Let David Slay Goliath

One of the quintessential attributes of the American dream is that the little guy can become the big guy, or rather through the creative destruction of the free enterprise system, a small entrepreneur may destabilize and replace a larger competitor through innovation, cost savings, and better ideas.

American history is full of stories of small entrepreneurs with good ideas displacing pre-existing giants in the marketplace. Over time, however, that has become less the case. Now, Goliath hires an army of lobbyists who help shape the regulatory code, the tax code, and draft legislation to provide competitive advantages for themselves or disadvantages for would be competitors.

The little guy cannot become the big guy because the big guy has lobbyists. It is no coincidence that Democrats are decrying the wealth gap and the inability of the little guy to become the big guy at a time the big guy is engaged in shaping federal policy and funding the Democrats. The Democrats’ solution is to make the little guy more comfortable, but also punish him if he dares to get too successful. The Republican solution has largely been to prop up the big guys and bail them out when they falter, equally ensuring there can be no competition.

Whether it is the 2008 financial crisis or now, the government has created more moral hazard in the economy by bailing out and propping up a lot of financial institutions and other companies that should be wiped out in the creative destruction of the free market. A correction is coming if only because the government has intervened so often to prop up so many that should be dead or left to die.

Likewise, major corporations are now advocating government policy that stifles the innovator. I subscribe to a daily newsletter called Punchbowl that covers Washington politics. On a daily basis, Amazon takes out ads for a $15.00 an hour minimum wage. Here’s one of the ads run yesterday:

Amazon can afford to pay a $15.00 an hour minimum wage. Anyone who pays attention understands that Amazon is not just increasingly relying on robots and automation, but it also treats its factory workers like crap with terrible work conditions.

Amazon is also pretty notorious for seeing what small businesses are selling well on Amazon then copying the product and undercutting those sellers who have relied on Amazon to sell their original product.

Amazon is notorious for not aggressively monitoring Amazon for knockoff copies of brands. Birkenstock famously ran into this problem with Amazon.

The federal government has done nothing about this.

Now, along comes the Gamestop saga.

First, let me explain at a very basic level what short selling is.

Short selling is where someone or some entity borrows stock, not money, from a brokerage. The short seller thinks the stock is going to go down. So, Short Seller X borrows 10 shares of Company A from Brokerage for thirty days. X then sells the stock at $100.00 and pockets $1,000.00. Within 30 days, the stock has fallen to $50 a share. X then buys back the shares at $50.00, returns the shares to Brokerage, and X has profited $500.00.

Short sellers do that to scale. Hedge funds love to do it. Along comes a hedge fund that sees Gamestop and thinks Gamestop stock is going to go down. So the hedge fund borrowed shares, sold them, and the public got wind of it.

A group of day trading gamblers on Reddit operating under a subreddit called WallStreetBets decided to screw with a hedge fund, which, if you’ll recall, is supposed to be a bad guy in the general vernacular of American media coverage. The redditors drive up the stock price from $7.00 a share to over $300.00 a share.

The hedge fund goes broke and has to be bailed out.

CNBC, the stock regulators, the business press, and various state Secretaries of State declare the regular Davids the bad guy for driving Goliath to a bail out. According to all of them, it is bad for David to slay Goliath because David might get hurt in the process. Ironically, these sorts of regular people trading are CNBC’s core audience and CNBC is vilifying them and protecting the hedge fund guys.

These guys on Reddit know that. They do not care. They know, with a subreddit called WallStreetBets that they are gambling on the stock market. They are not using it for a long term growth and income strategy.

But the system favors the existing large institutions. In the name of stability and paternalism, the regular guys driving up the prices are bad because they are destabilizing a system and possibly costing themselves money.

They have every right to do it, but the system is against them, which pushes the financial press against them, which makes me root for them even more.

The market will settle to the fair market value price. GameStop stock will go down. People will lose money. But I’m unsure why any of us should care that a group of multimillionaires or billionaire hedge fund guys lost their shirts to the regular guys when usually it is the regular guys losing their shirts and jobs to the hedge funds.

Erick Erickson @EWErickson

If a group of individual investors want to profit off a hedge fund's risk, they should be able to. The hedge funds and banks continually get bailed out while individual investors never do. Let the individuals engage as they like. Let David slay Goliath.

If the system always protects Goliath, at some point David is going to not just try to slay Goliath, but will burn the system down. The system turning on the regular guy pushes the regular guy to find their own Goliath.

Donald Trump had a muddy and often incoherent set of conflicting policies, but there was a core and common thread through them — he was for David being able to slay Goliath. A GOP that keeps propping up the big guys and picking winners and losers is a GOP that will never be able to amalgamate Trumpism into a coherent policy.

A Democratic Party that continues to complain about wealth gaps while catering to the wealthiest and largest corporations while crushing entrepreneurs and small businesses is a Democratic Party that can be beaten by Trumpism.

A Democratic Party that tells people they are going to be put on the unemployment line and need to learn how to make solar panels is a Democratic Party that seeds Trump 2024. A Democratic Party that raises taxes on the middle class to fund a “climate agenda” is a political party that voters will crush.

David must be allowed to slay Goliath. David does not need big government, a social safety net, or a nanny state. He needs rocks and he’s not only starting to throw them, but he’s going to start throwing them at whichever party tries to protect Goliath.

All of this is, by the way, the reason I am very interested in the project Russ Vought is building out — a Center for American Restoration, which will provide some intellectual fire power and coherence to an agenda based on Donald Trump’s vision in defense of working Americans. Russ understands the government is often the problem and often sides with Wall Street over Main Street and the well connected over the middle class. This should be an interesting venture.