Austrian Economics Go Mainstream: Koch to Acquire Georgia-Pacific

Business stories bore the ever-living shit out of me 99% of the time, but when Austrian economics and Ludwig von Mises get mentioned in the mainstream press (in this case, the AJC), I take notice. Koch Industries, a $60 billion privately held juggernaut, is in the process of acquiring Georgia-Pacific and infusing it with a free market, entrepreneurial spirit. This is innovative, invigorating stuff (to me, anyway).

Snip:

Koch promotes performance-based pay, doled out in the form of bonuses and other incentives to people who "create value," and thereby, profit. Top executives can pull down million-dollar bonuses, but Koch will share the bottom-line love with secretaries, janitors or anyone who comes up with a way to make the company some money.

When a team of pipeline operators in Minnesota took it upon themselves to figure out how to change pump pressures to boost capacity by 15 percent instead of spending tens of millions of dollars on expanding the pipeline, Koch cut each worker involved a check averaging 15 percent of his annual pay.

"Koch is known for rewarding people," said financial economist Mark Skousen, who used Koch Industries as a case study in a management class he taught last year at Columbia University in New York. "Koch is very focused on having and hiring the right kind of people --- hardworking people who are comfortable with this idea that creativity comes from the bottom up.

"But that cuts both ways. People who are just rolling along probably won't make it," Skousen said.

And more snippage:

Of all the virtues Koch sees in his free-market philosophies, none may cut closer to home at Georgia-Pacific than freeing the company from the frustrations of Wall Street. Georgia-Pacific stock has languished --- hamstrung, Correll contends, by the fixation on asbestos litigation.

The litany of Sarbanes-Oxley regulations and disclosures hasn't made public life any easier either.

Koch company literature, on the other hand, extols the blessing of being private.

With no pressure to live quarter-to-quarter, Georgia-Pacific can now focus on long-term goals, Koch told employees in announcing the deal. Rather than paying out dividends, Koch typically reinvests 90 percent of profits into the businesses where they are generated.

Koch told Georgia-Pacific executives Tuesday that he's still learning quite a bit himself about Market Based Management, likening it to the North Star.

"You know you'll never actually reach it but you still use it as a guide because it moves you in the right direction," he said.

Bingo! Isn't this how business should be run? Contrast this with the myopia and short-term thinking that dominate most corporate cultures and strategies. "Hitting numbers" and pleasing secondary constituencies (shareholders, SEC regulators, business magazines/forecasters, etc.) become ends to themselves rather than the means by which successful businesses are run. It used to be that "success" was achieved by pleasing customers as measured by the good old-fashioned profit and loss test: maximize profit by bringing goods or services to market at prices sufficiently above the costs needed to produce them. Now the whole incentive structure is distorted by short-term forecasts and "leveraging" things, instead of cultivating long-term, symbiotic relationships. I don't get it.

Lest you think I've gone soft, I'm going to sound my usual drumbeat here: much of the blame for this crazy thinking lies with the government and its depredations. Corporate America is way too focused on flattering the state and its surrogates: it must comply with a litany of SEC regulations, negotiate the minefield of tax laws, deal with anti-trust issues, keep unions fat and happy, satisfy environmentalists, and manage operations in a society whose litigiousness goes beyond reckless.

Koch has similar problems but quietly manages to send the message that incentives matter. And this is the essence of economics! There are consequences to making life difficult for the entrepreneurs who enrich our lives and make civilization possible. Civilization flourishes when free people are left alone to peacefully trade and exploit their comparative advantages. Government intervention, mercantilism, and corporatism wrecks prosperity and impoverishes us all.

Many of us work in a setting way too reminiscent of the film "Office Space" but it doesn't have to be that way. Koch gives us a glimpse of what embracing freedom and innovation can do, and to me, that's pretty damn cool.

Contra Doris Kearns Goodwin, Part Deux: DiLorenzo's Take

Warm greetings! Hope everyone had a safe, enjoyable, and thoroughly gluttonous Thanksgiving. Having digested my fair share of turkey, stuffing, and sweet potatoes, I now have a nice amount of political bile to spew. Yay! On to the divisive historio-political ranting...

As a quick followup to my post about Doris Kearns Goodwin's new book about Abraham Lincoln (and the vigorous debate with Abe that it prompted), check out Thomas DiLorenzo's scathing review of the book on today's LRC:

Although this is supposed to be a book about Lincoln’s "political genius" most of the means by which Lincoln eventually grabbed on to dictatorial powers are not mentioned. There is no mention of his long career of writing anonymous letters to the editor smearing his political opponents, for example. There is no mention that he was a wealthy and politically-connected railroad industry lobbyist. In discussing the Lincoln presidency Goodwin makes no mention whatsoever of the fact that literally tens of thousands of northern political dissenters were imprisoned without due process, that hundreds of opposition newspapers were shut down, that elections were rigged, that West Virginia was illegally separated from the rest of the state, that all telegraph communication was censored, private firearms were confiscated in violation of the Second Amendment, habeas corpus was illegally suspended, and that for these reasons, among others, generations of scholars have written of "the Lincoln dictatorship." She doesn’t even cite the two pro-Lincoln books that catalogue all of this – Constitutional Problems under Lincoln by James Randall and Fate of Liberty by Mark Neely – despite all her boasts of having spent ten years researching and writing the book (which has several thousand footnotes).

Good times! This heroic article is lengthy (nearly 5400 words strong) but well worth the effort.

Separated at Birth: Obscure Poker Edition

While watching reruns of the 2005 World Series of Poker on ESPN, I noticed that final table player Andrew Black of Ireland:

Bears a striking resemblance to veteran character actor Paul Giamatti:

"I am not drinking any FUCKING MERLOT!!!"

Domestic Mystery

So after dropping Tra off at the airport and reenacting key scenes from the films "Risky Business" and "Home Alone," I spent the majority of my Sunday afternoon shlepping leaves around the front yard. Raking, blowing, mulching, lifting, bagging, etc. A more punishing brand of drudgery is scarcely imaginable. But I had ignored the task as long as possible and the leaf cover threatened to undo the overseeding and aerating job we'd recently deployed for the hilarious patchwork of weeds and crabgrass we call a "lawn."

Anywho, the mystery. After two and a half hours and seven Home Depot bags' worth of leaves, I was done. I dutifully arranged the overflowing bags along the curb, Home Depot labels facing out as is my anal retentive wont, and left them for the yard waste pickup (which is Wednesday). I dragged myself inside, stumbled into the shower, and flopped down on the sofa to watch the Falcons soil themselves in an uninspired loss to the previously 1-7 Packers. No problem, right? Just business as usual for a Sunday afternoon?

Well, no. When I went out around 7:30 this evening to answer a sweet tooth calling, the bags were missing.

Gone. Vanished into thin air. Was this some sort of prank? The handiwork of leaf bag hooligans? I can't even hazard a guess. My neighbors' bags (across the street and next door) are all intact. I half-expected to find the bags spilled around my yard or scattered about the street, but no. It's as if the Leaf Bag Fairy swept down from her magical realm and cleared my curb. Fat lot of good our street's "Neighborhood Watch" signs did. Anyway, all I know is that at some point between when I finished clearing the yard at 3:45 and when I left the house at 7:30 this evening, somebody (or some..thing?) hauled away those bags, and I cannot fathom why. It's really no big deal but, to be perfectly honest, I'm a little freaked out by this curious episode.

Any theories? Anyone in the neighborhood with suspicious sightings or other leaf bag malfeasance to report? I'm all ears.

Bill O'Reilly: Al-Qaeda Should Blow Up San Francisco for Defying the U.S. Military

Professional instigator/insufferable jackass Bill O'Reilly is making headlines for recent comments he made attacking San Francisco's referendum decision to ban military recruiters from public high school and college campuses (link courtesy of boingboing):

"Hey, you know, if you want to ban military recruiting, fine, but I'm not going to give you another nickel of federal money. You know, if I'm the president of the United States, I walk right into Union Square, I set up my little presidential podium, and I say, 'Listen, citizens of San Francisco, if you vote against military recruiting, you're not going to get another nickel in federal funds. Fine. You want to be your own country? Go right ahead. And if al-Qaida comes in here and blows you up, we're not going to do anything about it. We're going to say, look, every other place in America is off limits to you, except San Francisco. You want to blow up the Coit Tower? Go ahead."

What planet is this guy on? O'Reilly's comments are laughable for a lot of reasons but consider the following scenarios:

1. The ballot measure disallows military recruiting on public high school and college campuses only. Military recruiters are still welcome on the private property of whomsoever wishes to invite them. For example, they're still permitted to ply their trade at any SF property Bill O'Reilly may own (if this is so important to him) or at FOX News' SF bureau headquarters. You know, if they actually cared enough about the issue to do something in response.

2. Here's the really hilarious part: if San Franciscans followed O'Reilly's advice and attempted secession, odds are they'd be attacked by the U.S. government sooner than Al-Qaeda! Don't believe me? Ask the South how its attempt to escape the clutches of the federal hegemon worked out. The ridiculous irony is that Al-Qaeda's incentive to blow up the Coit Tower decreases if the building resides outside U.S. territory. But let San Francisco (or any other municipality) declare its independence from federal control (despite no longer costing the treasury a nickel) and guess who gets deployed to quash the "resistance" and "insurgency" in San Francisco? The very military whose recruiting tactics triggered the confrontation in the first place!

O'Reilly's not smart enough to see the humor or irony in his preposterous statements. But thank goodness FOX keeps that windbag around to keep the rest of us entertained...

Contra Doris Kearns Goodwin: "The Real Lincoln"

During lunch with Mark and Abe on Saturday, our conversation turned to the new Lincoln hagiography from Doris Kearns Goodwin, "Team of Rivals: The Political Genius of Abraham Lincoln." Goodwin has been aggressively pimping her book of late, having appeared on forums as varied as NPR and "The Daily Show With Jon Stewart." The subject has even captured the hearts and minds of Hollywood, for Steven Spielberg is directing the film adaptation of Kearns Goodwin's book (Kearns Goodwin herself is writing the screenplay and Liam Neeson is slated to play Lincoln).

I post this neither to recommend nor to much disparage Goodwin or her book. Instead, I'd like to balance the other side of the story against the whitewashing of history that permeates these rock star treatments of "Honest Abe": if you read this book, please give equal time to Thomas DiLorenzo's "The Real Lincoln." From the book's dustjacket:

Through extensive research and meticulous documentation, DiLorenzo portrays the sixteenth president as a man who devoted his political career to revolutionizing the American form of government from one that was very limited in scope and highly decentralized -- as the Founding Fathers intended -- to a highly centralized, activist state. Standing in his way, however, was the South, with its independent states, its resistance to the national government, and its reliance on unfettered free trade. To accomplish his goals, Lincoln subverted the Constitution, trampled states' rights, and launched a devastating Civil War, whose wounds haunt us still. According to this provocative book, 600,000 American soldiers did not die for the honorable cause of ending slavery but for the dubious agenda of sacrificing the independence of the states to the supremacy of the federal government. Lincoln's aggressive agenda triggered an uncontrollable swelling of big government, which has been tightening its vise grip on our republic to this very day.

Exaggerations are bound to appear in both books, but before brushing aside Dr. DiLorenzo's interpretation, ask yourself why Lincoln has been deified by both sides of the political establishment.

The 2005 PGA Tour Championship

Yesterday I was privileged to attend the final round of the 2005 Tour Championship at East Lake Golf Course. Very few sporting events can measure up to golf in terms of the "in person" experience. By comparison, most sporting events offer static, inert experiences; you purchase an assigned seat and get, in most cases, confined to it for the duration of the game. And those games usually end in a few hours. But you can spend literally the whole day on the course during a PGA event, and (except for the corporate tents) you have complete freedom to roam just about anyplace you like. Choose your own viewing angle and experience: you can watch the action from the tees, the fairways, the greens, etc. Follow your favorite players or choose a comfy spot on one hole and watch the pairings march through. And unlike other games where the fans are more or less omniscient -- you always know the score and can watch just about all the action as it unfolds -- golf relies far more on word of mouth, which enhances fan interaction and enriches the social experience. Roars erupt around the course but at the moment it's unclear why.

Anyway, yesterday was amazing. The weather was perfect and the course immaculate. The players were accessible and gracious, tipping their caps for nearly every ovation. They even seemed to be enjoying themselves despite the pressure. Some personal highlights included:

• Watching Tiger rip a tee shot: he attacks the ball like it owes him money. I'm not sure there's another moment in sports that can compare to this in terms of anticipation -- maybe Barry Bonds swinging at a 3-0 fastball. Maybe. But the buildup during Tiger's pre-shot routine as he waggles the club and surveys his target, then the payoff as he practically shatters the sound barrier with his explosive uncoil and 125 mph clubhead speed -- incredible! People just shook their heads in disbelief. I watched him tee off on the par-4 13th and couldn't believe how the ball explodes off his club face -- it disappears down the fairway at such impossible speed and with such a high trajectory, it looks like it's never coming down. What an awesome display of power and finesse.
  
  
  
• The incredible shotmaking. I was fortunate enough to witness several amazing recoveries: after eventual champ Bart Bryant dunked his tee shot on the par-3 6th, he pitched an amazing recovery about 50 feet over the water to within 8 feet of the cup. He drained the bogey save, pumped his fist, and never looked back. I also saw Scott Verplank chip out of the rough on 10 right into the cup. And I watched Padraig Harrington pull off a similar shot on the par-4 17th -- he practiced his mechanics at least 5 or 6 times, settled over the ball, and confidently stroked it from a difficult angle. While the ball was still 8 feet from the hole, Padraig raised his club in triumph because he knew it was going in.
  
  
• The funny or touching little moments you don't necessarily get to see on TV. I raced ahead to 18 just in time to watch Bryant approach the tee, and he seemed genuinely touched (and a little surprised) by the boisterous ovation he received. He was high-fiving fans before he'd even teed off at 18 but, with a 6-shot lead it was just a formality, and he seemed to let the thought creep into his mind: I'm about to win the Tour Championship. After he sank the winning putt, his caddy (who looks like a pro wrestler) ripped the flag from the pole as a keepsake.

I have to admit, I walked around with a goofy grin on my face for most of the afternoon. Just taking in the scenery, the history, the aura of Bobby Jones' home course, the smell of the grass, etc., was truly memorable. I hope to return next year.

Special thanks to Roger Lowenthal for providing my ticket.

U.S. Congress: All Your Pro Sports Are Belong to Us

For whatever reason, this story didn't make many waves in the sports headlines yesterday, but Congress is reiterating its threat to introduce steroid legislation "to standardize drug testing and penalties for professional leagues:"

Three House bills with similar testing minimums and punishments have been proposed, including one sponsored by Tom Davis, the Virginia Republican who chairs the Government Reform Committee. That panel held the March 17 hearing with Rafael Palmeiro, Mark McGwire and baseball officials.

"If pro sports leagues don't get a handle on this problem on their own, members of Congress will be more than willing to do it for them," Davis spokesman Dave Marin wrote in an e-mail to The Associated Press. "No matter which bill ultimately moves forward, one thing is certain: In the absence of self-initiated progress, legislation becomes a matter of when, not if."

What arrogance! It is telling that Marin uses cryptic terms like 'this problem' and 'progress' without being explicit about what they mean. Because the first obstacle for Congress is defining baseball's "problem." Is steroid use rampant in baseball (however 'rampant' is defined)? And if so, is enough being done to discourage and punish steroid use? These questions, if they should be pondered at all, ought to be considered by those with a vested interest in the game's wellbeing, such as its owners, players, sponsors, and fans.

Conspicuously absent from that list are members of Congress. Baseball's owners, unlike members of Congress, have invested hundreds of millions in their franchises. This includes money spent on player scouting, drafting, development, long-term contracts, etc. They have every incentive to keep players healthy and productive, since success is so dependent on fielding a winning, profitable team that pleases fans. Only baseball and its monied interests -- not Congress -- will suffer if customers perceive a problem with the game's fairness or integrity.

If fans grow disenchanted with "juiced" players or tainted competition, they'll express their dissatisfaction by refusing to watch the game either in person or on TV. They will no longer patronize the game's sponsors or support its endeavors, and the whole enterprise will get hit in the wallet, where it hurts. That's the only reliable gauge as to whether baseball has a steroid problem or not, and if it does, Congress has no responsibility either to uphold the game's integrity or to ensure that it remains profitable (national pastime or not).

And so we return to the first of our two key questions: is steroid use rampant in baseball? Ironically, the true answer is unimportant; it is the perception, and baseball's response to it, that matter. For better or for worse, baseball's officials were long indifferent to the issue, and that's when they ran afoul of the state. The decree had come down from on high: "Steroids are illegal. You will treat this issue with the seriousness and respect due the law." But baseball's "crime" was refusing to bend to Congressional will by acting as a proxy for its war on steroids. So it was not steroids that landed baseball in hot water but its collective shoulder shrug toward federal authority. Like Glenn Close in "Fatal Attraction," the state will not be ignored -- or otherwise disrespected. As Butler Shaffer so eloquently puts it: "Anything that diminshes respect for the state apparatus or its purposes weakens the popular sanction upon which all political power ultimately rests." So Congress clearly felt the need to assert itself in this area without bothering to allow baseball to find out for itself how prevalent and harmful steroid use was within the game.

As for our second question -- if steroid use is rampant in baseball, is enough being done to curb and punish this behavior? -- it answers itself. If baseball's steroid policy should prove unsatisfactory, then the issue will need to be revisited by those facing the profit and loss test -- again, this includes baseball's owners and sponsors, not Congress. Whether for PR purposes or to get Congress temporarily off its back, baseball in 2005 had already implemented a new testing program for steroids; indeed, Matt Lawton today became the 12th player busted under the new policy. As a private entity, baseball should have every right to set these rules and mete out punishment at its own discretion.

But the state rejects a subordinate role in these processes (especially when there are cheap political points to be scored), and thus we have the spectacle of Congress acting tough while at the same time abdicating its real responsibilities: if federal law is violated, then the offenders must be prosecuted; that's why laws prohibiting the sale and possession of steroids were enacted in the first place. But this is not about the law, it's about PR: it's easy to look like a hero by grandstanding for the cameras and hammering on a politically unpopular constituency -- but prosecuting ballplayers for steroid violations is much riskier. So they instead bully baseball into adopting a politically acceptable version of justice. The yentas in Congress have once more overstepped their purview and substituted their judgment for the wisdom of the market. What a cowardly way to assert your authority!

But this is how the state racket operates, and a more perfect example of government-imposed externalities would be hard to find: the state shifts all of the costs of its policy onto baseball while assuming none of the risks. So the questions about steroids take a back seat to the lessons imparted by the Congressional response to the issue. Quite ironic that a group utterly wanting for ethics and intergrity should go forcing these virtues on others.