analysts are anti-market no matter what. Take, for example, Lester Brown, president of the Worldwatch Institute in Washington, D.C., who puts out the annual State of the World and other alarmist surveys and data. He gathers together all kinds of statistics and graphs showing a decline in our standard of living and the growing threat of population growth, environmental degradation, the spread of the AIDS virus, and so on. For example, despite clear evidence of sharply lower fertility rates in most nations, Brown concludes, “stabilizing population may be the most difficult challenge of all.” (3)
Too bad Julian Simon, the late professor of economics at the University of Maryland, is no longer around to dispute Brown and the environmental doomsdayers. Simon was as optimistic about the world as Brown is pessimistic. Simon’s last survey of world economic conditions, The State of Humanity, was published in 1995. That book, along with his The Ultimate Resource (and its second edition), came to the exact opposite of Brown’s conclusions. “Our species is better off in just about every measurable material way.” (4)
Yet Julian Simon was not simply a Pollyanna optimist. He let the facts affect his thinking. In the 1960s, Simon was deeply worried about population and nuclear war, just like Lester Brown, Paul Ehrlich, and their colleagues. But Simon changed his mind after investigating and discovering that “the available empirical data did not support that theory.” (5)
Scholars Who See the Light
The best scholars are those willing to change their minds after looking at the data or discovering a new principle. They admit their mistakes when they have been proven wrong. You don’t see it happen often, though. Once a scholar has built a reputation around a certain point of view and has published books and articles on his pet theory, it’s almost impossible to recant. This propensity applies to scholars across the political spectrum.
We admire those rare intellectuals who are honest enough to admit that their past views were wrong. For example, when New York historian Richard Gid Powers began his history of the anticommunist movement, his attitude was pejorative. He had previously written a highly negative book on J. Edgar Hoover, Secrecy and Power. Yet after several years of painstaking research, he changed his mind: “Writing this book radically altered my view of American anticommunism. I began with the idea that anticommunism displayed America at its worst, but I came to see in anticommunism America at its best.” (6) That’s my kind of scholar.
1. Julian L. Simon, The Ultimate Resource 2 (Princeton, N.J.: Princeton University Press, 1996), preface.
2. See the revealing article, “Down and Out on Wall Street,” New York Times, Money & Business Section, Sunday, December 26, 1999.
3. Lester R. Brown, Gary Gardner, and Brian Halweil, Beyond Malthus (New York: Norton, 1999), p. 30.
4. Julian L. Simon, The State of Humanity (Cambridge, Mass.: Blackwell, 1995), p. 1.
5. Simon, The Ultimate Resource 2, preface.
6. Richard Gid Powers, Not Without Honor: The History of American Anticommunism (Free Press, 1996), p. 503.