Charles Koch Wall-Street Journal Interview on Koch Industries Purchasing Newspapers

It seems as if Charles Koch has confirmed that he is looking into purchasing a newspaper company.  In a Wall-Street Journal article released today. As I mentioned in this post I don’t believe Koch Industries is going to purchase newspaper companies to “control media”. Koch Industries will most likely buy the newspaper companies for what the companies are worth and try to make them profitable over the long term. Koch in a statement said that “there is a need for focus on real news, not news with an agenda or news that is really editorializing”. Koch Industries hired an adviser to look at possible media investments.  Charles Koch stated Koch Industries will not be paying a high price either. According to Koch “[Koch Industries] wouldn’t be interested in putting huge amounts of money in [newspapers] on the bet [Koch] can have a miraculous turnaround”. Koch admits there is a lot to learn about the media business.  Of course Koch Industries will only take on things that make economic sense.

It is interesting that there is so much opposition to having a company purchase a newspaper company.  Apparently, according to this story 50% of Los Angeles Times journalists will quit if the Koch brothers purchased the newspaper. Interesting if these people quit their job where else will they work? The print industry is a dying industry. Technology has reduced the price of data, information, and journalism. Even bloggers like me have been providing news to people (for almost nothing).  Some 500,000 people have signed a petition and protests have occurred in 12 cities to “Save Our News” from the Koch brothers.  I love how the protesters usually have never worked for the private sector and if they did it was “an awful experience”.

I personally don’t believe Charles or David Koch are trying to influence the editorial views of any newspaper they may purchase. If anything Koch Industries is trying to make an investment and assets at a low cost and trying to create value by putting those assets to a higher valued use.

David Koch, Jane Mayer, “A Word From Our Sponsor”, and PBS

This past week Jane Mayer released this article about David Koch. The article tries to portray David Koch has somehow having vast influence and power over the board of WNET. I read some article saying that Ms. Mayer was some type of authority on the Koch brothers. I took somewhat offensive to this as I have written 57 blog posts on the Koch family. To date I am probably the only blogger I have seen that actually has positive things to say about the Koch brothers.  Included in this was a historical net worth of the Koch brothers (1984-present) here, a three part series on the family (part 1, part 2, part 3), and a profile on wild brother Bill Koch here.

Koch in 2000 did have oil spills which lead to a $30 million fine according to this court document. Of course Koch Industries didn’t want to the oil spills as the loss of revenue from the oil spill along with the loss in value of the company (lower future sales because of the spill) would easily exceed $30 million.

Ms. Mayer makes some errors in her article. She refers to Koch Industries as a “huge energy-and-chemical conglomerate”. This is simply not true as Koch Industries as diversified even more over the years according to this article from the Wichita Eagle. Also she claims that the Koch brothers are trying to move the country to the right when David Koch has personally said he is in favor of legalize same sex marriage and I would suspect is more liberal on social issues than people believe (he did run on the Libertarian ticket). Another odd sentence Ms. Mayer states “When Koch joined the boards of WGBH and WNET, it seemed to mark an ideological inroad, enabling him to exert influence over a network with prominent news operation”. What concrete evidence does Mayer have that Koch was able to exert all this influence? According to a source Koch might have donated a seven figure to WNET (of course this is pure speculation). For sake of argument let’s say that Koch was going to make such a donation to WNET. Why would anyone with common sense donate to an organization that was about to release a film that basically denounces the donor?

When I first watched Park Avenue last year I was considering throwing the remote at the television. In the “Park Avenue” film it is stated that Mr. David Koch would leave his Park Avenue residence every weekend loading up his trucks and would never tip. However, for Christmas he would give a $50 check. I find this a little hard to believe because as clearly stated in the NewsMax article David Koch tips 15% which I covered here. This is of course after David Koch has given roughly $600 million to charities (arts, theatre, and medical research) as I mentioned here. The article also laments how public funding for PBS has decreased over the years. It is amazing that PBS is still publicly funded when people like David Koch and James Tisch give eight figure sum donations. I would be willing to bet the rent money PBS would not go out of business if the federal government stopped funding it. People realizing that the organization was not publicly funded would voluntarily contribute to help and support the organization. PBS is also not known to be fair or balanced. Richard Epstein had to school PBS reporter Paul Solman on why income inequality isn’t such as bad thing.

The article then tries to falsely convince readers that David Koch somehow had enormous power over the board of WNET when he was just one of 35 members. The article then goes on to talk about Citizen Koch and how producers of the film Tia Lessin and Carl Deal tried to pitch the idea to Independent Television Service (ITVS) (which is actually a group of independent filmmakers) said that the title of Citizen Koch would be a problem. Also ITVS stated that the documentary was not balanced and suggested certain changes be made. ITVS was funding Citizen Koch. At the end of the day ITVS (which to my knowledge David Koch is not associated with nor funds) did not fund Citizen Koch because the filmmakers Lessin and Deal didn’t want to conform to the changes. This is like if you are an artist and someone asks you to make changes to your painting and you refuse to do so. If you don’t make the changes you don’t get your funding.

Even the review magazine Variety said Citizen Koch had “too many plot strands”. IMDB reviews currently give it 5.6/10 which is pretty awful. The article tries to somehow link David Koch to Citizen Koch getting squashed which is pretty ridiculous. The implications of the article are that David Koch had so much power he was able to get Citizen Koch squashed even though it was ITVS who decided to pull funding for the documentary. David Koch was on the WNET board of trustees and was only one of 35 trustees. By definition this means that David Koch only held less than a 3% vote.

Assume David Koch has one vote. According to the WNET board of trustee website there are 35 board of trustees which would mean that David Koch only has less than 3% of the vote. David Koch decided to resign from WNET’s board of directors on May 16, 2013. 

Dr. Ben Powell on the Case For Sweatshops

Dr. Ben Powell who is now at the Texas Tech Free Market Institute in Lubbock, Texas.  He makes the excellent case that sweat shops are maybe not as bad as people believe. In economics you always have to compare jobs to alternatives. I love how he schools people in the Q&A (economically illiterate) on how economics/businesses really work. 

Medical Students and Medical Schools 1903 vs. 2013

Medical Students in 1903: 26,147
Medical Students in 2013: 75,000
Population in 1903: 80.6 million 
Population in Present Day: > 315 million



Medical Colleges in United States in 1903: 154
Medical Colleges in United States in 2013: 141

Source for Graphs

New York Times Doesn't Understand Why Cancer Drug Prices Are Over $100,000

I recently read this New York Times article and was quite irritated. The story is about the high cost of cancer drugs. Even the American Society of Hematology said we need to lower the price of drugs in order to save lives.

The New York Times fails to understand why the drug prices are so high. First, the FDA makes it very costly to get a drug to market to help people. Phase I, II, and III trials have to be done. Even after the drug is approved the drug has Phase IV where the drug company monitors adverse reaction. As I mentioned in this post the number of patients required for cancer trials has drastically increased over the years which has made the cost of doing clinical test extraordinary. According to Tufts Center for Study of Drug Development the cost of developing just one drug has increased from $100 million in 1975 to $1.3 billion (both in 2000 inflated adjusted dollars). Meanwhile the number of patients required for clinical trials has increased over 160% (between just the 1970’s and 1990’s). Avik Roy from Forbes pointed out that 90% of the costs occur in the final phase (Phase III) of the clinical trials. A drug once it gets into Phase I has about less than a 16% chance of getting approved (note that drug companies test thousands of different compounds before the drug even goes into Phase I trials). So drug companies are spending $1.3 billion and have an 84% chance of their drug not getting approved. This is why they have to charge more for the drugs that do actually get approved. 

Dr. Brian Druker of the Knight Cancer Institute at Oregon Health and Science essentially does not like the profits drug companies are making and asks the question “if you are making $3 billion can you get by with $2 billion”. The profits drug companies make are used to research and develop other drugs. The reason why drug companies have profits are because they invested billions of dollars to develop drugs. Drug companies can’t sit idle with just a few good patents they have to constantly be innovating and developing newer drugs. Actually the FDA makes this worse because the general patent on a drug once it is approved is 10 years. I would be okay with shortening this patent life to say 5 years if the FDA allowed drugs to be marketed once they passed Phase I clinical trials. Phase I looks to see whether the drug is safe (which is what doctors and patients care about most). Researchers, individuals, and doctors can on their own figure out if the drug is effective (given everyone has a different body, different cells, and different DNA). If you shortened the patent life to 5 years and allowed drugs on to the market after Phase I clinical trials you would see a sharp decrease in the price of drugs. In an odd way the FDA does make drug companies riskier. If the FDA were to increase the number of drugs approved, and also shorten the patent life then drug companies would have a more diversified portfolio since they would have more products on the market (and not have to rely on just one or two drugs).

Doctors and the New York Times forget many horrible conditions have at least some form of treatment that is much cheaper than the $100,000 drugs. Many drug companies offer assistance programs to patients who can’t afford their drugs. True the alternative may not be as good as these new drugs but until the drugs go off patent they will be high. Somehow people want to live in world were we have first class health for a low price. I suggest the New York Times take an economics class at George Mason University.  

David Koch on Shen Yun and Giving to New York American Ballet Theater

So in a recent video interview with NTDTV David Koch called the work of Shen Yun "inspirational and put him in a good mood". David Koch donated $100 million to the New York State Theater (which they renamed after him). David Koch has been attending the theater for 45 years (he is now 72). Koch has always said he loves the athleticism of the ballerinas, good music, and attractive women. Speaking of women David Koch was quoted saying "When you have spent as many years as I did begging girls for favors you'd have bad knees too". David Koch has had his knees artificially replaced, his prostate removed, in addition to having 10 surgeries at the New York Hospital of Special Surgery (he also donated $25 million to them). 

Speaking of dancing the only dancing David Koch did was at discotheques according to this Bloomberg story. Koch for years was giving $500,000 to the New York American Ballet Theater. He was so generous he gave $2.5 million for the Nutcracker production. Even Koch's daughter was taking lessons at the School of American Ballet in New York.

I am not really sure why so many people think David Koch is such a bad person. He is a prostate cancer survivor, father, generous donor to the arts, sciences, and cancer research. Although, people may disagree with his policies does David Koch really seem that evil?

President Obama $3 Million IRA/401k Limit

Since I work in the financial industry when President Obama recently announced that he would cap the amount you could have in an IRA/401k plan to $3 million. The $3 million dollar amount was calculated by saying if you received a $205,000 annuity from the time you retire until you die how much money would be needed. However, there are a few problems with this calculation. First, as interest rates change the annuity required would also change. Second, as people live longer the amount required may substantially increase as people require more funds to live. This boneheaded proposal would only bring in $9 billion over 10 years which is not much given the budget is over $3 trillion. According to data from, Employee Benefit Research Institute as of 2011 only 0.03% of IRA accounts were greater than $3 million. By the end of 2012 .0041% of 401k accounts held more than $3 million.  

What is really insane is that this would hurt just regular people who save on an annual basis. Assume someone started an IRA with just $1. Then assume they invested $10,000 in their IRA every year for 45 years. Assuming they earned just 8% per year they would end up with $3.8 million. What also is forgotten is that required minimum distributions force people with an IRA/401k to take out distributions every year after a person reaches 70 1/2. The person is then taxed on that income at ordinary rates. So once Mitt Romney turns 70 ½ he will have a huge tax bill (he will pay ordinary income on all of that income as well-no capital gains).

Honestly, I don’t even know how this would be implemented. If someone had $2,999,999 million dollars and they get a $2 dividend check will you be denied $1? This truly is a confiscation of wealth. If people work hard and voluntary save their own hard earned money why should the government limit how much they can save?  

Koch Brothers: Annual Retreat and Why They Are Decent People

This upcoming week (April 28-29, 2013) Charles and David Koch will be holding their annual retreat in an undisclosed location in Palm Springs, California. Personally I wish I was going.  This will be the 10^th anniversary of holding such retreats. Normally the retreat is held in January however Charles Koch announced he wanted to push it back until April in order to review the election data. I like reading reports about how this is the Koch brothers “secret” retreat. For one the Koch brothers are private citizens and can do as they please. If people want to get together and talk about how to give everyone more liberty, freedom, and in the long run make everyone wealthier I see no problem with that.

ThinkProgress linked the agenda for the 2011 meeting here. I must say I would actually pay to go to this meeting. Speakers include Charles Koch, Peter Schiff, EconTalk host Russ Roberts, AQR Capital Management Cliff Asness. Really this event is more of a free market rally than a secretive meeting. The schedule looks like Monday and Tuesday were filled with free market thinkers that go from 7:30 A.M. to 9:30 P.M.

On the agenda this year is to discuss how to get more Latino voters involved as well as women. Also younger people are also going to be targeted.  At least Charles and David Koch are trying to understand why Republicans lost and figuring out how to fix it. The message of personal responsibility, free markets, and individual liberty shouldn’t be too hard to sell. However, when people get transfer payments from the government in the forms of subsidies, welfare, corporate welfare, or other sources it makes them dependent on government.  

The criticism of the Koch brothers is usually nonsensical. It usually goes something like this…”The Koch brothers pollute, are greedy, and buy politicians government”. Let me take this point by point. If the Koch brothers really did pollute why have they a) been receiving environmental safety awards  (most of these awards were granted by government agencies and not outside parties, b) the pollution data from even the EPA has shown a decrease in pollution for multiple decades. In fact carbon monoxide has decreased 61% (from 1980 to 2009). Sulfur dioxide between the same period decreased 65%. Lead decreased 97% as well. The evidence is against people who claim pollution has rapidly increased. Also do people realize Charles and David Koch breathe the same air as the rest of us? Now let me move on to the next point of greed. Charles and David Koch most likely work more than 60 hours per week based on everything I have seen. As I mentioned in this post David Koch works 10 hour days (it should be pointed out he is also in his 70’s). As I mention in this post Charles Koch was known to work all the time and once had a meeting that started at 4 P.M. and didn’t end until after midnight. Everyone was happy once Charles got married because it meant they had to work less on the weekends. I know people have an image of the Koch brothers as Scrooge McDuck swimming in money. However, they are men that run a multi-billionaire company. For the Koch brothers to say they are for free markets really means even the Koch brothers want more competition (which would actually reduce their profits). However, the reason why I believe the Koch brothers are in favor of free markets is because they understand what creates prosperity and an improved condition for human life. The last time I checked too more countries were trying to orient themselves towards free markets. My post on Market Based Management explains this more.  To answer the last point, no one can purchase a politician. You can give infinite amounts of money to politicians and they can buy the best ads, hire the best consultants, and still lose. People forget Republican Bob Doll in the 1990’s spent an extraordinary sum of money and still lost. At the end of the day millions of people are voting for who they prefer. However, as we saw in this last election cycle politicians are in the business of granting favors. If the 2012 election were held in the 1990’s there would be less of a chance we would have had the same outcome. The rising dependency of government explains the outcome we received.

Personally I hope the Koch brothers each publish an autobiography to explain to people what their lives were really like instead of history writing its own story. The Koch brothers are decent human beings who created  and grew a company, have given hundreds of millions of dollars to the arts, sciences, and cancer research, and have tried to sold their fellow man/woman on why free market capitalism is truly the best path to prosperity. 

Koch Industries, Chicago Tribune, and Market Based Journalism?

So for some reason the Koch Industries can’t seem to stay out of the news. The story was first broke here by the New York Times (I still can’t believe Paul Krugman is on that payroll). As you may know I have covered the Koch brothers extensively as I did a historical net worth analysis from 1984-2013 here, an extensive three part series on them here, here, and here. I always find it mysterious when people say that the Koch brothers are secretive when they agreed to this 37 pages profile in the Wichita Eagle from 1994 and this recent extensive series from the Wichita Eagle from last year, and this Forbes cover story last year. Charles and David Koch are American heroes in my book for building a company that employees 60,000 people, preaching how the free market can help people, and becoming billionaires by offering people products and services at high quality, and low prices. 

Basically as the story goes the Tribune Company which owns papers such as the Los Angeles Times, the Chicago Tribune, and other newspapers is expected to release their financial data. There are rumors that Koch Industries is interested. The total value of all the papers is $623 million (the Tribune itself is an $7 billion company). Daniel Fisher of Forbes estimated that Koch Industries has around $11 billion per year in cash flow (before taxes and depreciation). Koch Industries has revenue of $115 billion per year. Clearly, Koch Industries could purchase the Tribune Company. The question is what would Koch Industries do with it?

Koch Industries recently provided $240 million to American Greeting to take the company private. The investment was made by a subsidiary of Koch Industries which actually tends to invest companies (however they don’t operate them).

I honestly don’t believe Charles and David Koch will buy the Tribune Company and turn it into some Fox News themed newspaper. Koch Industries has a history of investing in companies for the long term as was pointed out in the December 2012 Forbes article. It may actually surprise people that Koch Industries doesn’t just milk companies for profits and turn them around to resell them. The company often invests for growth and profits over the long term (which one could make the argument is the morally right thing to do). Market Based Journalism would be interesting though. 

Dr. Devi Shetty: Higher Quality Heart Surgery, Low Prices, and Making a Profit

I was thrilled to see this article showing for only $800 you could get heart surgery in India. However, the article is a little misleading since the average price people pay is $2,000. The average cost for doing a heart bypass operation varies around the world. In the United States the cost is $144,000, while in Mexico the cost is $27,000, and just $14,000 for the same procedure in Colombia.  You might be surprised to know that an actual individual entrepreneur doctor is able to do this. His name is Dr. Devi Shetty. Dr. Shetty runs a hospital named Narayana Hrudayalaya in India. The hospital has 5,000 beds and Shetty wants to expand this to 30,000 beds.  What is interesting is that the hospital performs more surgeries than first rate hospitals in the United States and still maintains high quality. For instance Narayana performs twice as many surgeries as the Cleveland Clinic. The mortality rate is very low at 1.4% which is less than the United States rate of 1.9% (and even less since the hospital doesn’t adjust for risk factors like the United States does). The heart facility in Bangalore does 30 cardiac surgeries a day (more than any place else). The same place also handles 1,000 walk in patient per day.

What is really interesting is that the hospital is for profit. The company has a profit margin of 7.7% profit after tax which is higher than the average profit margin in the United States of 6.6%. It always amazes me that people claim hospitals are greedy. If hospitals are so greedy why are they only making profit on less than 7 cents out of every $1? Dr. Shetty finds ways of reducing his costs like using cheaper sutures which saved him $50,000. He points out that you have to find many different things to cut.  He pays nurses to watch over patients in 8 hour shifts but doesn’t allow them to sit down. He claims that nursing efficiency decreases 30% if a nurse is provided a chair. He even hires people with a college degree to read radiology charts. What is fascinating is that Shetty has real time performance measures. Every day doctors can see the profit and loss statement from the prior day which would be unheard of in an American hospital. Not only can Shetty see the profit and loss statement he can also see how many surgeries were done the prior day in addition to how many surgeries were done for the month. If earnings fall below a certain amount they tell the people with free surgeries to come back until they get more paying customers.

It is too bad that Dr. Shetty couldn’t set up shop in the United States. For one his hospitals don’t have air conditioning in most parts of the hospital which would not even be allowed in the United States. Shetty plans on building a hospital in the Cayman Islands.  The United States would greatly benefit from hundreds of hospitals like the one Dr. Shetty has created. The cost of heart bypass in the Cayman Islands will only be $10,000 in the Cayman Islands.

The United States should recruit Dr. Shetty on how to reduce healthcare costs. I actually think many people would be open to business model of charging people with money for surgery and using that money to provide for those that can’t don’t have the means to pay for surgery. While at the same time on the whole the hospital would be making money which would allow them to grow and provide care to even more people in the future. I have feeling some people would still object to this.