In Transcripts

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Kevin: David, there are a lot of people right now who thought that they were in the majority, they thought that they were representing a republic, they feel like they lost the election a couple of weeks ago. They are feeling more European right now, I think, probably, than American. I would like to address that. Has the majority turned into the minority in just a single week?

David: I think the expectation is now that we move toward a European style socialism. What does that mean for the U.S.? Certainly, when it comes to confiscatory tax policies and redistribution of wealth, these are things that we will see more of over the next 3 to 4 years. I think that is a given. It has to do with a difference in political philosophy. It is something that is difficult to really even discuss reasonably or rationally because there are two different sides with radically separate and distinct assumptions.

Kevin: Some would like to redistribute the wealth, and the others are trying to earn the wealth. I am looking at Greece right now. Greece has been in the news for 2-3 years. It is a European project that is failing. But I heard that the Europeans have come up with another agreement to let Greece live just a little bit longer.

David: They have. The Europeans have reached a new deal on Greece. It is the 47th agreement. (laughter) And I think this is really helpful, actually, because you look at what has happened in Europe, and what we tried to do in this year’s DVD, the first one dealing with European perils, is to say that this is the road we are going down. This has nothing to do with the fiscal cliff. It has to do with a much broader fiscal backdrop, and the reality is that we have been living well beyond our means for years, if not decades.

Kevin: Spending too much money.

David: Right, and there is an inevitability, given the leadership that we have in Washington, to repeat exactly what we have seen in Europe. Now, not only do we have this cycle of pain in front of us, in terms of a fiscal or economic perspective, but we also have that same cycle of, “Here’s a solution. Oops, it didn’t work. Here’s a solution. Oops, it didn’t work. Here’s a solution…” and again, this broken record, 47th revolution, if you will, of the turntable, and no, we haven’t solved anything yet. We are just entering into that pipeline. It’s gonna be fun.

Kevin: At some point, Margaret Thatcher is right. You do run out of other people’s money when you have a socialist solution.

David: And what we find in Europe – and this is not just continental Europe, Scotland wants to secede from the U.K. – Catalonia wants to secede from Spain. We have local interests, we have party politics, at a very, very small level, saying, “Actually, world membership, being a global citizen – this is less important to us right now.”

Kevin: “It sounded nice at the time, but we think we can do this a little bit better, thank you very much.”

David: And that’s the reality when you are knee deep in clover, it’s easy to think about largesse and sharing. When all of a sudden you go into some sort of a financial drought, everyone is concerned about feeding their own, and that is what we see in Europe, that is what we will see here in the United States, and certainly at the level of protectionism, we will see it a lot more over the next several years.

We have an administration that is focused on labor. If you look at the last few meetings, the focus on dealing with fiscal issues and the consultation was not with the business community, the consultation was not with both sides of the aisle, the consultation was with labor. Isn’t this telling? I think it is telling, and it points to what we have in terms of trade conflict and potentially cross-border conflict, at a financial and economic level over the next four years.

What we talked about last week, in terms of currency wars, and an economic battle that is going to be fought, is going to be supported by a political philosophy which says, “We’re putting labor back to work here in the United States, and we are taking the lower class and closing the income gap between the lower and the upper class.” Again, there are some unintended consequences which we will get to experience, as well as explore, hopefully ahead of time, on the Weekly Commentary, in months to come.

Kevin: And there are states in our own union, Dave, (laughter) – my wife has said, “Look, if Texas secedes, we’re moving.”

David: (laughter) I’d have to agree. And Debbie, yes, we’re moving with you, and maybe the office. We made a long trip back in 1992 from Denver to Durango, moving 13-14 families down here. Not out of the realm of possibility. Texas – I came back from the Thanksgiving holiday with my fair share of poison ivy, because Texas has a lot to offer, some of which is not altogether welcome. But, having said that, if they secede, they might have an even more compelling case.

Kevin: All right, I’m going to shift gears here for a second. In the week that we are looking at right now, Israel has been in the news, and of course, everyone surrounding Israel, including what had been their ally for about 30 years, Egypt. Egypt is really changing isn’t it?

David: It is, and if you look back over the last three years, we have talked about Turkey, we have talked about Egypt, we have talked about background issues, whether it is the Shia or the Sunni, differences theologically and culturally, which are informing a power play and a shift in who is in control in the Middle East.

The reality is that there is a still a giant question mark hanging over the Middle East. “Who is in control?” Egypt was a dominant player under the Mubarak regime. There was regime change. Obama’s boy, Mr. Morsi, representing democracy in the Middle East – it doesn’t seem that he is so keen on democracy after all. The consolidation of power has begun again and the race for who is dominant, who is going to be in control in the Middle East. Who is going to be the power player? I think Morsi is saying, “We’ll throw our hat in the ring.”

Kevin: It’s not just the person in power, it’s the treaty that is being upheld, and of course, the Camp David Accords are what gave us a sense of security, at least from the south side for Israel for all those years, and it looks like that is being jeopardized, as well.

David: With what is happening in the Middle East right now, my compulsion over the weekend was to book tickets. I’d love to be in Israel right now. I don’t mind that rockets are flying. Just before Thanksgiving we were in transit to Houston where we have family, and in the airport, there are the television screens with current news flashes and what not, and lo and behold, Mark Regev, the official spokesman for Israel, was there.

Kevin: You know Mark.

David: Yes. We had breakfast with him when we were in Jerusalem, just about 18 months ago, and I would like to ask him a few questions. There are a number of things that I would like to know, conversations that we could have behind closed doors, to go beyond what we have in the news, because I think there is more of a telling story, and I would like to know the insecurity or security that Israel feels now with four more years of Obama and what that looks like in terms of support or lack thereof. Certainly, he had the Jewish vote here in the United States. I’d like to know what their perception is in terms of international politics, because what is important today is not just what is happening domestically, even though we do care quite a bit about that, too.

Kevin: It’s funny that you bring that up, David, but if you actually did get on the plane and go to Israel, you would have missed Black Friday. That was the other thing that you were probably seeing on the screen. You were being told, yes, be thankful on Thursday, because everything is closed, but make sure by midnight Thursday that you go ahead and get on out to Black Friday. Were you disappointed with Black Friday? Or happy with it?

David: It is fascinating, crunching the numbers. We were on Bloomberg this week and we were talking about Amazon and eBay and some of the big retailers who were hoping to benefit from Cyber Monday and Black Friday sales were down 1.8% from last year. What is fascinating is that if you include, not just the 1.8% decrease in sales figures from last year’s Black Friday event, but if you consider population growth, and inflation, then the decline in actual sales is even greater than that 1.8% states.

Where are we and where are we going? We see a huge contrast, a huge divide, between consumer sentiment, which we think is fairly misguided at this juncture, and executive sentiment, which is extremely negative, and so there is this disconnect between the man-on-the-street saying, “Maybe things are getting better. Maybe I can put a few more dollars on the credit card,” versus the executive who is saying, we know what your spending limits are to begin with, and we know that you are basically front-loading your spending into the discount holiday season, which is going to make the first half of 2013 a nightmare.

Kevin: David, it does break my heart, frankly, when I see the commercials all day long Thursday, and if you watch any football you see the commercials, and it really is encouraging people to go spend, and it is strange to live in a nation where people feel like they are being patriotic and they are doing a good thing, when 70% of our GDP is from people going out and consuming something. We have almost learned that that is our form of productivity.

David: The contrast, from an economic standpoint, is that investment spending versus consumption spending has a radically different long-term impact. Investment spending gives you the ability to create something again and again, and again, and again, whereas consumption spending is a one-off event. Once you have spent what you had, it’s gone, that’s it. There is this difference in philosophy. You drive investment spending, or you drive consumption spending, and we are geared toward consumption spending today. What is interesting is that insiders, particularly retail insiders, are very negative. In the last three months we have seen a radical increase in insider liquidations.

Kevin: You are talking about the CEOs who own shares, people who have to report their sales or purchases of their own companies.

David: Yes, if you took the retailer index, RTH – that is a cross-section of a good 20 companies, there is only about 1 in the 20 where you actually had buying activity at all, at all, in the retail space. Where you had insiders of these companies buying shares, the vast majority are selling at a very rapid pace. Take a company like Amazon. The sheer scale is not there. I’m not saying that there were that many shares sold. Actually, there are not that many shares sold, several hundred thousand. But in the 12-month period, 68 shares were bought, so several hundred thousand, 68 shares bought, the ratio was almost 6000-to-1. The ratio was terrible. Again, not a ton of shares moving hands either way, so it doesn’t really matter.

Kevin: What about eBay?

David: (laughter) That’s a little different. With eBay, on the other hand, you have 20 million dollars in executive purchases, so, some activity there, set against 700 million dollars cashed out by insiders.

Kevin: Okay, let’s repeat this. 20 million dollars going in, actually buying their shares.

David: It is about 19.8, but we’ll call it 20.

Kevin: Okay, but 700 million dollars coming out now, how are they feeling about eBay? eBay is supposed to be hot on Black Friday.

David: Well, if it’s hot and getting hotter, maybe we would be betting on tomorrow. The reality is, they are betting that today is as good as it gets. It’s really important, because this disconnect between consumer sentiment, which says things are getting better, therefore I am spending, an executive sentiment which says, this is as good as it gets, as far as my personal retirement is concerned, and my own personal compensation, I’ll take the 700 million today, the bird in the hand, versus the two in the bush, because I don’t like what I see tomorrow.

They look at 2013, 2014, 2015, and see that the issue is not so much the fiscal cliff, but a change, a radical change in the confiscatory nature of government. When you don’t solve the issues of regulatory concerns which executives have today, and tax concerns which executives have today, they are left on their heels and very cautious. Are they going to go out and spend? No they are not, which puts us, really, in an era which is more akin to the 1940s, a war-time scenario where the economy was dominated by government.

Government dominated the economy more than anything else, and executives who were running the largest companies in the country said, “We’re not spending a dime, because it’s just a gift to Uncle Sam. It’s not going to be productive in the long-run, and it certainly does not serve our company’s purposes. We are on hold for the time being. We may have 3 to 4 years on hold.”

Kevin: And that’s very dangerous. When you read about the articles and the commentaries on the redistribution of wealth, what they are saying is, we have a broken-down infrastructure. We have schools and teachers that aren’t being paid enough, we need more, more, more. And that’s exactly right. Infrastructure does need to be attended to, but we have already spent too much money, and the thing that is amazing is that they are talking about redistributing wealth from people who already are paying pretty much the majority of the tax base.

David: It is important to reflect on this, because the current administration does hold the idea that the math of equality is pretty easy. Fairness is defined by leveling the income field and closing the gap between rich and poor through redistribution, and one of the operating assumptions is that the rich, or the 1%, or the 5%, or the 2%, or the 10%, really aren’t doing their fair share.

Kevin: They are getting away with something.

David: But I think the numbers tell all. The top 1% of income-earners in the United States pays 39.6% of all federal income taxes. 1% pays 39% of the total. If you expand that out a bit and say that the top 5%, which includes the lion’s share of the upper middle class and the middle class, the top 5% pays 61% of all federal income taxes. And then if you expand that out one step further, to 10%, now you have 72.7%.

Kevin: So they are covering three quarters of the cost already. The top 10% is covering three quarters. Now let’s look at the bottom half. Are they paying any taxes at all?

David: The bottom half, in terms of federal income taxes, pays 2.4%. When you start talking about the redistributive language that has been used through the election, now post-election, we are going to raise taxes, what do they hope to accomplish? This is where I think there is something that is fairly disingenuous in the mix. We are talking about a private sector today which labors hard, as does the public sector. I’m not saying that they don’t all work hard, but in terms of the average compensation in the private sector, the latest numbers average out about $60,000. That’s all-in compensation. That’s retirement packages, health care benefits, everything. This is not just your take-home salary.

Kevin: The guy or gal who does not work for the government, he is working for himself or for a business.

David: $60,000. Now, if you work for the state or local government, you bump up from $60,000 all-in compensation to $80,000 all-in compensation. Again, health care, future pension, the whole ball of wax, you go from $60,000 if you work in the private sector, to $80,000 if you work in the state and local public sector.

If you work for the federal government, federal employees average an all-in number of $120,000. That’s twice the private sector. What is fascinating is that over the last four years, one area where we saw radical growth, an increase in employment numbers was with federal employees. You tell me. The average employee who is working for the government and making twice what he could make, 100% more than what he would make in the private sector – how is he inclined to vote? I’m sorry, but does self-interest play at all into politics? Does self-interest play at all into the vote? I hope not. I hope not, but I think so.

Kevin: I think you’re probably right. And I also would have to say, the young, right now, who are getting their college educations, and they are coming out, and they are either not getting a job, or they get a job that is well beneath what they can actually utilize from their college education, these people are 22, 23, 24 years old, and they are saying, “Wait a second. I don’t have much of a future.” It is that age group that primarily voted for the redistribution of wealth philosophy, whether it’s the President, whether it’s Congress, whether it is just things that are on the ballot. There is a mindset right now that we are going to have get ours from someone else.

David: The reality is that we have several generations who don’t know what a worldview is, who don’t know what they think about anything other than what they have been trained to think, both through public school education and the news media, which serves up for you pre-packaged thinking. It’s all there for you, it doesn’t require processing, it’s just acceptance. We know what we believe, this is what we believe. Why do we believe it? We know what we believe, this is what we believe, is the response. Why never enters into the equation.

The contrast, Kevin, is this. We have more than one generation that hasn’t learned how to think, and cannot contrast one worldview with another – the notion that socialism runs in direct conflict with free markets, and the success that we have experienced, the social experiment that we have here in the United States.

I’m just going back to maybe the only ads that I appreciated during the election and they were paid for by the immigrant entrepreneur Thomas Peterffy, who started Interactive Brokers. This is a guy who came to the United States with spare change in his pocket and the shirt on his back, and is now worth better than a billion dollars, several billion dollars, in fact.

What he was pointing out is that, coming from Europe, and living under communism, the application of socialist ideas, and this notion of redistribution of wealth – it’s not that it makes the poor wealthier and the rich poorer, it makes the rich poorer, but it makes the poor poorer, as well.

That is what people who haven’t lived through socialism don’t understand. With redistribution, it’s not just a question of equalization, it’s a question of leveling opportunity and eliminating opportunity, as you eliminate one of the things that drives commerce and free enterprise, that being that it is part of the free market system, that you can better yourself. The harder the work, the luckier you get, only it’s really not luck, it’s that opportunities open to you and there is nothing limiting your advance.

The notion that from each according to his ability, to each according to his need, the leveling of all doing our part, and everyone getting an equal or an adequate benefit from it. What it does is that it drives against the grain of what is at the core of our humanity? What drives you to get up in the morning and work?

Kevin: David, it reminds me of a trip that I took to Germany not long after the wall fell, from Munich to Dresden, if I recall. On the east side, that used to be East Germany five years before the wall fell down, and then if you look at the west side of the fields that had been plowed, that was the West side. What was interesting was that you got to see the mindset of the people, even after “freedom” had been given to both sides. You got to see how it had changed the spirit of the worker.

On the east side of the road, which used to be communist East Germany, the fields were gray and untended to. They had been plowed, but they weren’t even regular furrows. When you looked on the west side you saw what was West Germany. They had been free the whole time. They had self-interest in mind, self-betterment, in mind. Even after the wall fell, you could see the difference in work habits.

It is amazing, Dave, we were joking, and unfortunately it was gallows humor, about people voting for free stuff this time instead of freedom, but actually free stuff comes with a cost.

David: I think when we look at the social experiment of the next four years, I am very excited, because there are some lessons that need to be learned culturally. Given that our educational system has not taught them, it is now that real life will teach them, and we will learn, and I think this is very helpful for generations who have not appreciated the difference between socialism and free enterprise. We will get to see the socialist experiment play out. Am I happy about that? No. Am I excited about that? No. Are we battening down the hatches, so to say? Well, you could say so.

Kevin: You’re not giving up, Dave, and the thing is, we have a two-party system right now, and we’ve gotten so locked into that mindset.

David: Giving up? We will continue to hold to Edmund Burke’s suggestion that all that is necessary for evil to triumph is that good men do nothing. We have the idea of a republic, and the idea of a republic ultimately shapes a tangible reality.

Kevin: You have said numerous times that ideas have consequences.

David: And good ideas have good consequences.

Kevin: The idea is not dead.

David: No, it’s not, and you can’t kill an idea. You cannot kill an idea. This is why when you look at changes, let’s say, in communist China, who were the first people to go? It was the thought leaders. When they slaughtered a thousand, ten thousand, a million, ten million, twenty million, you have to look at the history of China and see that they don’t like intellectuals. Why? Because ideas are upsetting.

This is a future issue for China. They graduated, last year, 7 million people, up from 1.5 million people, from college, just a few years ago. That’s all well and good if they have jobs. But if you have a young intellectual class with nothing but free time on their hands because their job prospects are now limited, now you are dealing with a revolutionary class, and you have what reinforces the cyclical history of China – instability built in, ideas having consequences.

We look at a republic, the basis of our country, and say, the idea is not dead, so who’s giving up the fight? I don’t know who’s giving up, I’m not. This notion that somehow four years of a social experiment gone bad defines our future course? You’re going to disrespect the heritage of 200 years and say all that we have put together can be undone so quickly? All that is necessary for evil to triumph is that good men do nothing. It will occur.

This is like the difference between light and darkness. Darkness cannot exist when light is present. It simply cannot exist. It’s not a question of fighting, or victory, or anything else. Light has to be present. If you take away light, what happens? Darkness naturally fills the void. I’m willing to stand in the gap. I think our listeners are. I think you are, Kevin.

This notion that somehow the world has changed inexorably for the bad – I look at the Mexican election that happened this year, and I think there are several things that we will continue to consider in the next couple of months relating to Mexico, but it’s in this post election period that it’s worth remembering that a relative newcomer to the political world, and an awfully young man, mid 40s, won an election with a minority of votes. 51% is not the rule unless you are stuck in a two-party system. The math changes dramatically when you introduce new parties. What is fascinating is that you may say, we here in the United States had 16 options on the ballot. We don’t have a two-party system. How many of you knew that there were 16 presidential candidates prior to looking at the ballot?

Kevin: We’re told that actually pulls the vote away from the guy that we were told we were supposed to support because he sort of believes, sort of, what we think we might believe.

David: There are issues that have to be addressed, media issues, relating to media bias. There are campaign finance issues that certainly favor a two-party system, but the bottom line is that change does not require an absolute majority. It never has.

Kevin: David, for those who feel defeated after the election, are you saying the news of the death of the republic is premature?

David: Like Mark Twain said in response to the publishing of his obituary before he was dead, “The reports of my demise are greatly exaggerated.” We look at resignation, a lack of political involvement, but this is, I think, a place for family discussion, social dynamics, community commitment. What do we want two years from now? What do we want four years from now?

This does not come down to a dividing line between Republican politics and Democratic politics. We are going to experiment with economic ideals. I’m focusing on taxes and a redistribution of wealth, and I’m saying that, frankly, we haven’t seen much difference between the Republicans and Democrats. Yes, occasionally there are few bones thrown in the direction of the Republicans when a Republican is in office. But, hey, Republicans are just as corrupt as Democrats when it comes to taking their portion of pork barrel spending back to their constituents.

There are major issues tied to the tax take and the redistribution of current taxes, let alone the issue of future and increased taxation, which have to be addressed, and the question really is, between you and me, as we discuss this with our family members around the Christmas table, as we go into the new year, and into the next four years, what is the ideal? What is the Republic? Is it dead? No, it’s not. How is it not going to be dead? Well, I don’t know, but it will be dead to the degree that we leave it alone, to the degree that the light is hid.

This is perhaps silly, but when I was 5 or 6, I learned a song in Sunday School: “This little light of mine, I’m gonna let it shine. Hide it under a bushel? No!” Granted, this had to do with the Gospel and not with politics, and there is a difference, and I don’t want to conflate the two. But if there is an ideal, the vacuum will be filled if that ideal is not promoted, if that ideal is not discussed, if that ideal is not fleshed out, if it is not recognized for the values inherent to it.

Do you know what the Republic is? Is this the country that was intended? Is this the political system, a system of redistribution, where we eventually run out of other people’s money, as Margaret Thatcher has said? Is that what we were intended to be, the snake eating its tail? I think not. And I think to be resigned, at this point, is to be naïve in terms of the totality of what can be done in four years.

Kevin: If we were to lose half of the freedoms, or 70% of the freedoms that we have now, maybe even 90% of the freedoms that we have now, we still are more free than most of the other countries that are out there. You have brought this up before, Dave. We need to have perspective and say, yes, we are seeing freedom suffer right now, but we still have elections. We still live in a country that has a number of relative freedoms. The tragedy would be if no one got out there and actually expressed the ideal while it still lives.

David: Or even appreciate or understand the ideal. How many people have read John Locke? You perhaps should if you want to know what your ideas are based on, though I’m not saying all of American or Republican ideas tie into John Locke.

Kevin: But life, liberty, and private property, those are key.

David: If you have an idea of what you believe, do you know why you believe it? Do you have an idea of what the background of it was? How did those ideas come into popular belief? Do you know what the background is? Have you read Montesquieu? Have you read Locke? Both sides of the equation? Who have you read and who have you not read? What do you really know?

Kevin: David, this week my family and I went to the movie, Lincoln. After we walked out, my 24-year-old daughter said, “I need to get speeches by Lincoln, and I need to memorize some of them.” I brought up Washington’s speeches, as well as Jefferson’s speeches, and Adams’ speeches. These are speeches that reveal the character of what it is that we say we believe. It is worth going back, not necessarily trusting a movie to tell you what people said, and reading the actual written record.

David: It was a fascinating thing that occurred when we were putting together our Constitution. These were guys that had read all of the enlightenment thinkers, and they were fascinated with gears, they were fascinated with levers, they were fascinated with pendulums, they were fascinated with balance, and they were fascinated with counterbalances, and the mechanics of government made sense to them because the conversation of the day was an enlightenment conversation, not to the exclusion of God, as some would suggest, with the rise of science, but there was a fascination with the way things worked, and their proper functioning.

Kevin: There was a good, and a bad, way to build something, like a clock.

David: Absolutely. And what we see happening, even now, on a relative basis, let’s say the U.S. economy went into a tailspin, and that has direct ramifications for many other countries just south of the border. Who does 80% of their business with the United States? In other words, 80% of their economy is tied to trade with their North American neighbors? That would be Mexico. To the degree that we go into a tailspin, they get flogged financially, just like they did in 2008. Far more than the U.S. economy was damaged, the Mexican economy was damaged.

You see the same thing happening with the BRIC countries. Capital flows from the West are diminishing, China is attempting to reorient, other countries do benefit from the process of that occurring. China, India, Brazil – they are under new pressures as the reorientation and re-gearing is occurring in the West. We’re dealing with our fiscal issues, or trying to, and I don’t know that we are coming up with the perfect solutions, or even good solutions at all, as we have been discussing earlier today.

Just this week in China, in the stock market there, the Shanghai Exchange is now trading at one-third of the value of its peak numbers. It topped at 6,000, now it’s below 2,000. What does this portend? Are there changes occurring, changes here in the United States? Yes. A reason to be mildly neutral to negative? Yes. Maybe even darkly negative? Perhaps. The question is, is it better anywhere else? I would argue, no. I would argue, dramatically, no, because in a global economy, to the degree that we sneeze, yes, the rest of the world catches a cold, or even dies of pneumonia. There is a major knock-on effect. Things change here, we don’t get our house in order, and something happens. Not so nice.

What we are looking at is not what happens in the next 12 months, or even 12 days, but, really, what’s happening even over a grander cycle, beyond this election period, two years, and ultimately the next White House, four years, we see tremendous potential. Just south of the border, Mexico is going to be a fascinating, fascinating story to develop, following a major, major decline. The U.S. stock market declines, the U.S. economy is in decline. Over the next several years, Mexico, I think, will go through the ringer. But what is interesting is that as we have seen changes in China, we’ve gone from the differential in wages between Mexico and China being greater than 400%, to now being less than 30%.

Kevin: So Mexico is a real competitor right now with China.

David: And by the time you factor in transport costs, it’s cheaper to manufacture in Mexico than it is in China. Where are there opportunities? There are always opportunities. Is there a reason to check out intellectually, to check out as an investor, to check out as a citizen? Well, you may think there is, but I beg to differ.

Kevin: David, you have brought up so many times in the past about times frames not being twelve days, twelve months, two years, or four years. We were talking about the patriots and the guys who wrote the Constitution. These men were legacy generational thinkers, and I know you and your family have really focused on that. Let’s not see how we are going to make a change in a short period of time, or capture an opportunity in a short period of time.

All of that is appropriate to a degree, but you can’t focus on the short-term all the time, so, from a legacy standpoint, the ideas that you are talking about, the things that we cover in this program, the people we interview, are the ones who are looking further down the road. Politically, economically, we have to have a generational mindset.

David: It was The Economist this week that discussed the resurgence of the Commonwealth, that is, the 54-member club of previous British colonies. It is interesting, because what they were questioning was, is there a role, in competition with the EU, this block of English-speaking, common-law aficionados? The English don’t control it anymore, but they have a subtle cultural influence – the residual impact, if you will, of formally being colonized.

I ask the question, again, as things change the world over, and as globalization, which has expanded now for many years, moves in sort of a de-globalization trend, what are your advantages? This is reminiscent of a book that is now over a decade old. The title of it is The Anglosphere Challenge. It said that this network of English-speaking countries that can reference the rule of law as a way of practicing business and applying justice, has the same background.

This is the future. This is the future. You can’t find commonality. Globalization will not continue in a disparate, disassociated way, where everyone is playing by a different set of rules. The folks who will do best are the folks who are playing by the same set of rules.

I think the article in The Economist concludes that, no, the Commonwealth is not coming back together, but I would suggest this. As we move through the next 2-7 years, perhaps a financial and economist compression, an opportunity on the other side, greater challenges will exist outside of the countries that have a history of the rule of law than those with it.

In other words, if you are a practitioner of the rule of law, you will recover that much more quickly. Why? Because people understand what a contract is. How do you set up a business? This is how we’ve done it in the past, so this is how we’ll do it in the future. There is no wheel to be re-invented. It was something that was operational during the industrial revolution, post industrial revolution, and beyond industrialization, this modern era of globalization, we see major changes afoot, and we are actually not downtrodden. We think this is a pretty exciting time to be alive in spite of the challenges. We have the ability to adapt.

Kevin: When you talk about the rule of law, I still can’t help going back and looking at the original copies of the Magna Carta. You can go to the British Library and you can see them on display. That was one document that really helped form the spine of what you are talking about. Of course, it adapted, and ultimately became our Constitution, and we have continued to go on from there.

Dave, through the years, we have interviewed various candidates. We have not endorsed them, but we have interviewed them, because these guys who are trying to make a difference in the political realm oftentimes have ideas that would work if they were employed. Steve Forbes is someone that we have never had on the show before, though you have talked with him, and you have been at conferences with him. Next week, we are planning on bringing him on and having him share ideas about taxes and redistribution, ideas we talked about today. How does it work?

David: What is the future of America? From the vantage point of someone who has played in the political realm, who has been a candidate for President, who has successfully operated a business for decades, and is an influencer of thinkers, and who continues to draw attention to issues which are particularly relevant in our current context, whether that is fiscal issues, tax issues, currency issues, as he suggested in Forbes Magazine just a few months ago, the reintroduction of the gold standard and why that is so important. We will be discussing these things, and many more, with Steve Forbes next week.

Kevin: David, I will be looking forward to that interview.


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