By Phillip Patrick for Birch Gold Group
On Monday, March 20th, President Biden used his power to veto legislation for the first time since his inauguration to counter House of Representatives Joint Resolution 30 (H.J. Res. 30). As a procedural matter, this isn’t huge news – each of the last 4 Presidents vetoed about a dozen bills. Franklin D. Roosevelt holds the record not only for longest time in office, but also for the most vetoes – an astonishing 372 vetoes!.
In England, we really didn’t have such a thing as executive veto power – instead, we have “royal assent being refused,” a tradition of the monarchy simply ignoring legislation they don’t like. Saying no without having to say, “No.” (It’s a very polite nation.)
What surprised me was the subject of his veto, and his explanation for it.
In the President’s veto message, he made it clear that he, not Congress, was looking out for our best interests:
It allows retirement plan fiduciaries to make fully informed investment decisions by considering all relevant factors [to] maximize financial returns for retirees.
If you follow me at all, you know I’m much more an economics person than a political person. But as part of my naturalization process to become a citizen, I learned a little about how the U.S. government works. This particular issue has both political and economic consequences, so I thought it would be worth learning more about.
What did the veto protect us from?
The particular bill (which is the same thing as a “joint resolution”) President Biden vetoed was an amendment to the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule adopted by the Department of Labor’s Employee Benefits Security Administration back in December.
Did you even know there was such a thing? An entire government agency with 1,000 employees whose only job is to administer, regulate and enforce the provisions of Title 1 of the 1974 Employee Retirement Income Security Act? (I didn’t.)
Regardless! Maybe these people do great work. Maybe it’s worth every penny of its 2022 budget of $218,475,000. But I’m not here to gripe about wasteful bureaucracy today…
In essence, H.J. Res. 30 was an attempt to prevent retirement account managers from considering ESG factors when evaluating investments in retirement plans.
And the President vetoed it.
Okay, here’s what really miffs me about this episode: there’s an inconvenient truth about ESG investing (I’ll spoil the article for you) – it doesn’t work. Researchers at both Columbia University and the London School of Economics analyzed ESG investing in the U.S. and the UK and found:
…that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.
That’s it – it doesn’t work. Period. “ESG” investments are actually overall worse than, shall we say, colorblind investing?
Better yet – know why ESG investing doesn’t work? President Biden would never guess, but you might be able to…
The answer? Free markets! The Harvard Business Review explains:
…an express focus on ESG is redundant: in competitive labor markets and product markets, corporate managers trying to maximize long-term shareholder value should of their own accord pay attention to employee, customer, community, and environmental interests. On this basis, setting ESG targets may actually distort decision making.
Three cheers for capitalism!
Let’s look at the President’s rationale again:
It allows retirement plan fiduciaries to make fully informed investment decisions by considering all relevant factors [to] maximize financial returns for retirees.
By definition, if “retirement plan fiduciaries” are really considering “all relevant factors” with the goal to “maximize financial returns for retirees,” they wouldn’t consider ESG investments anyway.
Because, as we’ve seen, they don’t work.
So why is Biden politicizing your retirement investing choices?
Virtue-signaling, but with your money
Virtue signaling is described by the Oxford English Dictionary as:
the public expression of opinions or sentiments intended to demonstrate one’s good character or social conscience or the moral correctness of one’s position on a particular issue.
Here’s what I think happened:
- The GOP got a piece of legislation in front of the President
- He saw an opportunity to score some easy political points by vetoing it (maybe without even reading it) so he could brag about how woke he is
- So that’s what he did
I think the President chose virtue signaling over common sense! Isn’t it clear?
- ESG investing doesn’t work (that’s not an opinion or a perspective, but a well-researched fact established in the public record)
- H.J. Res. 30 was a bill that said, “Don’t do this, it doesn’t work”
- And the President vetoed it!
Whose best interests were served by that decision? Yours?
I think not.
Is this about politics, or is this about investing?
I guess you could say President Biden is defending freedom.
If, by “freedom,” you mean “freedom of retirement plan managers to make bad choices that hurt retirees.”
Honestly, I don’t think even the President gave it that much thought. Because, if he (or his aides) had thought this through, they’d realize the veto meant the President is willing to play politics with your retirement savings.
Maybe I’m naive, but I believe there should be some things that are above such schoolyard nonsense. Your hard-earned money, for example – and your choices for investing for your future.
Peter Reagan wrote an article a while back called Taking the Training Wheels Off Your Retirement Plan. It’s all about how most retirement plans don’t really give you choices.
If you’re like me, you probably aren’t content with the handful of choices made by a faceless bureaucrat in an office somewhere – whether or not they choose “ESG” options.
There’s one way to take control of your retirement savings that I’m a big believer in – and that is the self-directed IRA (SDIRA). We help people diversify their retirement savings with physical precious metals – but that’s not all an SDIRA can do for you. You can choose to own cryptocurrencies, other commodities, real estate and even livestock.
It’s YOUR money! You worked for it, you earned it and saved it. Who gets to decide what’s right and wrong for you, your family and your future?
You? Or President Biden?