2193 FBF: Irreversible Impacts on Big Business By Big Government with Tim Carney Author of ‘The Big Rip-Off’

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing, fresh new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show. This is your host, Jason Hartman. This is episode number 449. 449. Thank you so much for joining me today from beautiful Aruba in the Caribbean here, just about, I don't know, what is this like 18 miles away from the Venezuelan border? I hear it's very, very close. Anyway, I'm just leaving and about to catch a ride to the airport and just wanted to introduce our guest today before I go. And that is Tim Carney with the Washington Examiner. He's got a book out entitled the Big How Big Business and Big Government Steal. And he's got some very, very interesting insights into this subject. But before we get to our guest, two things that I wanted to mention. Number one, a lot of you have purchased tickets for our upcoming Meet the Masters event. And this is just going to be a fantastic event. We're going to have a special dinner on Saturday evening at that event. I think you're really, really going to enjoy it. And our theme for it is investor empowerment. How to be the empowered investor. How to align your relationships with your managers and your tenants and other providers as well so that you have the maximum level of empowerment when investing. So it's going to be a great theme. It's the first time we've done this theme. Be sure to go to jasonhartman.com and get your tickets. We've still got, I think we're on the third level now or the fourth level of early pricing. And we're going to Have a price increase soon because the tickets are selling very quickly and you can bring a guest as well for the price listed on the website@jason hartman.com so be sure to get your tickets ASAP and register at the Hotel Irvine and get our discounted room block price before that expires as well. So very important that you do that. And I also want to share something about a conversation that I had and you know, once again, pointing to the value of understanding numbers and not deceiving oneself when it comes to these numbers when you're looking at an investment. And this really relates to the topic of RV ratio or rent to value ratio, the most outwardly apparent and simple rule of thumb metric when investing. Now, the target is of course, 1% per month. That's the target. Sometimes we do better than that. Sometimes we can do substantially better. If you bought during the really scary time at the real big downturn part, the trough of the biggest, we'll call it the Great Recession. Sorry, I'm a little distracted here. I'm in the hotel lobby. As I'm recording, if you bought at the worst part of the Great Recession, then you were seeing RV ratios, depending on the market, of maybe 1.2 to 1.7%. Okay? But you had to have a lot of confidence to do it then, you know, when, when people were scared and.

You know, you didn't know if real estate was going to go down in.

Value even more and rents were going to be depressed and you know what was going to happen to the economy. Now, of course, things have changed and still in many markets, you can target somewhere near to the 1% rent to value ratio. In other markets though, you can't do that at all. In places like Washington State, California, Oregon, the Pacific Northwest, I don't mention those as much because they're not as bad. But in those markets you can't get good RV ratios. Obviously, you can't do it in South Florida, you can't do it in California, you can't do it in the Northeastern states as well. So here is an interesting conversation I had. And you know, a lot of people have built entire businesses around and I think it is really interesting to examine this. And I've been examining it, but haven't found it to be very workable yet. And that is the idea of vacation rentals in the new world of the sharing economy with services like Airbnb, very, very powerful. And this gentleman I was having a conversation with last night, here's his scenario and if you have your calculator on Your smartphone handy. Run the numbers with me. Okay. And I don't have them all, but I have them from memory. And those numbers are renting for 350 per night, $350 per night, and occupancy 70% of the year, which is a pretty good occupancy rate for a vacation rental. And management fees that were actually pretty low of 19%. Normally, vacation rental management fees are much higher than that. In fact, a lot more wear and tear on your property with people in and out every three days or every week, obviously, and much, much higher expenses. Some of those you can pass along to the tenant, the temporary tenant, the vacation renter, and some you can't. But just do the math with me, okay? $350 per night times 365 nights per year times 70% or 0.7. Okay. And then you get the occupancy rate that he was quoting, and then go ahead and divide that number. Well, take away your management fee first, because your management fee is much higher compared to a traditional turnkey buy and hold investment, the style of investing we recommend and like the most. And then when you do that, you should come up with about 50, and you divide it by 12, you should come up with about $5,900 per month. And based on that $5,900 per month, the value of this property, which got all murky and, of course, you know, the typical things investors do to deceive themselves in terms of, well, you know, the mortgage payment is this amount. You know, the value is this. What I bought it for is that all these things are really not the things you should be looking at. You've got to keep it simple and go simply with rent to value ratio. Notice that is not called the rent to what I paid for it ratio. It's called the rent to value ratio, not the rent to what I paid for it ratio. And when you do that, it's really very apparent that, you know, this Gentleman has a $1.1 million property that he's only renting for $5,900 per month. Now, after that conversation, he said he was actually doing a little better, and it was more like $8,000 per month. But either case, it's still not $11,000 per month, which would be 1% of the value.

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

So just another little lesson on how investors sort of get muddied up and everything gets murky and we got to keep it simple. We focus on the 1% target RV ratio and let's leave it at that. Investors. Okay, so a lot more about this on future shows and on the coming upcoming Meet the Masters eventually. And I sure hope you get your tickets soon before we have the next price increase or before we have a sellout of that event. So let's get to our guest, Tim Carney, Washington examiner, and let's hear about the Big Rip Off.

It's my pleasure to welcome Tim Carney to the show. He is a senior political columnist for the Washington examiner and a visiting fellow at the American Enterprise Institute and author of the Big Rip Off How Big Businesses and Big Government Steal your Money. Tim, welcome. How are you?

Good. Thanks for having me.

Good.

Yeah.

It's good to have you on. And this is, this is a hot topic, unfortunately, but it's, it's very true. And you know, Tim, it's interesting because when you look at the political divide on the left and the right, you know, it seems like one side is for big business and against big government, but I kind of think it's just a big wrestling match. It's fake. You know, this is like a fake dichotomy. It's sort of the, the same thing almost nowadays, at least. Your thoughts?

Absolutely. I think the professional wrestling analogy there is apartment that very often big business and big government are not in fact the opponents, although they fool, you know, Democrats and Republicans into thinking they are. But often they're the allies. And what they want are regulations that keep out competitors. They want handouts, corporate welfare, bailouts, eminent domain taking mandates, and.

The losers end up being consumers, small businessmen, people who want to be small businessmen and taxpayers.

Yeah.

Or those small business people that want to be medium sized business people that can't, they can't grow because of the onerous regulations. So it's just interesting to me that, you know, you'll see the people who run the corporatocracy, you know, they'll be on TV or in media complaining and grousing about government regulation. But what they're secretly thinking, I think, is they're thinking, you know, gosh, this regulation is great because it's, it's just impossible for new companies to enter the market and compete with us. This is certainly true on Wall street with the securities laws now, you know, with the JOBS act, maybe there will be a bit of a shift there and crowdfunding and so forth. But I mean, Talk about that a little bit. It sounds like we agree.

Yeah. So a couple of my favorite examples are the tax preparers. So you think of H and R Block. For example, I was reading an analyst at one of the banks saying, they give out. How's this company doing? What are their prospects? And they were looking at H and R Block, and they said, oh, here H and R Block, the biggest tax preparer in the country, is probably going to do well over coming years because the new regulations from the IRS really make it much harder for smaller businesses or independent operators to function as tax preparers. And so H and R Block has the size to deal with and to absorb the cost of these regulations. And this regulation should crowd out some of their competitors. And sure enough, when small tax preparers sued to block it, you had the government saying, well, these regulations can't be that onerous. Even H and R Block supports them. And there's. This happens in all sorts of industries. And you saw Jamie Dimon, the CEO of JP Morgan, saying, there's a lot of things about this Dodd Frank financial regulation that I don't like, and there are ways in which it will definitely hurt our bank, but on another level, it protects us. He used the term a moat. He said that these regulations created a moat. And it's a beautiful image. It digs this trench. So the guys who are already in the middle, on the island, in the castle, they get to stay there and they have protection from compet. And if that's one of the major effects of regulation, then you can see that it actually hurts consumers rather than protecting.

Yeah, it's just. It's all the entrenched interests, they can deal with it. You know, if you want to take your company public or you want to maintain your company as a public company, if you're big, you know, you can spend a million bucks on compliance. If you're little, you can't even play the game. It's just, you know, who's representing the small business out there?

Tim?

I mean, no, you know, where is their lobbying group?

I mean, is it, you know, what, the Chamber of Commerce?

I don't know. You know, there's a couple groups, but.

So, yeah, the Chamber of Commerce is good when it comes to opposing regulations, but they also. They end up supporting spending. Big spending, stimulus, bailouts. And again, those things, even those primarily go to the big guys, the guys who can afford to hire the lobbyists, the consultant, the former congressional aide, or the former congressman. The guys who can afford to hire them are the people who are going to get the hands, their hands on most of the government money when that's being handed out. And one of the problems, economists describe it as concentrated benefits with diffuse costs. Again, the benefit of a government program, a regulation, a subsidy, go to a small group and they get it a lot. You got a billion dollar subsidy and it goes to one company. It costs every taxpayer about $3. So who's going to lobby harder? The big guys who get the handout or the little guys who are paying it. And it's the same with these protective regulations where the businesses that are hurt, businesses that haven't even come into being. It's a guy who says, you know what I'd like to do? I'd like to start up a food truck and compete with these restaurants. And then he starts dealing with the rules and the regulations and says, okay, never mind. So there isn't really a lobby for the businesses that want to exist but don't get it.

Tim, that's a great point. You know, it's the ones that don't yet exist. I mean, there's that principle in economics. You never hear the dogs that don't bark, and they don't bark because they don't exist yet. They might exist, but we'll never know if they could enter and if they could play the game.

Exactly. And so this is the couple times you asked where the lobby is, a couple times that I feel like the small guys won.

Are the best demonstrations that these rules end up hurting consumers. And here in D.C. we had a couple of fights. One over food trucks, where the Restaurant association of Metropolitan Washington was saying we should severely limit where food trucks are allowed to park. And their argument at times is openly protectionist. Just said, look, we've invested a lot in these communities and these food trucks will hurt us. And then the other one had to do with Uber, where the taxicabs, the unions and the companies that run the taxicabs around here didn't want this smartphone powered.

Basically limo service, much better system being allowed. And so they proposed all sorts of rules that would either bar Uber or at least really limit their activity or at least make sure that another competitor doesn't come in. And in both of those cases, there was a strong public pushback. And it's because the consumers of these were sort of rich and upper middle class, young, politically active urban progressives, where all of a sudden they said, huh, maybe these regulations aren't helping us, they're helping the incumbent businesses. Hurting consumers hurting would be competitors. And there the big guys have actually Lost because the consumer base was active enough to apply pressure to the politic.

Yeah, that's, you know, it just kind of begs the question. And I'm probably going to offend someone here, I'm sure, but, you know, like, I debate these things with people on the left, you know, with Democrats, and I just. I just can't help but thinking, how can Democrats be so dumb? How can they not see this? They're always pleading for more regulation. When the financial crisis happened, you know, they were saying, oh, well, you know, these big companies, they weren't regulated enough. You know, that's why it all happened. And, you know, like, that's the surface argument. And I can see, you know, how one would think that. But what we never hear about is the fact that they became too big to fail because of the regulations. You know, you can't compete with Lehman Brothers. You know, you can't compete with Jamie, J.P. morgan.

Well, I mean, you know, Lehman Brothers.

Obviously an old example, but, you know.

You get the idea.

Yeah. And so the. A lot of what I like to point out is that the. If you are somebody who doesn't like big business dominance, if you're somebody who loves small business, loves local business, then in a lot of cases, I would argue in almost all. But at least anybody would say in a lot of cases, the right answer here is not, in fact, more government regulation, but is the opposite, is letting people not only getting rid of regulation, but also getting rid of the spending, which, as I said, goes to benefit the biggest guys. We have these. One example I write a lot about are export subsidies. The Export Import bank is not a bank. It's a government agency, and it subsidizes exports. And so they'll always talk about, oh, here's a small pickle producer who goes ahead and gets these subsidies, and it really helped her grow. But guess what? 80% of export import bank subsidies go to big businesses. And the small businesses who get the other 20%, they're defined. In some cases, they can be up to 1,500 employees. And not only that, but a third of Export Import bank subsidies go to one business, Boeing, which is the largest exporter in America. And so when the government sets up these programs, it helps the big guys. One thing I always say is whenever something is put in the arena of government, it becomes a home game for big business.

Yeah, it does. Okay, so what are some action steps that people can take? What can we do about this? It just seems like you get these entrenched interests and they can just never be dislodged. They're so powerful and they have such scale. I mean, is there anything that can be done?

Well, there's. First I'll say the reasons to be depressed. It is a self reinforcing thing. The politicians and the lobbyists and the big businesses that can hire them become an inside circle and they can all benefit each other. And how can everybody be benefiting in this sort of situation? Well, there's two ways in any kind of, you know, economy that everybody benefits. One is if there's actual creativity and growth and creation, but that's not happening here. The other is if they can extract wealth from everybody else. And that's exactly what's going on here. And so everybody in power is benefiting and everybody out of power is losing. So that's the depressing part of the answer. On the other side, I have seen things like technology creating these decentralizing, decentralizing effects. The way that things like Uber and food trucks have been able to win. And then there was a law called the Stop Online Piracy Act, SOPA a couple years back. These had all the special interests, all the insiders behind it, and the small guys won because of sort of organizing over the Internet and over social media. So that's one half of it. And then the other half is just the political pressure. You look at the. I think the Tea Party has been a very good source within the Republican Party because what it is is all of a sudden there are politicians who, if they have a message that really resonates with people around the country, they can suddenly raise money because you need money to win an election, they can raise money from them instead of doing what the Republicans have always done before, which is only raise money from the business lobbyists. And so now there's a way to get. It's easier to sort of get grassroots money and grassroots organizing. So that's sort of the hopeful thing that there can be a push where people will be. There's money coming in based on what people believe in and not just on people who stand up, profit from a specific policy.

Yeah, that's, that's nice. And hopefully technology will allow us to do that. I mean, you know, is the. Do you really think the problem is mostly the business of lobbying and the lobbyist?

So, I mean, lobbying, first of all, I should say, is a constitutionally protected right. We would never want a world in which nobody has the right to go and try to tell congressmen either what they need or how they're going to mess everything up or anything like that.

But on the other hand, the problem I see is not the lobbying, but the incentives that the lobbying industry creates for the people who are supposed to be our public servants. The revolving door is what we call it. The revolving door is where when you leave Congress, if you've served a couple terms, you are guaranteed to be paid a ton of money, often a million dollars, to be a lobbyist for special interest, often for a firm that represents a handful of businesses. And if you're a top level congressional staffer, you might be making a decent salary, $140,000, but you're raising kids, you're in D.C. it's expensive. Lobbying firm comes, says we'll hire you away for half a million and they go and they do that. So then these lobbying firms have these guys who have direct access to their old bosses or to their old underlings who are now the chief of staff.

That gives them undue influence. But again, go back to what their incentives were when they were on the Hill. It was to play on Capitol H. It was to play ball with the special interests. It was to make sure, even if you're not necessarily going to vote how they're going to vote, but to schmooze and to listen to them and to be reasonable by their standards, to make sure you're going to get hired. And so that is the biggest thing, rigging the game against hope for fairer stuff is the fact that these guys incentives the staffers and the elected politicians, their incentives are to play ball with this revolving dorset.

Yeah, and you have that too going on within the government agencies, of course. You know, you have the, the, the, the auditor or examiner who works for the sec and then they go and they investigate a certain company, say it's Goldman Sachs, for example, and somehow a few years later, they seem to end up working for Goldman Sachs. Now, you know, to argue that there wasn't some sort of, you know, subtle bribe there, if not an overt one.

Like, hey, we'll hire you and you.

Know, quadruple your pay. Can't the Goldman Sachs guy sit across them from the table and while they're.

Doing their work and say, hey, you're.

Really good at your job, you know, maybe you should come to work for us someday. And you know, now they're.

Jack Abramoff who went to jail for illegal lobbying practices, used to tell a story like that, how he'd be trying to persuade some congressman staffer to put in a, an earmark or something. And then one day they'd be socializing, talking, not talking about work at all. And he said, by the way, you know, if you. I know you love working on the Hill, Your boss is a great guy. I know you're good at what you do, but if you're ever looking for a place, you fit in really well at our farm. And once he said that, he had them in the back.

I mean, this is just disgusting. You know, I'm sure this happens at every level of the sec, the fda, the, you know, the faa, the fcc. I mean, this is unbelievable that this stuff is allowed to happen, right?

Yep. But the problem is they try to regulate the lobbyists. When the people, I think, who need the regulations are in government are the politicians and the staffers. I think that we ought to. We always worry about Big Brother, which is government watching us. One of the terms people use in circles in Washington, D.C. is little sister. We ought to be able to spy on them better. If a congressman has a meeting with the lobbyists, we should know that basically right away. When the day is over, it should be posted as to who they met with. So we can say, why were you talking to JP Morgan? And he might be saying, you know what? We were talking to JP Morgan lobbyists because they were explaining how this one rule was crafted in a way that hurts everybody in the industry and the same with their campaign contributions. Politicians. Just like, I could go into my bank account and, you know, my wife could see instantly if I just, you know, why are you spending money at Murphy's Pub, Tim? We should be able to see, why are you depositing money, Senator, from this check? What are they getting for that $3,000 contribution? So, I mean.

I mean, think about it. Why aren't these meetings public record? You know, when Congress meets, you know, there's a transcript, you know, there are minutes. I mean, why isn't it that, you know, every communication with a lobbyist is recorded? It. Yeah, you know, and it's. And it's available for the public to listen to.

And even if they. Even if they need the privacy, say, I mean, say I'm a company. I'm coming in. I'm going to say. Okay, let me tell you, we have a unique business model, and this is. And so there needs to be some privacy. The. The nature of the discussion and the fact that it happened, I think is certainly the public's business.

Yeah, yeah, yeah, of course, of course. Well, good stuff. Tim, do you want to talk just before you. Before you wrap up here about Obama nomics? Because that's your other book. Do you just have the two Books.

Yeah. So the big rip off in Obama nomics are the same theme. They're the idea that big business and big government are often allies. Big business benefits from and lobbies for big government to the detriment of the consumer, the competitor and the taxpayer. In Obama nomics, what I did was I just took a look at Obama's policies. You know, a big ripoff. I go back to the Whiskey Rebellion and talk about Teddy Roosevelt and that sort of thing. But in Obamanomics, I just point out how the drug industry wrote a huge portion of Obamacare, how the stimulus was sort of, it was Christmas for lobbyists here in D.C. i wrote about how Obama was the one man who could have stopped the bank bailout. He didn't. One of his fundraisers was Warren Buffett who invested millions in Goldman Sachs because he knew the bailout was going to happen and then bank off of it and all these things. Not that Obama is worse on this than previous presidents, but that Obama had promised to be different, had promised to freeze out the lobbyists and obviously did not. And that the special interests have been winning as much under President Obama as they have under every previous president, which obviously was not what hope and change was supposed to be about.

Yeah, no question about it. It's just unbelievable. I just kind of wonder what's going.

To become of our country.

You know, there are so many really positive things and I think almost all of them revolve around technology and innovation.

Which is just awesome.

I mean, in so many ways, Tim, we're living in an amazing time and, you know, maybe, maybe technology and, you know, mostly related to communication will save us. You know, you mentioned before how, you know, people can get together and you talked about SOPA and so forth and, and as long as that's really allowed to be this democratized, free level playing field that's, you know, that, that, that maybe that will save us. But when you look at it on the government side and the big corporate side, I'm like, wow. It's just the abuses that are happening are insane. And I tell you, I, I kind of think that during our natural lives we're going to see a strong and serious secession movement. I don't know, I have no idea.

If you have any thoughts about that.

But no, I mean, I don't. I'm somebody who thinks that, you know, things, the United States is a pretty strong country and that things will proceed basically, you know, without major changes. But that I do think often that technological development will result in.

People being more able to sort of live their lives in a lot of ways. Now, it obviously could cut the other way. The state uses the power of technology in ways that influence infringe on our freedom. But a lot of it, even if the politicians and the bureaucrats want to sort of force us into a funnel in uniformity, that, that becomes harder that things like, when you look at things like Uber, when you look at things like people, you know, they're getting cell phones, they're not being tied down, all of a sudden you see, wait a second, there's. We can make a lot of these regulations unneeded. And so I think that sort of, you know, my version of a secession movement, I think we're going to get, is not going to. But people are going to find it easier to live their own lives without dependence on the big businesses.

We're not as dependent on.

Duopolies or monopolies in a lot of businesses. I have friends, Nick Gillespie and Matt Welch, who wrote a book about that. Maybe that will happen in politics, but often politics just adjusts to what the people are doing and that technology.

Will be, in a lot of cases, a fairly liberating thing.

Yeah. Technology does in many ways have the.

Result of fragmenting marketplaces. I mean, on one hand, it gives big government and big business a scalability advantage and allows them to scale really quickly. But it also allows this fragmentation where there's more consumer choice in many ways and there's more of the long tail concept and more democratization, more startups. You know, let's just keep a vibrant startup business environment because that's where all the innovation comes from.

Yeah, yeah. No, and that's, that's always what matters most to me is if there's innovation and experimentation that's allowed, then, you know, we'll be. Will do. Well, if there's not, then we get what we got in the airline industry for decades, which is stagnation. As long as people are allowed to innovate and experiment, you know, I think we're going to be doing pretty well.

Yeah. Good stuff. Good thoughts. Tim Carney, thank you so much for joining us today. Give out your website, tell people where they can find out more about you.

Yeah, so visit the Washington. Sorry. WashingtonExaminer.com that's where I write and my fellowship is at the American Enterprise Institute.

AEI.org and of course the books are.

On Amazon and all the usual places. Right.

Everywhere.

Everywhere.

You can buy books online. The big ripoff in Obama.

All right, Tim Carney, keep up the good work.

Thank you.

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