Moneybeat: Wildfires and red tape

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

DAVID BAHNSEN: Well, good morning Nick, good to be with you.

EICHER: Let’s begin with the California fires, David. You’re a Californian, you have a home there, offices, employees ,and I’m glad to know that you and your people are safe. Amid all the devastation for so many that’s just hard to comprehend.

That said, I do think enough time has passed that it’s appropriate to have a hard conversation about policy choices. What would you say are the big economic stories, where economics applies, coming out of this terrible disaster.

BAHNSEN: I think it's three different economic stories, and you are right that we're focusing on the economic stories here where there's so much more that could be focused on around safety, around, obviously, the human tragedy, and then there's a political bend. Yet I do agree with you enough times gone by that there's been room for some rational contemplation of where there's been political failure here, and I think there's quite a bit.

That said, the economic side of it, takeaway number one is that when the governor of California says on Meet the Press we need to waive the red tape, we need to bypass coastal commission, we need to make it a lot easier for people to get permits so they can rebuild their houses. Take out for a moment the story of the fire, take out for a moment the story of people rebuilding. What he just said is what people like me and many others have been saying for years in terms of what is needed to build more houses in California.

He made the concession because he was forced to in the political and emotional moment of all the tragedy here. But it has profound economic admission behind it—that the state of California's red tape, the excessive and, in some cases, lunatic environmental requirements for building and regulation and zoning and permits and approvals are hurting housing.

Anytime a politician says, "Well, we have an emergency, we need to do something because it'll work really well," you should at least ask, "Is there a reason that we don't make this a default policy?”

Like, what is the unique thing here that means that this is just an exception to the rule? Why is this not the rule?

Because I obviously don't believe we should run around with fire hoses all the time, but we do do that when there's a fire. But see, this is different.

This is something he specifically said to the cause of building homes quicker. But that's not fire-related in the sense that we, before the fire and after the fire, need more homes built. So he identified a path to doing so. Why should that not become normative?

That's a huge economic principle at play here, Nick.

EICHER: So you said three big economic questions, the first housing, or housing policy, what about the others?

BAHNSEN: So the issue No. 2, in terms of economics, it is one of my ongoing frustrations where Christians have not made understanding economics much of a priority. But this requires us to understand incentives, to understand risk, but most importantly, Nick, to understand unforeseen consequences.

It sounds like a good thing to say, "We're going to limit how much insurance companies can charge, and we're going to make sure that there are certain things they can't do.” It sounds like you're helping the insured.

But when you take away the ability of insurance companies to manage their own risk and regulate what's called reinsurance—where they're able to sell off some of the risk they have to other insurance companies—it gets a little more complicated financially. But it's very important.

What California did is try to limit what could be charged, mandate what had to be insured, offer a free public option that pushed people out of private insurance, and regulate the way insurance companies could manage their risk. Everything they did made it almost impossible for there to be a legitimate fire insurance option in California that caused insurance companies to leave the state.

Ultimately, there is a very predictable consequence that will be borne by the people they were supposedly trying to help. This is not bad politics, it's bad economics.

The third issue was going to be about municipal bonds. It's a real big California problem. Voters in California are suckers for munibond deals, and that has come to play here again. But I'll skip over that one in the interest of time.

EICHER: We’ve been watching with interest the confirmation hearings on Capitol Hill, and I know you took special notice of the hearing for Treasury nominee Scott Bessant. As I looked in on that, David, I was struck with what I thought was a master class in understanding and explaining economic policy.

BAHNSEN: Well, there was a lot and I think “master class in economics” is a great way to put it.

You know, it's funny there was even a little bit of political deftness as well—in how he avoided certain questions that are just inappropriate. You know the Treasury Secretary should not have to answer what he would cut from spending Congress controls what they want to spend on. So to have Congress people who do control spending, asking the Treasury Secretary what he would cut in spending, reverses separation of powers. And he avoided that politically.

But economically, he understood the importance of the bond market. He understood the importance of financial markets, not just reflecting what happens in the economy, but giving signals that are helpful in navigating through the economy. It's what we call price discovery. It's a very important concept in a market economy that prices deliver information.

Bessant understands this in a way that very few Treasury secretaries, in my opinion, have been able to understand because he is a real student of financial markets, which I believe is important. Certainly he resisted the class warfare issues that were thrown at him.

You mentioned Senators Warren and Sanders. So I am bullish on the incoming Treasury Secretary. There will be a couple things he will say and pivot on a little around tariffs that I don't totally like. But even then, I give him a little slack based on the need to appease the boss, if you know what I mean.

I think he's navigating even that with wisdom and grace and so so far I'm excited and really thought what we saw in the hearing this week should give all of us optimism that we have a good Treasury Secretary coming in.

EICHER: President Biden gave a parting shot Thursday night, warning of a billionaire oligarchy ruling the country, specifically Elon Musk, Jeff Bezos, and Mark Zuckerberg. It was music to the ears of Senator Bernie Sanders. Let’s have a listen to this, where he tries to get Bessant to agree with him.

SANDERS: Do you think that when so few people have so much wealth and so much economic and political power, that that is an oligarchic form society?

BESSANT: Well, I would note that President Biden gave the presidential medal of freedom to two people who I think would qualify for his oligarchs. So I—

SANDERS: This is not a condemnation of any one individual. I'm just asking you, with so few people having so much wealth and power, do you think that that is an oligarchic form of society?

BESSANT: Senator, I think it depends on the ability to move up and down the—

SANDERS: No, that's not really the answer. I mean, even if you had that mobility, no matter who those individuals might be. All right, but let me ask you another question …

He just wouldn’t budge. I don’t really think of Bessant as a political player but it was quite the political performance.

BAHNSEN: Well, it was, and again, he didn't come into grandstand ideologically. He was pushed into this by prodding from Senators Sanders and Warren.

He is exactly right that this is something, even apart from the politics of it or what Bessant said or what Sanders said, just for WORLD listeners to really appreciate: The difference between an oligarchy and a country that can create self-made billionaires who themselves did not come from billionaire families is a very important difference. Now, some people out there may be uncomfortable with the fact that somebody could have a billion dollars But it is very different when somebody has a billion dollars because their dad had a billion and their grandpa had a billion and their great-grandfather about a billion and they have a lot of power in a feudal monarchy that allows them to constantly have a billion dollars going down generation after generation.

That is a very different system—isn't it?—then where somebody can grow up in a poor home and start Starbucks. Grow up in a poor home and start SpaceX. Who can become a very intelligent person and take big risks, make big decisions, and benefit from it. And I believe that that is not called an oligarchy, okay?

To the extent anybody out there is worried about an oligarchy, it is when somebody has tremendous wealth as a result of tremendous political power that protects it.

Well, I have a solution for that. Don't allow so much political power in the hands of Washington D.C. Then you don't have an oligarchy. You don't have people that are wanting to use the levers of power in D.C. to protect their fiscal position.

So the argument that is anti -oligarchy is the argument Sanders and Warren hate the most, which is to limit the power of of Washington D.C. and further embrace the open and free-market economy that can allow people to move their station in life. Scott Bessant captured this sentiment well, Nick.

EICHER: David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. David writes at dividendcafe.com and he’s here each week. David, have a good one!

BAHNSEN: Thanks so much, Nick.

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