Chief Investment Strategist, The Freeport Society
If you ever decide to kick up your feet and binge Netflix, I have a suggestion for you: The Fall of the House of Usher.
If you paid attention in your high school literature class, the name might sound familiar. It’s the title of a short story by Edgar Allen Poe.
The Netflix series takes the major horror works of Poe and weaves them into a story about the fall of a crooked American billionaire who got fantastically wealthy selling opioids. (And at the risk of spoiling the story for you, making a pact with the devil.)
The highlight of the show, even if the macabre world of Poe isn’t your thing, is the “lemon speech.”
There’s a scene where Roderick Usher starts to say, “When life gives you lemons…” but his companion interrupts him to complete the common expression with “you make lemonade?”
Source: https://the-haunting.fandom.com/wiki/Roderick_Usher
After a moment of quiet contemplation, Usher turns to him and matter-of-factly says, “No.”
Everything that follows is pure gold… (though I’ve edited out the profanity and obscene references in the interest of good taste.)
First, you roll out a multi-media campaign to convince people lemons are incredibly scarce, which only works if you stockpile lemons – control the supply.
Then, media blitz. Lemon is the only way to say “I love you,” the must-have accessory for engagements or anniversaries. Roses are out, lemons are in…
You cut De Beers in on it. Limited edition lemon bracelets, yellow diamonds called lemon drops.
You get Apple to call their new operating system OS-Lemon. A little accent over the “o”.
You charge 40% more for organic lemons and 50% more for conflict-free lemons.
You pack the Capitol with lemon lobbyists…
Get a hashtag campaign. Something isn’t “cool,” “tight,” or “awesome”.
No, it’s “lemon.”
“Did you see that movie?”
“Did you go to that concert? It was effing lemon.”
Billie Eilish, “OMG, hashtag… lemon.”
You get Dr. Oz to recommend four lemons a day and a lemon suppository supplement to get rid of toxins ’cause there’s nothing scarier than toxins.
Then, you patent the seeds… you get those seeds circulating in the wild, and then you sue the farmers for copyright infringement when that genetic code shows up on their land.
Sit back, rake in the millions, and then, when you’re done, and you’ve sold your lem-pire for a few billion dollars, then, and only then, you make some f***ing lemonade.
He had me right up until he pivots to lemon lobbyists and suing farmers.
Everything Right and Wrong With American Capitalism
But apart from being wildly entertaining, Usher gives us a glimpse of everything both right and wrong about American capitalism today.
When life gives you lemons, you don’t content yourself with making lemonade. You pull yourself up by the bootstraps, take the resources you have, and leverage them into something bigger.
Build that lem-pire with sweat equity and shoe leather… or via the digital equivalent of a social media campaign. And by all means, give people want they want and charge them accordingly… even if it is something as ridiculous as a conflict-free lemon. It’s a free market.
That’s what American capitalism is supposed to be, in all of its wild, unrestrained, absurd glory.
There is no idea too ridiculous to be turned into a viable business potentially. Multiple apps in the iPhone app store claim to be “Tinder for dogs,” for crying out loud, and no, the dog isn’t swiping right with his paw. That still requires the dog’s owner’s help.
The fact that something that ridiculous can make money is exactly why American capitalism remains the envy of the world. Anyone can get rich here.
But then there’s the ugly side. The lobbyists buying influence in Congress… the lawyers abusing the legal system with predatory lawsuits…
None of that is capitalism.
Real capitalism is consensual. Both the buyer and the seller benefit from a sale, and if anyone gets hurt in the transaction, it’s the rival competitor that ran a less efficient business and couldn’t compete.
The minute lobbyists and lawyers get involved, it stops being capitalism and becomes cronyism. And the larger, more powerful, and more ever-present the government gets in our lives, the more capitalism starts to look like just that – cronyism.
Regulatory Capture
There’s even a fancy name for this. It’s called regulatory capture. This is what you get when the regulators come to be dominated by the very industries they’re put in place to regulate.
Rather than look out for the little guy or the more general “public interest,” the regulator comes to be an attack dog for the existing players.
And why wouldn’t they?
While taking a bribe in the form of a black gym bag full of hundred-dollar bills is the sort of thing that will get a public servant put in jail, they rarely have to resort to something that crass. They can always get a job at Goldman Sachs!
There is a revolving door of former regulators that go on to work for the companies they used to regulate… and former executives that go on to take high-level positions in government.
Treasury Secretaries Robert Rubin, Hank Paulson, and Steven Mnuchin were all Goldman Sachs alumni. That’s why the SEC will never be a truly effective regulator of America’s biggest banks. The proverbial fox is guarding the henhouse.
And it’s not just Wall Street. The Fall of the House of Usher chronicles the demise of a corrupt pharmaceutical family, and the revolving door is alive and well in that industry as well.
Writing for the Stanford Law Review earlier this year,Dr. Laura Karas noted that,
Recent controversy over the FDA’s approval of the Alzheimer’s therapy Aduhelm (aducanumab) and the Duchenne muscular dystrophy therapy Exondys 51 (eteplirsen) called into question the impartiality and independence of high-level FDA regulators…
Exit from government to private-sector employment via the “revolving door” is a frequent occurrence at administrative agencies like FDA…
To believe that a regulator will make decisions unaffected by the prospect of lucrative private-sector employment in a regulated industry places unrealistic faith in the idea that human behavior is the product of conscious choices over which we have full control. The dangers of the revolving door can be understood as a product of conscious and unconscious influence that generates a risk of bias in favor of regulated entities with whom private employment may later be sought.
This is a scholarly way of saying we shouldn’t hate the player but rather hate the game.
Cronyism rarely works over the long term. It breeds laziness and dampens the competitive urge.
A business that depends on “friends in congress” or predatory lawyers is a fragile one and ultimately subject to getting disrupted by a younger, scrappier, and more innovative competitor. That’s certainly where I’d rather put my money.
As we gather momentum toward to 2024 Presidential Election, it increasingly looks as though cronyism is only set to get worse. There is a shocking undercurrent playing out and, come August, it’s going to catch far too many Americans off guard. By then, it will be too late.
Don’t wait until the last minute to learn about what’s going on right under your nose. There’s time to protect your wealth. And there are many opportunities to grow it when you have your eyes wide open. The Freeport Society fellow, Louis Navallier explains everything in this special announcement.
To live, liberty, and the pursuit of wealth.