Editor's note: The following is a transcript of remarks delivered by Kenneth Langone and Stanley Druckenmiller at the 2018 Alexander Hamilton Award Dinner
Kenneth Langone: Good evening everybody. I am honored to be asked to introduce my good and close friend Stan Druckenmiller. Stanley and I go back forty years. He is a devoted husband, father and friend. He is as fine a human being as I know, and he is one of the most successful investors in America. I have been investing with him for 40 years, we have never had a down year.
A little bit about Stanley’s beliefs in America: He believes in capitalism, he believes in free markets, free trade, limited government, and the rule of law. He almost sounds like Alexander Hamilton. And I think I can say for sure that the selection committee picked the right man to get this award, because Stanley, long before it was fashionable, even though Alexander Hamilton was devoted to the belief that much of what America became, became so because we followed the roadmap that Alexander Hamilton laid out in the early days of this country. Among other things, Stanley has an enormous heart. He is generous with his time, with his talent, and with his treasure.
Geoff Canada is here tonight, and I know he would agree with me, that Geoff had this wonderful dream called the Harlem Children’s Zone, and when he matched up with Stan, it was absolutely certain that HCZ would go far beyond Geoff’s wildest dreams. HCZ today is one of the great examples of the ability to help people help themselves in depressed areas of America, in this case, Harlem. Geoff’s vision and Geoff’s dream was made possible, and I know he would agree with me, in part not only through Stanley’s generosity, but through Stanley’s time and talent. Our board meetings are at 7:00 in the morning and Stanley never misses one. He was chairman, and he still is chairman, of HCZ. His commitment is total. He is also chairman and a founder of Blue Meridian, an organization committed to moving the needle in social problems in America. And he has made a major, major financial commitment to that cause.
So, here we are tonight honoring a man who understands the importance of giving back, but who also understands the importance of initiative, and capitalism, and free markets, and indeed democracy. The selection committee has made a very wise choice in selecting Stan for this honor and I am humbled to have the honor to introduce him. Thank you very much.
Stanley Druckenmiller: Thank you, Ken. That was very, very nice. I have had so much good fortune in my life, but can you imagine having known that man and having him as a mentor for 42 years? Pretty cool. And then on top of that I met and married Fiona Biggs thirty years ago. To have a partner and the love of my life like Fiona and friends like Ken and Geoff Canada, I really count my blessings.
I am humbled to stand before you tonight and accept an award named after Hamilton, Alexander Hamilton. I am a bit of a Hamilton nut. I am also a bit odd to be in line with the past recipients. I was in awe enough and then I saw the co-honoree was Nikki Haley, wow. When I saw the line, the past recipients, I was thinking maybe Paul had perhaps called me bleary-eyed after a sleepless night, taking on another foreign government for their failed financial practices. But seriously, amid all the vitriol and divisions in our countries, there can be no debate about one thing: Alexander Hamilton is the most important non-president to shape the contours and the character of what would become the greatest nation in the history of civilization. And, frankly, he is actually a lot more important than most who ascended to the highest office in the land in terms of the success of our republic.
I actually grew up in a small town in South Jersey and at the age of 9 in the early ‘60s I moved to Richmond, Virginia. Now, Virginia had their own sense of their history and ours, at least back then. I took three years of American history when I was in the land of Jefferson and what I learned about Alexander Hamilton is he was shot by Aaron Burr. That was about it. I mean, who knew that a rap musical was going to be more informative about our founding father than the curriculum of the Virginia school system? Then I went to Bowdoin College in Southern Maine and I was lucky enough to take American history there, and it is there that I learned about this amazing man and his great and good contributions to our republic. I take particular pleasure in receiving this award because it is bestowed by the Manhattan Institute. Its positive impact on this city over the years has been literally immeasurable, and specifically the institute’s contributions to the cause of real reform and education in this city and beyond.
These contributions have given me one of the greatest joys of my life, watching Geoffrey Canada create and build the Harlem Children’s Zone. Geoff, you out there? And let me say this: The institute’s promotion of free markets, free trade, limited government, and the rule of law have never been more important than today, never. It is not the first time this country has been divided in a war of ideas and ideals, and probably not the most precarious, but it is certainly the most consequential in my lifetime, and I can’t think of better proponents of the way forward out of this mess than the people assembled in this room. This nation has emerged from turmoil before and it is critical, absolutely critical we take the right path again. And now a few comments of my own on the way forward.
Unfortunately, I am old enough to remember when the Soviets were building a strong economy with central planning and then it crumbled, and the wall came down. And then I remember when the Japanese were supposedly eclipsing the U.S. economy with their system of keiretsu and affiliate industrial companies partnering with the government and then the Japanese Lost Decade became two. And now there is China. And it is their turn, with their new leader for life, centralized decision-making on economic matters through 2025 and beyond.
In each of these cases, illiberal statists in our own country are most impressed by the top-down designs of foreign powers than our own track record of free market capitalism here at home, sort of a Wizard of Oz trumps the invisible hand narrative. But I actually believe it is an unfair comparison. Capitalism is under attack, but we have been moving further and further away from capitalism with each passing presidential administration. So, my advice is simple. Thank you, I wasn’t expecting a lot of applause tonight. So, my advice is simple. Can we try capitalism? Real capitalism. Give it a chance. Not the increasingly bastardized version we have been practicing the last two decades. And then let’s just see whether a capitalist economic system is the most effective way to bring about broad-based prosperity and the flourishing of human dignity.
For eight years I watched the Obama administration disparage the efficacy and fairness of capitalism, the influence of government increased in every aspect of our lives, the cost of regulation doubled, corporate America was attacked in the name of social equality, and our healthcare system, hard to believe, was made even more inefficient. Now, I did not support Donald Trump. But, after he was elected, I was at least hopeful that it would represent an inflection point in the trend away from capitalism. And while there has been some relief on the regulatory front, and of course we have gotten a corporate tax cut, some of the more egregious trends away from capitalism are continuing and, frankly, new elements that violate the principles of capitalism have been added.
For starters, free trade is under assault, but I see no need to lecture the people in this room on the merits of comparative advantage. Next, Hamilton had a very deep respect for the rule of law as opposed to the rule of man. The best tech companies in the world are in the U.S. because of a mix of education, immigration, finance, and meritocracy. The central pillar that bolsters this mix and makes our economic system successful is a respect for the rule of law. Is there a better example of this than Amazon? Its founder is a Hamilton-inspired adopted son of an immigrant who is literally revolutionizing the way business is done. It is no coincidence that Amazon was built in America, no surprise that governments, foreign governments, envy its origin, and no question that legacy incumbents impugn its name but mimic its tactics.
Capitalism is intolerant of high-cost providers, rent-seekers, middlemen, and those who extract more value than is their due. Amazon’s biggest backers are not people in elevated positions of power, it are their customers. Well, and a few investors too. The President’s personal view of Amazon should have no bearing on its future success. If intervention is enacted based on his feelings, we will be no better than other countries in the world where corruption and rent-seeking become the main reasons for stagnation and mediocrity. Regarding a continuing trend away from capitalism, Adam Smith would be distraught to know that we are expending an ever-increasing amount of our national resources on government transfer payments.
I spent two years of my life going to liberal and conservative universities to try and get young people energized about the looming explosion entitlements as well as their looming decreasing share of the economic pie. I even asked Geoff Canada to go with me so the students would show up. I got incredibly enthusiastic responses from ultra-liberal Berkeley to conservative USC. I even did a TED talk, and I was so effective in terms of the national debate that the only thing that Donald Trump and Hillary Clinton agreed on was that entitlements shouldn’t be touched. Good going, Stan.
But then we missed the golden opportunity to offset some revenue loss and address generational equity when Congress passed tax reform. Instead, government debt, which has doubled over the last decade, is set to increase to levels only reached during World War II over the next decade, so we will have sacrificed our future during a relatively peaceful economic period with no postwar reduction simply because politicians can’t say no. This does not exactly measure up to spending to defeat fascism and defend the world’s freedom. Finally, let me address a distortion that is one of the greatest threats to a properly functioning capitalist system. For years now a mix of central – sorry – for years now a mix of financial repression and central bank intervention has made long-term interest rates largely determined by government fiat.
Bond-buying by central bankers, commonly referred to as QE, has become so engrained in current thinking that it is now in the Fed’s conventional toolkit, a tool once reserved for a depression or financial crisis is now to be used at the first inkling of the next recession. For those of us old enough to have seen the dangers of price controls, they led to shortages, wasted resources, and disincentives to invest in what consumers want. They inevitably led to an allocation of resources by political actors in another great afront to capitalism. So, it is most surprising that forty years after wage and price controls were sadly rejected by every economic textbook and policymakers, today we have settled to allowing the most important price of all, long-term interest rates, to be regularly distorted by public intervention.
The excuse of this radical monetary policy has been the obsession with a fixed 2.0% inflation targeting rule. The decimal point shows the absurdity of the exercise. Anything below 2.0% was a failure and risked deflation, the boogeyman of the 1930s, to be avoided at all costs. This has meant that years after the Great Recession ended the Fed has not only kept interest rates below inflation but have accumulated an unprecedented $4.5 trillion on their balance sheet by doing QE. Global central banks, in part to keep their currencies from appreciating of these overabundant dollars, have followed with $10 trillion of their own. Now, the irony of this is over the last 700 years inflation has averaged barely over 1% and interest rates have averaged just under 6%. So, we are seeing an unprecedented, ultra-monetary, radical monetary expansion during a time of average, average inflation over the last number of centuries. Moreover, the three most pernicious deflationary periods of the past century did not start because inflation was too close to zero. They were preceded by asset bubbles.
If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years. I shudder to think that the malinvestment that occurred over this period. Corporate debt has soared, but most of it has been used for financial engineering. Bankruptcies have been minimal in the most disruptive economy since the Industrial Revolution. Who knows how many corporate zombies are out there because free money is keeping them alive? Individuals have plowed ever-increasing amounts of money into assets at ever-increasing prices, and it is not only the private sector that is getting the wrong message, but Congress as well. I have no doubt we would have not gotten such a big increase in fiscal deficits if policy had been normalized already.
Of all the interventions by the not-so-invisible hand, not allowing the market to set the hurdle rate for investment is the one I see with the highest costs. Competition is a better tool than price control for protecting consumers. That applies to Amazon and the bond market. The government should get out of the business of manipulating long-term interest rates and canceling market signals. One final thought: During Obama’s tenure, I was disheartened by the lack of criticism from the Left. Frankly, I think it would have carried a lot more weight than criticism from the Right.
Today I see a similar situation. I am discouraged by the timidity of the criticism of our present direction by many Conservatives. Now, there are many in this audience who have the power of the pen, and I also see a few who have the power of the purse. If you share the principles I have laid out tonight, I encourage you to articulate a better course for our country, a course for which Hamilton would be proud, and assure that America’s best days are ahead of us. Thank you for this wonderful award.