Mr. Rogers Comes To Town

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On November 4, 2003 libertarian investment guru and renowned world traveler Jim Rogers (who appears every Saturday on Fox News Channel’s Cavuto on Business) paid a visit to Huntsville, Alabama and I was lucky enough to be in town to meet him and hear his talk.

The visit to Huntsville was a bit of a homecoming for Rogers who grew up in Demopolis, Alabama where he became acquainted with the world of business very early in life. His first job was picking up bottles at baseball games at age five. About a year after that the young business prodigy secured the concession to sell soft drinks and peanuts at Little League games. He went on to finish at the top of his class at his small Alabama high school and win a scholarship to Yale.

During his four-year stint at Yale, Rogers fell in love with Wall Street in the summer of 1964 while working for Dominick & Dominick, an investment bank. He then served in the army for a few years where he invested the savings of his post commander and earned a sizable return. Rogers then returned to New York in 1968 with only $600 in savings to eventually become partner in a hedge fund. He retired twelve years later at age 37 a multimillionaire, ready to travel the world. His first journey, chronicled in his 1994 book Investment Biker: On the Road With Jim Rogers, took him from Dunquin, Ireland to San Francisco across fifty-two countries and over 65,000 miles in two years’ time.

On his recent visit to Huntsville, Rogers’ presentation was a visual supplement to his excellent 2003 book Adventure Capitalist: The Ultimate Road Trip. Between 1999 and 2002 Rogers set a Guinness record driving across 116 countries in a modified Mercedes SLK 230 powered by a 177 hp 6-cylinder diesel engine. For the full flavor of his adventure there’s no beating a read of his book. Of relevance to LRC readers are his political and economic observations about the U.S. and his investment advice for the near future.

Rogers took care to emphasize to the Alabama audience that it’s not so much Americans that are hated around the world as it is their government’s policies. Even the peoples of the Islamic Middle East like Americans and aspects of American culture but hate belligerent American foreign policy. While most of the audience got the gist of what Rogers was saying, I think this assessment of his was more true during his 1999—2002 travels, especially right after September 11. Today, I think it’s a different story given different accounts and recent measures of opinion in various parts of the world.

After civilian deaths began to mount in Afghanistan and the Iraq conflict began in late March, admitting you’re American today in parts of Europe, the Middle East, Asia, or Africa formerly thought to be pretty safe for Americans can get you belligerent postures and insults at best, torture and death at worst. This has been one of the worst side effects of the U.S.’s neocon foreign policy: it has made world travel for business, leisure, or educational purposes much more perilous. I think that the reception Rogers received in certain parts of the world from 1999—2001 would likely be more hostile and confrontational today.

In terms of investment advice, Rogers recommends avoiding U.S. stocks over the next five to ten years. He sees the strong rise of China and predicts that areas of the world with abundant natural resources will provide healthy returns over the coming years. Hence he’s bullish on countries such as Canada, Australia, New Zealand, and different nations of Asia. Even states in the U.S. with greater natural resources such as Alabama will provide healthier returns than states with less natural resources such as Massachusetts. Rogers is bearish on Russia and the rest of the former Soviet Union; I would agree on Russia, although there might be hope for a couple of the other republics.

I think Rogers is on to something here in terms of cautious global diversification. I would emphasize (and I don’t think that Rogers would disagree) that natural resources, although they might be a necessary condition for healthy returns down the road, are hardly sufficient. The continent of Africa has always been endowed with an abundance of natural resources but like certain nations of South America, it has had difficulty converting those abundant resources into final goods. The underlying problem of course is the failure to effectively establish/protect property rights which give rise to a reliable and efficient production structure. So, abundance of resources doesn’t necessarily imply anything.

Regardless of fleeting appearances, flexibility is key. Like China looming large today, I remember up until the early 1990s the dire warnings from so many professors and "experts" of how the Japanese would soon own and control America lock, stock, and barrel through our capital-account surpluses. (Speaking of trade follies, see the most recent installment of proposed idiocy from Warren Buffett in the November 10, 2003 issue of Fortune.) Japan lacked institutional flexibility with its neo-fascist policies of protectionism and keiretsu combined with central-bank meddling, and hence the Japanese missed the boat. Who can predict what can befall the now-seemingly invincible Chinese?

As to the U.S., just as no nation has ever taxed itself to prosperity, not a single one has ever protected its way to prosperity either. What’s so difficult to get the likes of Patrick Buchanan to understand is that manufacturing jobs where workers without high-school diplomas earned fifteen to twenty dollars an hour were an historical fluke and confluence of union controls pushing the wages of some jobs above market levels (while eliminating others), world and other wars which took their toll on foreign infrastructure and stability (and hence competitive imports for decades), and some under-developed countries only very recently and effectively implementing their natural advantage in manufacturing.

(To get a good grasp of the type of thinking out there, note Bob Samuelson’s recent column in Newsweek where he cites credible research showing that Bush’s steel tariffs eliminated as many as 43,000 non-steel jobs in order to save 3,500 in the steel industry. Talk about negative-sum game — but wait, Samuelson concludes that the tariffs "worked" in the sense that they spurred consolidation and closings in the industry with the taxpayers picking up the tab for pensions. Bob, exactly how would this have never occurred, much quicker and more efficiently, without the tariffs and net job losses they created?)

Contra Rogers, I have some doubts about large long-term investment returns coming from Canada. Its population is growing but under an umbrella of costly entitlements. These entitlements have to be supported by higher future taxes and borrowing. While the U.S. fiscal and trade picture doesn’t look bright at the moment, we are not yet burdened with a full-blown national health system as Canada is, although we’re certainly on course to get one.

Rogers predicts that there will be more corporate and mutual-fund scandals to come. I’m not aware that he has any underlying theory as to why the corruption wave appeared in 2001 and will persist, but I certainly do. When the federal government in the late 1960s (through the Williams Act) and state governments (through control-share acquisition and merger-moratorium laws, etc., in the 1980s) made it increasingly difficult for shareholders to throw out crooks such as Dennis Kozlowski and Andrew Fastow, the crooks became increasingly entrenched and emboldened in their scams. Add the early 1990s changes in the tax treatment of executive options and the timing of the scandal wave is hardly a surprise.

Rogers thinks former New York Stock Exchange chairman Dick Grasso should go to jail. I wouldn’t shed a tear if he did but I’d be happy if he returned the $140 million he effectively stole and disappeared. I would have to agree with Rogers that last quarter’s growth of 7.2% is effectively quite a sham. The recent drop in the unemployment rate from 6.1% to 6% being treated as great news by the Bush administration is also amusing, especially given that (as Richard Nixon found out) the rate can increase as more people, thinking the economy has revived, start looking for jobs and don’t find them.

Interesting for LRC readers, Rogers is no fan of the current war in Iraq and accurately predicted some of the trouble we’re now seeing. On September 11, 2002 he wrote that "[a]ttacking Iraq would be madness." Lack of popular world support would pose problems. (Earlier this year we saw the Bush administration asking Germany and France — after it dismissed their concerns at the U.N. — to help with troops and funding, to no avail.) Rogers also makes the point that, as far as deposing evil rulers goes, some of the world’s worst (e.g., General Pervez Musharraf) have the U.S.’s full support. Rogers’ most prescient argument was the threat to Saudi stability — the kingdom recently turning into a bubbling cauldron of terrorism.

Where LRCers would probably most part company with Rogers is on immigration. Rogers is an intransigently open-borders guy. His arguments are similar to those made on the Wall Street Journal Op-Ed page: people who risk so much to come here will by definition be an asset to the country, immigration is a founding principle of the country, immigrants work jobs Americans won’t, immigrants will insure the solvency of Social Security and Medicare, and labor mobility inside the U.S. and E.U. has helped those two areas.

Of course immigrants (legal and illegal) don’t face equal risks or costs; Mexicans who enter the U.S. from Tijuana do so at much less average cost than any Haitian. Social Security and Medicare have traded away savings and investment (read job creation) for the FICA tax, so it’s a very curious free-market concern that they should be saved. The problem is that there are other things that can attract migrants besides market opportunities: for one, the welfare state. The welfare state also explains why many Americans of even meager means think that certain jobs for which they’re qualified are nevertheless beneath them. If California is our empirical evidence, serious immigration reform seems to be needed. The idea that the solution should take the form of open borders is a hard sell to most Americans, especially after 9-11.

I found Rogers to be one of the nicest and warmest people I’ve ever met. His prognostications about the future look sound and I recommend his books and Saturday installments of wisdom on Fox News Channel highly.

Dr. Dale Steinreich [send him mail] teaches economics in Missouri, is a contributor to the investment advisory, and is an adjunct scholar of the Ludwig von Mises Institute.

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