LIKE THE ANTIGLOBALIZATION
forum I wrote aboutlast year
, the Iraq issue has brought out global protestors en masse.
While I support the right to peaceful assembly, the imagery that associates Bush with Hitler and the swastika with the American flag makes me gag. Despise George Bush's environmental record? Fine. Want to give UN inspectors another decade? Fine. I don't care which god you pray to or which language you speak. Associating America with Nazism isn't merely ignorant it's disgustingly stupid.
The United States is the furthest thing from Nazism the world has ever known. Our global leadership isn't a result of brute force, or political intimidation, or terror. America's vast wealth, advancements in technology, culture and influence aren't a result of sacrificing individual rights, as the Nazis did, but of protecting them.
While the right to free speech is most associated with America, I believe our property rights, and our commitment to free-market capitalism, are the truest sources of American strength. For many people, the concept of "property rights" has come to mean quaint suburban squabbles about four inches of the backyard lawn. But property isn't just your stuff it's your life. Your property is the product of your labor, and the brilliance of American democracy is that we're all free to toil away in any profession we choose. And keep the products of our labor.
Accordingly, in a free market, we're free to do business with whomever we choose. That's why I'm worried about an increasingly active regulatory environment in America. Because whether it's a restaurateur's right to permit smoking on his premises or an investor's right to invest in a unregulated hedge fund, our property rights (read: free trade) can't> be restricted, even if it's ostensibly in the so-called public interest.
In Chicago these days, there's much discussion about implementing a smoking ban in bars and restaurants, similar to those now in effect in Los Angeles, New York and other major cities. Far too many people fail to understand the serious implications of this type of regulation. Beyond the very plausible argument of a regulatory slippery slope that if they ban smoking, then chocolate and pornography are next the bigger issue is property rights.
The owner of a bar, restaurant or office building has the right to determine if, when and where smoking is permitted on his premises. End of story. Even though smoke (both first and second hand) has been proven to be deadly, consumers have no right to a smoke-free meal at someone else's restaurant. If you don't like smoke, don't go there. If the owner is able to attract customers who aren't bothered (or more likely, prefer) a smoking environment, so be it. Likewise, there's no right to a job in a smoke-free environment. If you don't like it, quit.
It's a point lost on the army of lobbyists and left-leaning politicians who claim to support the "public good." There's no such thing as the public good. When politicians or regulators claim to serve the public good, it actually means that the good of the herd (usually the majority) over the good of another (usually smaller) group.
In a free society, private property can't be controlled by the whim of regulators, politicians or a majority mob. Despite the populist rhetoric behind the antismoking initiatives, limiting the rights of property owners doesn't protect the public's rights at all. Instead, it violates the rights of the individual.
Property rights include not only the right to own property, but also to deploy it (that is, invest) as one sees fit. And amid a still-soggy stock market, a newly activist Securities and Exchange Commission is regulating investors' property rights into oblivion. CEOs, mutual-fund companies and hedge funds are a few of the targets who've been singled out in recent weeks, all in the name of the public good.
Let's get one thing straight: Free trade doesn't mean the right to violate someone else's property rights. There is no right to defraud, steal or breach contracts. And as we've pointed out before with regard to WorldCom and Enron, when there's fraud, those harmed have every right to seek legal recourse.
Notice how regulation doesn't punish the guilty, but rather the innocent. Not only are producers (businesspeople) considered guilty of a crime they haven't committed, but consumers are denied goods and services simply because a bureaucrat has decided it's not in their best interest.
The best treatise on the dangers of regulation was written by none other than Alan Greenspan, who, in Ayn Rand's "Capitalism: The Unknown Ideal," points out how regulation "does not build quality into goods or accuracy into information." In fact, it undercuts the market's inherent, nongovernmental regulatory device: reputation.
And that's just the point. In a free market, businesses compete for reputation. In fact, more than any other asset, the most highly valued component of any successful enterprise is its reputation. And despite the efforts of Eliot Spitzer and others, a company's reputation can't be legislated or regulated into a consumer's psyche. It is built up only after years of quality, fairness and honest dealing.
But under the "protection" of market regulation, even the untested newcomer is perceived to be as safe as the highly established company. As Greenspan wrote, "A fly-by-night securities operator can quickly meet all the SEC requirements, gain the inference of respectability and proceed to fleece the public. In an unregulated economy, the operator would have to spend a number of years in reputable dealings before he could earn a position of trust sufficient to induce a number of investors to place funds with him."
Regulation doesn't protect consumers. Rather, it gives them a false sense of safety about a company that complies with an arbitrary set of standards. When regulation replaces reputation, consumers don't seek higher standards, and companies have no incentive to provide them.
In the securities industry, regulators have seized on the public's anger over losses in the stock market to push through the biggest controls in three generations. Just take a cursory glance at the SEC Web site, where it seems each week a new regulation, requirement or obstruction is introduced.
While it's fashionable to believe that more regulation will improve business confidence (or the stock market), it's important to know that regulation helps just two groups: the regulators, who are applauded for "cracking down," and the lawyers, who reap a windfall as legitimate businessmen are forced to spend millions of dollars just to begin understanding how to comply. Isn't it a bit ironic that the cost of compliance is eventually passed onto the private sector exactly the group regulators supposedly intended to protect?
Perhaps regulators don't consider the cost of their actions to the private sector because they haven't been in the private sector for quite some time. Just consider the background of Senator Paul Sarbanes and Congressman Michael Oxley, architects of the recently passed and dangerously overreaching bill that bears their name.
According to his Web site, Paul Sarbanes hasn't had a nongovernmental job since 1966. Before that, he was a lawyer. Congressman Michael Oxley has served 11 terms in the House of Representatives, and from what I could glean from his Web site, hasn't been in the private sector since 1972. Before that he was you guessed it a lawyer.
Look, I know the score. You want trading tips, not political analysis. You want stock picks, not social commentary. But it's hard for me to get too enthusiastic about a free market that seems to be getting less free by the moment. Although this country was founded on limited government and unalienable rights, we seem to be moving toward just the opposite. It is our individual rights that are now more limited, and governmental power that is becoming increasingly unalienable.
Jonathan Hoenig is portfolio manager at Capitalistpig Hedge Fund LLC.>