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Saturday, January 19, 2019

Politicians promise. Capitalists deliver

Two American heroes to the middle class died on Wednesday. Herb Kelleher, the beloved founder of Southwest Airlines, died at age 87 after a gregarious life of hard-drinking and smoking. The more introspective but friendly John Bogle died at age 89.

Kelleher's staff simply adored him. Millions of investors swore by Bogle. Both brought the lifestyles of the rich and famous to the middle class.



"But Kelleher’s zaniness at times obscured his achievement in building the three sturdy pillars Southwest stands on to this day. First, he virtually invented — and then successfully operated, a rare accomplishment for a founder — a revolutionary business model, the low-cost carrier. Second, he deployed prudent financial management to keep Southwest’s wings level in turbulent times. Third, in an industry plagued by America’s worst labor relations, Kelleher managed to nurture what’s arguably corporate America’s most loyal workforce," Shawn Tully of Fortune magazine wrote.

His low-price air travel brought the skies to the people.

Air travel was out of reach due to high-ticket prices. Only the rich and businessmen could afford it.

Kelleher looked at the industry and decided volume was the way to go.

"To lower maintenance costs, Southwest operated only one aircraft model, the Boeing 737. Kelleher also found that 'short-haul' routes of less than three hours, even at low prices, were a lot more profitable than, say, transcontinental flights, because the fares charged per mile were higher, and Southwest could turn the planes far faster," Tully wrote.

But the key was keeping his staff happy. He did more with fewer people who were willing to do more because they loved their boss. A smaller staff meant he did not have to lay off during economic downturns.

Lower costs mean lower prices mean more tickets sold.

"Southwest has made money for 45 straight years, and greatly enriched shareholders," Tully wrote.

The company enriched America. You are now free to move about the country.

Bogle joined Wellington Management Co. out of college in 1951 and worked his way up to president 16 years later.

The mutual fund giant fired him in 1974. He moped around.

A year later, he started Vanguard Group Inc., a mutual fund that did to investing what Kelleher did to air travel. Bogle did not try to beat the market. He just wanted to meet it.

His most famous mutual fund, Vanguard 500 Index Investor, became a $400 billion giant. He kept costs low by not wasting too much money on research and dart boards. Instead, the Vanguard 500 simply buys stocks in proportion to their Standard and Poor 500 standing.

Investors can simply look at how the S and P 500 goes to see how their money did. Simplicity. The best thing about capitalism is simplicity.

The Vanguard 500 is just one of the company's mutual finds and many do try to beat the market. However, the Vanguard 500 was his gift to the masses.

While Wellington Management manages $1 trillion in assets for its clients, Vanguard manages $5 trillion.

Joseph N. DiStefano of the Philadelphia newspaper wrote, "If he was bullish on America, Jack’s message to savers is, in its cheerful wrapping, pessimistic: You can’t beat the market. Those pros can’t, either. The best you can do is capture broad market gains, while minimizing your fees. As rivals cut their fees to match, Jack said Vanguard should cut its fees more than it did, and never raise them, as it sometimes does, a bit."

Richard Grimes, the political editor of the defunct Charleston Daily Mail, liked to tell the story of then-Governor Jay Rockefeller asking reporters how their portfolio was doing.

Jay was the snob of the people.

A few years later, the Mail began a 401-k program. Thanks to Bogle, I can tell Jay my portfolio is doing quite well. Up (checks the S and P 500) 22% since President Trump's election.

Rockefeller promised to turn West Virginia around. He was a disaster. The press made excuses for his incompetence. (Not Grimes.)

The only thing Rockefeller did for the state was to use his personal relationship with Eiji Toyoda to get him to build a Toyota engine and transmission plant in Buffalo, West Virginia.

All Jay's government programs failed. His one venture into capitalism worked.

Kelleher and Bogle delivered on their promises. They will get no state funerals. The flag waves high and proudly. This is how it should be.

20 comments:

  1. Out of all the great inventions of mankind, free market capitalism is the least understood and least appreciated.

    ReplyDelete
    Replies
    1. Paraphrasing P.J. O’Rourke, Capitalism is not only the only economic system that gives a damn about average, none-too-commendable people like us, it’s also the only economic system that’s tried to.

      Delete
  2. Appreciate+fully justify.

    https://www.amazon.com/Capitalism-Ideal-Author-Rand-Jan-1994/dp/B0108DAWOC

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  3. Capitalism has lifted more people out of poverty than any economic system yet it is constantly reviled by our "betters". - GOC

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  4. Kelleher might have been a good boss, but he had lousy taste in planes.

    The 737 was ghastly.

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    Replies
    1. Back in 1971 when Southwest was getting started the only choices were the 737 or DC-9. The Airbus 320 wasn't anywhere on the horizon and by the time it first flew in 1987, Southwest and Boeing had a very close relationship. It was to Herb's advantage to focus on the 737 to simplify pilot and crew training as well as maintenance. Eventually Southwest's 737 fleet grew to around 700, the largest in the world. That tends to carry a lot of clout with Boeing. It's just good business. Is the A320 a bit wider and newer - certainly, and is a fine aircraft with sales in the thousands, but the 737 simply does the job for Southwest.
      I must admit that when I first flew on a United 737-200 in 1968 from MKE-CLE-EWR I never imagined that 50 years later we would see stretched and re-engined versions routinely flying transcons and long overwater trips out to Hawaii.

      Delete
    2. My impression of the 737, it's the Toyota Corolla of the sky. It's cheap, seats four, and with regular maintenance, it will get you back and fourth between Hobby and Love Field every 45 minutes for 10+ years.

      Delete
  5. Real capitalists like Herb Kelleher are great. Great story. Consumers & investors benefit from their efforts. Con men like Trump just move on to the next scam. It's little wonder that Trump's publicly traded company was an absolute disaster.

    ReplyDelete
    Replies
    1. The adage of having sight but still blind comes to mind.

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    2. "Hear now this, O foolish people, and without understanding; which have eyes, and see not; which have ears, and hear not:"

      Jeremiah 5:21

      - Elric

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    3. What do you say to the thousands of people who gladly handed Trump millions of dollars in order to live in his buildings or have Trump as their business address?

      You're an ignorant fool blinded by your jealousy and hatred of the successful. Brands you as a loser.

      Delete
  6. I heard about Herb Kelleher, and my first random thought was about Bob Newhart's "Wright Brothers" routine. Reckon Kelleher probably got a kick out of that, back in the day, so in honor of Herb: https://www.youtube.com/watch?v=7Azg6ohQlV0

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  7. If Rockefeller’s name wasn’t Rockefeller, he would never have been elected and re-elected.

    Boggle’s innovations helped my parents have a great retirement. Kelleher Gabe our family the gift of travel. Hats off to both.

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  8. Socialism is the smiley face leftists are using to re-brand Communism so the stupid think it isn't so bad.....

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  9. Unfortunately the label “capitalism” is a term invented by the enemy, Socialists.

    I hate that we've capitulated and now use the enemy's term for our economic system — many brighter people than I have advised us to not use the terms coined by our enemy to describe what we are or what we do — because it makes “the window frame” of center-normal for our culture exceedingly more difficult to recenter.

    I found the truth of that hard to accept, until I saw it at work in our culture, as with “gay” or “prochoice”, or a bevy of other terms.

    I have, over the years since my realization, become quite horrified at the sheer volume of our vocabulary that has been co-opted. A few minutes with an old dictionary (1958 or even a 1960's edition) will both stun and frighten anyone who doesn't see this quiet confiscation, and conversion to our enemy's use, of our conversational symbols (i.e., word...) as important.

    And, while many agree with my gist on “big/important” words, these same people are usually willing to let our enemy have his way with the smaller-concept “everyday words”; not realizing that, b/c of repetitional reinforcement of common daily concepts, those are actually the most important words.

    - mf

    ReplyDelete
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    1. Words are as terms in an equation.

      Mathematical, Chemical, Physics, Block Diagram, Flow Chart, etc., all requiring precise defining to be of factual and actual value.

      The word "book" is, via electricity dependent technology, sliding into the abyss of insignificance for current generations.

      To see images, in motion or at rest, and hear sounds is far more attractive than decoding these pesky symbols called "letters/alphabet" grouped into clusters called "words" and sequenced as strings of clusters called "sentences".

      Lazy minds induced to sloth via recurringly reliably needs being met with little natural effort being required.

      In other words, we eat without noticible peril of not being able to find food.

      In this manner, humans have evolved into devolution.

      Discarded has been the intense and vital knowing of the true nature of Nature.

      This will eventually be corrected by full measure means, as Nature has no tolerance for stupid.

      Delete
    2. "Free market." It's all about freedom of choice - which should, if consistency mattered, resonate with those who choose their gender, identification, lifestyle and whether or not to abort a child. sadly, it won't - yet.

      Delete
  10. I call myself a "free marketeer", and did so in advising on privatization 28 years ago. Free market capitalism, plus Christianity, is why the US led "Free World" has been so great for the world's poor, who are willing to work.

    Great post about good guys -- and most successful businessmen care about the customers and about their employees, despite mostly reporting to their, usually greedy, shareholders.

    The tax laws should be modified to encourage more small businesses to be started, and probably include a top line minimum tax on revenue to reduce the huge advantages huge corporations have in taking huge deductions to allow huge bonuses to underworked, overpaid, top executives.

    Tax codes are not "free market" or "non-free market". They are political economic choices.

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  11. Southwest was/is the Greyhound bus of the skies.

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