Markets are like gardens

Fall time in Leadville

Welcome to another edition of The Mueller Report!

Updates

Fall time is fully upon us in Leadville. The aspens are vibrant yellows, oranges, and reds. The weather has been growing colder at night – including the first snow of the season this weekend. None of it lasted long on the ground in town, but the mountains all around have been frosted white – likely until late next May.

This weekend turned out to be a major production at The Abbey – hikers, a work crew, and a large extended family (here for a wedding) meant more than twenty people stayed with us over the weekend. Combined with our church’s first “Women’s Wilderness Weekend” adventure all day Saturday. As always, I’m thankful for the business, and conversation, and sometimes music, that comes with guests, the off-season has a lot of attraction.

As I mentioned in my last newsletter, we plan on ramping up our intellectual activities and recruiting in 2025. I’m working on putting five two-day intellectual retreats together for next year. Possible topics include the value of classics and linguistics in education, imagination in the Christian life and community, and a liturgy/theology or history/philosophy retreat in partnership with other organizations.

If you have ideas to pitch and/or are interested in participating in one of the retreats, drop me a line.

Writing

I still have several pieces in need of a home, but my friend Steele Brand and I had a piece come out last week discussing George Washington’s Farewell Address and the importance of virtue in public life. I also had an account of selling my house in NJ come out just over a week ago.

This week I should have a second white paper on Environmental, Social, and Governance coming out – hopefully in time for several meetings I have in D. C. later this week. I am also submitting a letter to the editor of our local paper about why many Lake County residents will be reluctant to raise taxes this fall.

So much to write about, so little time!

Reflection

As I was teaching some students this week, the free market economy is incredible and beautiful. “A marvel,” according to Friedrich Hayek. I assigned his paper “The Use of Knowledge in Society” to these students. It’s one of the most cited articles in economics, yet still very accessible to non-economists. We talked about the wonders of the price system for allocating resources, rewarding value creation, punishing value destruction, and encouraging people to economize when resources become relatively more scarce.

But a few students raised concerns about pollution, externalities and a few other flaws or problems that can emerge in the economy. Those things are worth talking about, of course, but I wanted to keep the big picture clear: the free market is like a beautiful and expansive garden. Issues of externalities, imperfection, and public goods are like weeds in that garden.

Now, you don’t deal with weeds by leveling and clear-cutting the garden! We should not move away from free market competition because weeds exist. Instead, we should see “weed-removal” in the context of preserving and improving the garden.

This is important because many people, especially young people, think that flaws in a system require revolution. Why else has “socialism” become so popular? Rather than seeing the beauty of markets, competition, property rights, and limited government – young people become fixated on the weeds. The media and politicians are to blame for this, along with educators who are themselves obsessed with the noxiousness of weeds and have lost the bigger picture.

They should wake up and smell the roses, metaphorically speaking. I hate to rush the development of this analogy but my time for writing grows short. So this is where I’ll leave it for now.

Bookshelf

Last week I finished a detailed book criticizing the presence and agenda of ESG advocates in finance. The author of Race to Zero, Paul Tice, worked on Wall Street for decades while also teaching classes at NYU. His criticisms of ESG run deep and wide.

First, Tice argues that ESG analysis does not improve business or investment performance. It does not add any helpful insights. Instead, it muddies the waters and distracts analysis from the more important business and market dynamics.

He describes the extensive network of “ESG enablers” inside and outside the financial community. More and more people are making their living advocating ESG, “measuring” ESG criteria, and writing ESG reports. In this respect, ESG acts as a significant paperwork tax for investors, banks, and businesses.

But it’s worse than that. The real goals of ESG advocates involve redirecting the flow of financial capital according to UN Sustainable Development Goals (SDGs) – most of which revolve around climate change. Tice’s chapter discussing climate change is extremely detailed and raises a lot of questions about what the “science says.”

For example, the measurement of global temperatures is not an exact science. Besides differences in the quality of measurement around the world, there is also a question of whether sensors are disproportionately proximate to large urban centers that tend to generate more heat than rural or remote areas.

He also talks about how measuring ocean temperatures is a mixed bag because there are different layers of ocean water and most sensors are in the topmost layer, which has seen more warming than the lower ocean layers. Tice talks about how the models of the IPCC and other climate scientists differ radically from the rhetoric of oceans boiling and the earth being uninhabitable within a century. Climate models, even ideologically-slanted ones, don’t tell that story.

Tice talks about how ESG is being indoctrinated in children and young people around the world through educational systems. The UN actively works to push its SDGs through educational institutions from colleges and universities to departments of education. Most of what is being taught is not science per se, but rather policy goals and priorities. Rather than promoting inquiry, this approach seeks to develop consensus and to drown out dissent.

When applied to capital markets, forcing consensus and drowning out dissent spells disaster. Financial markets work because of fierce competition, and often disagreement, about which industries and projects to fund. This keeps financial markets dynamic and corrects errors. Groupthink, encouraged by regulatory policy, can create systemic mistakes like financial institutions piling up risky MBS leading up to the global financial crisis in 2008.

Tice recommends rejection, not reform, of ESG criteria in finance and in business. Not rejecting it will mean increasingly ideological capital markets, the funding of inefficient projects, reduced economic growth, and unintended market blow-ups as non-financial beliefs and goals are hammered into consensus and dissenters are banished from Wall Street and from large businesses.

Finally, he points to Europe as the source of so much of the ESG agenda. Europe also serves as a cautionary tale of how ESG criteria will spread everywhere in business, finance, and government if left unchallenged. The result will be economic stagnation or even decline.

Game Corner

Our youngest children have been pulling out a game called Blokus recently. The game consists of a square board with hundreds of smaller squares inside it. Each player has a set of pieces of a single color. You start in separate corners and take turns placing pieces on the board. The catch is that you may only place a new piece touching the corner of one of your existing pieces. None of the squares of your pieces can touch each other.

So while play starts out quite easily, you quickly run into other players’ pieces and need to navigate the gaps between them. In addition, none of your pieces are the same shape. Some consist of five small squares, some of four, three, two, and down to a one square piece. The goal is to have the fewest squares in your remaining pieces when no player can place additional pieces.

Another fun element of Blokus is that you can play solo or collaboratively with the goal of getting all the pieces of all four colors placed in the board while still following the rules of taking turns placing and not letting any pieces of the same color be adjacent to one another.

Have a great week!