Sandy Hook School Shooting

Silly Taxpayers! Only Government Should Invest in Gun Companies!

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Bully

So, we've already established that the gun-hating government of New York has spent nearly $6 million in taxpayer money to subsidize the New York-based Remington Arms Co., which manufactures the politician-hated Bushmaster rifle used in the Newtown school shooting. We know that New York is part of a group of states (including Arizona, Arkansas, Florida, Kentucky, Maine, Massachusetts, New Hampshire, and Oklahoma) that has doled out more than $19 million in subsidies and targeted tax breaks to gun manufacturers over the past decade.

In between gifting gunmakers and trying to outlaw their products (or I should say, their competitors' products; we can always carve out exception for hometown factories, amirite Joe Lieberman?), politicians are now pressuring state-run pension funds to disinvest from gun manufacturers, and even using their bully pulpits to shame the banks that lend to them. From the New York Times:

Fresh from persuading a $5 billion pension fund in Chicago to divest from companies that make firearms, the city's mayor, Rahm Emanuel, on Thursday urged the chief executives of two major banks to stop financing companies "that profit from gun violence."

Mr. Emanuel sent letters to TD Bank, which provides a $60 million credit line to Smith & Wesson, and to Bank of America, which provides a $25 million line to Sturm, Ruger & Company, asking the C.E.O.'s to push the companies to "find common ground with the vast majority of Americans who support a military weapons and ammunition ban." […]

New York State's big public pension fund and California's fund for teachers have already frozen or divested their gun holdings, and California's fund for other public workers, known as Calpers, is expected to take up the issue in February.

The only Dirty Dozen worth talking about

New York City's public advocate has put pressure on banks and investment firms by ranking their gun holdings by size and calling the companies with the 12 biggest stakes the Dirty Dozen.

"Elected leaders understand that this is a tool of government with huge ramifications," said the public advocate, Bill de Blasio, who is a trustee of the city's $45 billion pension fund.

This is precisely why we need to give the Bill de Blasios of the world smaller "tools." The more government takes, regulates, and manages your money, the more it is guaranteed to offend your values, often in the name of protecting them. And the more it is likely to squander the money in question.

As Jon Entine wrote in a prescient February 2009 Reason cover story,

KMW's favorite cover ever?

State, local, and private pension plans covering millions of government employees and union workers with "defined benefit" accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations. […]

Traditionally, public investments and union-based corporate pension funds were managed according to strict fiduciary principles designed to protect workers and taxpayers. For the most part they invested in safe government securities, such as bonds or U.S. Treasury bills. Professional managers oversaw the funds with little political interference.

But during the last 30 years, state pension funds began playing the market, putting their money into riskier and riskier securities—first stocks, corporate bonds, and foreign investments, then real estate, private equity firms, and hedge funds. Concurrently, baby boomers whose politics were forged in the 1960s and '70s began using those pension funds to advance their social visions. Investments designed for the long-term welfare of retirees began to evolve into a political hammer. […]

Despite much hype to the contrary, socially responsible stocks, as measured by major broad-based SRI stock funds, have significantly underperformed the market this decade, and some of the most aggressive pension funds that use "responsible" screens—such as the California Public Employees' Retirement System—have taken some of the largest hits.

"Investing in socially responsible stocks just because they are socially responsible is not—underline not—a valid investment thesis," says Steven Pines, a senior investment consultant for Northern Trust. Many of the largest socially responsible mutual funds, including a leading benchmark, the Domini Social Index, have been laggards for years. The Sierra Club's high-profile social fund, which had regularly trailed the benchmark S&P 500 index by about 6 percent a year, liquidated in December, a victim of its poor performance record. As recently as last November, 76 out of the 91 socially responsible stock funds were underperforming the Dow, according to the investment research company Morningstar.

Want to invest in companies that reflect and uphold your values? Fine, invest in companies that reflect and uphold your values. Just don't invest mine.