Buying Mexico: Not As Hard As You'd Think!

Yesterday I reviewed some of the reasons why it is in the best interests of Mexico and the United States for our country to purchase our southern neighbor. We could discuss the reasons at length, but there is no more compelling justification for why this must be done than a simple trip across that very border.

Moving south into Mexico one is struck with how quickly prosperity turns to poverty. Although no real geographic advantage is afforded to the U.S border states of Texas, New Mexico, Arizona or California, one could be excused if they were to think there was some awful disadvantage to Mexico’s location in North America. The reality, of course, is the exact opposite. By virtually any measure Mexico has the happy advantage of bordering the world’s most successful country, and this fact alone should provide outsized advantage to Mexico relative to other locations. Just as real though, is the sad truth of how one country’s government can so utterly fail its own people.

We must buy Mexico.

Before we go further, I should mention that the inspiration for this series posts (beyond the idiotic demonstrations of the preceding week), is an article by Mr. Walter Mead that appeared in Esquire Magazine somewhere in the early ‘90’s titled, “Let’s Buy Siberia!” I’ve Googled high and low for a copy and have been unable to find it, but I do believe that the model described by Mr. Mead serves as a decent proxy for what I am talking about here. If you can locate it, it’s a worthy read and I sure would appreciate a copy.

As I said in yesterday’s preview to today’s post, buying Mexico seems to be a difficult proposition, but I suspect that from a financial point of view it really is not that daunting of a challenge. True, there are cultural concerns on both sides; fear of the unknown for both sets of citizens and a general preference for the status quo, but I think these can be overcome if we get the numbers right.

The numbers, of course are daunting. Mexico’s current GNP of $700 billion would command a hefty price tag. To come up with a price (attention Mexico this is for illustrative purposes only and not an offer to purchase. Mr. Pursuit, Pursuit Worldwide Inc., and its employees shall not be held responsible for any offer implied or otherwise) I’ve employed some basic present value analysis. My assumptions are as follows:

Our investment horizon is 20 years (value after that is the result of new owners’ efforts)

Mexico GNP remains flat at $700B during this period

Discount Rate: 6%; admittedly high, but this is buy no means a risk free deal

Popping these numbers into my handy Excel spreadsheet I’m coming up with a value for Mexico of approximately $8Trillion. Whew! That’s pretty rich for an underperforming country, but don’t go all weak kneed on me and suffer the vapors – lets think this one through. Yes, I admit this would require an extraordinary expansion in our public debt but we must remember that unlike so much of our existing publicly held debt this issuance would actually be paying for value producing assets! In fact, our payback on existing GNP alone would only be a little over 11 years, not so bad.

Of course, I have not factored in any negotiation on this deal and I’d recommend that we low ball these guys because my guess is that Mexico is a buyers’ market. Think about it; how many countries out there would have an interest in purchasing Mexico? Certainly the U.S. is one and others might be Spain and Brazil, after which interest falls off pretty fast. Given that group, Spain is really the only other country that might be able to pull off such a deal, but the truth is that this is extremely unlikely.

In other words, it’s good to be the deep pockets guy when you’re on offense and the happy result is that I think we can negotiate this baby down to $5trillion, which still represents a fine deal for the sellers since the benefits for Mexico would be profound:

We would pay off all of the country’s externally held debt of $174B

A majority of the remaining purchase price would be used to upgrade public infrastructure

A cash rebate would be paid to Mexico’s 105 million citizens.

The legal system would be brought up to par with America’s system

The government would be reformed into a two party system with American style checks and balances

The U.S. greenback would provide a stable currency, controlled by the Fed

This is just the beginning; the economic benefits that would accrue to ordinary Mexicans would change life as they know it today. To estimate the impact we only have to look at NAFTA’s impact to see what complete removal of the border might accomplish from an economic point of view.

Since NAFTA passed over 10 years ago the economic landscape of Mexico and the U.S. has changed substantially. Trade between the two countries has tripled to an annual number of $252B. Over the past ten years American manufacturing output has increased 41% as compared 34% during the ten years preceding NAFTA. Worker productivity has been positively impacted in both countries and Mexico’s economy has become more market based than it was prior to NAFTA.

Still, more can be done, and by purchasing Mexico we’d accomplish this feat with one simple act. Annual U.S. investment in Mexican manufacturing now stands at $1.9B. This compares unfavorably to both the $230B we invest annually in our domestic manufacturing base, and that which we invest in other countries. Eliminating the border between the two countries, and establishing greater legal standing to private property rights for both Mexican and U.S. entities would have the affect of multiplying this investment substantially. U.S. companies and private individuals would be encouraged to allocate their capital as efficiently as possible in both locations of the newly expanded U.S. providing real jobs and opportunity for all. As we all know, while it may be truth that sets you free, access to capital and efficient investment are what make that freedom a beautiful thing.

The question is how much opportunity can we create and how do we measure the impact this change would have on Mexico? For the answer I suggest that we look north to Canada. While not a perfect analogy Canada does have the benefit (for analogy purposes) of sharing a border with the U.S., and having an economy that is based on both natural resources production and manufacturing. It does have a modern financial and service sector as well, which represents the future of how Mexico would develop as the economy grew and became more sophisticated.

There can be no question that Canadians have done marvelous job of taking advantage of their co-location with the U.S. and the fact is that over 90% of the Canadian population lives within 100 miles of the U.S. border! Our businesses trade easily, our cultures mix, and investment in goods and services is efficiently allocated between the two countries. Sadly, for a variety of reasons, Mexico hasn’t faired so well and the results are found in some startling GDP numbers.

Compared to Mexico, Canada’s GDP per capita is approximately three times that of Mexico’s; $31,000 annually compared to $6,700. Canada has achieved this mark and become the worlds 7^th largest economy because of its solid support of private property, its stable currency and predictable governance. With the purchase of Mexico it is not unreasonable to expect that the U.S. would implement the same reforms with similar results over the course of our 20 year investment horizon.

And the results would be astounding. Were Mexico to simply move into line on a per capita basis with Canada – ignoring “normal” growth and population expansion, Mexico’s GDP would increase to $2.3T annually making it by today’s numbers the fifth largest economy in the world ahead of countries such as the U.K., France, Italy, and yes, Canada itself. Remember though, that we would be making Mexico a full member of the U.S. with all the benefits of our legal system, currency, and stable government; something Canada does not have access to. Is it therefore reasonable to think that Mexico might do better than Canada under these relative advantages? It certainly is possible.

Now I’m on to you folks, because I know what you’re thinking: “Well yah, but that growth would just come out of America’s hide and net, net we’d be worse off and they’d be better off. No difference in total”. Shame on you people! Take two Milton Friedmans and call me in the morning! Everyone knows, or at least those with a modicum of sense know, that global economies are not zero sum games. That is, we all know that just because someone wins doesn’t mean that someone else will lose.

Growth is growth baby, and what we would be accomplishing with our Mexican buyout would be providing the Mexican people with an opportunity to realize their full potential. We would be investing capital, making the allocation of that capital more efficient, with the resulting benefit being that Mexican growth would come from their adding increased value to the global economy! The idea that they somehow would be stealing this growth from the U.S. or any other country for that matter is contrary to everything we know about modern economic theory. In fact, given the increased allocation of capital and the addition of a new, fast growing segment of the domestic U.S. market, it is quite likely that we’d see growth rates in the U.S. expand as well.

The beauty part is summed up in two words people: Value Creation. Gosh, I’m almost weepy just thinking about it. Say it with me: Value Creation. Why is that so beautiful? Well yes we would be making the lives of each and every Mexican better but as wonderful as that is that isn’t really it. No, the beauty part is that Mexico, since it would now be part of the U.S., would be increasing in value as part of the United States of Blessed America! In other words, all that new value would be taxable and serve as a source of debt repayment on the five trillion that we borrowed to do the deal!

In other words, we didn’t just buy Mexico; we accomplished a leveraged buyout deal utilizing the lowest cost of capital in the history of mankind! We’d be friggin’ geniuses! Future generations would marvel at our skill and foresight.

And it just gets better. Anybody want to guess the demographics of the Mexican population? That’s right, they’re skewed towards youth. 30% of the population is under 14 and a full 94% are under 65. This matters because we need young workers with long lives ahead of them to help support our baby boom generation in retirement.

Gracias Amigos!

There was a time in America when we thought about expansion. Thomas Jefferson took advantage of Napoleon’s financial problems and executed the Louisiana Purchase and Americans everywhere talked excitedly about our “Manifest Destiny”. The purchase of Mexico could be every bit as important as Jefferson’s coup, and perhaps more so. We just need to summon the courage and determination to make it happen.

Tomorrow: Yes, but what about all of those voters?

Today I Solve Illegal Immigration

It seems to me that there comes a time in every great crisis when the sheer force of human events demands an answer. People of all backgrounds are called upon to stand and deliver and most shrink away and try to hide from responsibility. Some people though respond to the challenge. They recognize problems as opportunity in disguise, and come forth with novel solutions that boldly define the future course of human events.

Today’s illegal immigration issue in the U.S. is one such problem, and I, your good buddy and host, am one such man.

Let’s buy Mexico!

Yup, you read that right. Now is the time for bold moves, for a country as great as ours to seize the day and chart our future course. We have a problem and there is only one peaceful solution, and that solution is to recognize reality and give the people of Mexico what they really want: their own little piece of the American Dream.

I know, I know, this is a completely nutty idea when first considered – believe me, I said to myself, “Gosh Pursuit, have you gone nuts?” All I ask is that you hear me out. You’re probably saying to yourself, “Buy Mexico? Why that would mean expanding our borders, adding a huge number of economically disadvantaged citizens, expanding the gulf between rich and poor in our country, completely re-working the political dynamic along ethnic, economic and geographic lines! It will never work!”

Ah, my panicky friends, I do not deny that the proposal is complex and fraught with risk, but need I remind you that so is our current path? Currently we have millions of undocumented aliens crossing our border every year. We don’t know who these people are, we don’t what they are doing, and yet we provide them with social services, we offer their children who are born here citizenship, and on the darker edge of the issue, some of us exploit their vulnerability. Viewed in isolation, purchasing Mexico does indeed seem risky. Viewed in the context of reality, it becomes, perhaps, an alternative worth examining.

So let’s examine it. First let’s look at what we know. There can be no argument that the country to our south, despite a population of good, hard working people is, by any measure, an economic and social failure. Despite sharing a common border with the most technologically and economically advanced country in the history of man, Mexico has been chronically unable to achieve any level of success that approaches that of the U.S. Numbers do not lie:

o Mexico’s economy is the 9^th largest in the world with a GDP per capita of $6,884

o Yet this wealth is not shared broadly as evidenced by the fact that 53% of its people have an annual per capita income of less than $720

o The CIA Factbook lists 40% of the population as living below the poverty line, although the preceding statistic would suggest this is low

o Unemployment is officially listed as 3.9%, however at least 25% are listed as “underemployed” and U.S. border crossings suggest the problem is much worse

o Growth in GDP per hour has been flat for the last decade, and the gap with the U.S. has been widening for the last two decades (since Carter left office)

o Mexico ranks last in terms of educational attainment of OECD countries

I could go on and on, but you get the idea and none of this comes as a particular surprise. Every American is well aware of the numbers of Mexican citizens that are in our country working to make a better life for both the families that they have brought here, and the families that they send money to back home. While we welcome legal immigrants to this country with open arms, and are grateful for their work in making our lives easier, it is troubling to know that these people from a country separated from ours by nothing more than a legal border have so much less opportunity at home.

I think it is reasonable to assume that were opportunities in both countries similar, Mexican citizens would prefer to remain home and enjoy the land into which they were born. Or, more importantly, were opportunities equal citizens of both countries could move freely across borders trading goods and services, working in markets that most highly value their services, and enjoying the fruits of both of our great cultures. Were our countries on a more even basis Americans would view Mexico as something more than a land of vacation resorts, cheap labor, and illicit drug production.

The problem though, is that the economic imbalance with Mexico not only is not new, it is also getting worse, much worse. As a result we cannot expect the problem to correct itself, and waiting for the Mexican government to serve in its own people’s interest is by all evidence a hopeless cause. The fact remains that we cannot expect to solve illegal immigration from Mexico until the economies of the two countries offer similar opportunities to those looking for work. All the walls, Minuteman projects, border guards, and army patrols in a free world will never keep out desperate people searching for hope in the U.S.

This is why the current debate in Washington confounds me. Our leaders are arguing over various forms of a policy that will lead to the same ultimate end; illegal Mexican immigrants will be granted some sort of citizenship, or road to citizenship for having broken the law to get here. Mexican citizens from similarly desperate backgrounds seeing this, will be even more motivated than before the deal to find a way to get to the U.S. In ten years, we’ll engage in the same debate once more and the circle will become complete.

So something more must be done and the truth is that there is really only one answer:

One way or another we must buy Mexico.

Tomorrow: Buying Mexico; Not as hard as you’d think!

When Two Worlds Collide

On Friday, as I was driving back from the airport my phone rang.

“It’s Cinco de Mayo!”

“Yes. Yes it is.”

“We should get Mexican!”

“Um, ok, why?”

“To celebrate!”

At this point the conversation could have gone one of two ways. First, I could have pointed out that as Americans we really do not have anything to celebrate and further to the point, celebrating a foreign country’s sole military accomplishment (which, naturally, came against the French) really seemed to be a bit contrived. Alternatively, I could go along with ruse, knowing that a fine meal washed down by overly sweet alcoholic concoctions made with Mexican barking juice couldn’t be all that bad.

“Phone in the order, I’ll pick it up on my way home!”

When I arrived at my local Mexican joint the scene was remarkable. As I think readers are aware I live in the whitest of white locales. The Mexican population of our fair town increases quite dramatically each day during the spring, summer and early fall at 7a.m., and recedes again at approximately 3:30. Down the road about a half mile is another town. In this town the population flows are the exact inverse of those in my town and unsurprisingly there are a couple of very good non-chain Mexican restaurants.

It was into one of these places that I went last Friday to collect our dinner. As I said the scene was remarkable. The place was absolutely jammed with happy families from both towns celebrating the holiday. What a country, huh? I mean here we were the most successful country in the history of the world. We started the week with a ridiculous mass demonstration for “immigrant rights” and were ending it with mass celebrations for the independence of the mother country of these very same protesting immigrants!

Look, I’m not completely naïve so I will not for one moment underestimate our fellow citizen’s ability to contrive a reason for the consuming of mass amounts of tequila at the end of a hard week, but still you really have got to be impressed. There, in that restaurant, two cultures otherwise divided by skin color, ethnic background and economic circumstance came together as families for the purpose of having a little fun. Does this happen anywhere else in the world? I doubt it.

I walked in the door Friday night with a smile on my face. There are those who will diminish this experience as nothing more than an artificial moment built off of a fake holiday. “Why I bet those people don’t even know what they’re celebrating” these folks will bluster, and on that point they may technically be right.

Where they’re wrong though is in understanding what was really going on. In that room, as in thousands of rooms around the country last Friday Americans of all ethnicities were finding out what assimilation is really all about. Citizenship doesn’t come with the crossing of borders or the passing of tests. It is not built on protest marches or pledges of allegiance. Citizenship is about coming to this country, working hard and making your own way in this world. It’s about learning that to be a true American one doesn’t have to give up their past so much as they must share it with their new friends and neighbors. Through these individual experiences we build a common history that links us all together, and together we point this country towards our common future.

Tomorrow: I solve illegal immigration.

I've Gone Crazy; I Blame Bush

Talk about pulling a "Full Sully", Andy does himself proud! Check out this little exercise in self delusion from our excitable boy:

"It seems my description of him as not being a "crazed lefty" was wrong on at least one count. But then this administration has turned many previously sane, moderate people into those who want to scream at the dishonesty and incompetence of their own government."

Good News: Andy admits he is fallible.

Not So Good News: He has his ready excuse waiting.

To be candid, I really wasn't even going to link to this since it is pretty much par for the course in the world of Sully, but Jeff Goldstein actually adds some facts to the discussion which I was too lazy to do, and as is typical of the stuff over at Protein Wisdom, does so in a beautiful, amusing and unsparing way.

So, I post, link and hopefully you can be entertained.

The Black Keys

I"m really beginning to like this feature at the Pursuit of Happiness. See, I'm continually plagued by hearing a song on the radio, thinking "gosh I really ought to download that" and then when it comes time to do my downloading thing, I forget all the rockin' tunes that I wanted!

Now though, because you people mean so much to me, I actually take time to make a list so I can decide exactly what I'd like to feature as the weekend's selection. Me, working for you, working for me. Kind of a beautiful circle of life thing.

Today's tune is from a fairly new to me band that I'm ashamed to say came to my attention through a Range Rover commercial several (perhaps a year) months back. I'm sure you've seen it, a big ole Range Rover is driving over rocks and hills and stuff and the great tune "Have Love, Will Travel" is playing in the background.

This, of course caught my attention for two reasons; first the song is just fantastic. Bluesy rock that has the power to melt your face (apologies to Jack Black). Second, while great the song in the context of the commercial simply makes no sense.

"Have Love". Ok, I've got that part "Will Travel". No! No I won't travel! If I've got love, and I'm out there in the wilderness with a Range Rover I can assure you I will find something much better to test that Range Rover's suspension than drive over rocks!

As it turned out, the commercial version of the song was done by The Sonics (great name, that) but by the time I figured this out, I was already hooked on The Black Keys. Sorry guys. So I wanted to share the Black Keys' little diddy, "Have Love, Will Travel" with you today, but sadly I couldn't a video for it. I did find 10a.m. Automatic though, and it is nearly as good, so enjoy.

Into The Heart of Darkness - Again

God I hate this state. I mean I really hate it. It would be so easy to just cut it off, call it a third world country and get on with life.

Yet normal Americans from every corner of the country flock here for reasons that escape my ability to understand. Some come here for Disney World, some for spring break. Others just don't know any better, and most incredibly, some actually decide to spend the final years of their life on this planet in this God forsaken wasteland.

In Florida.

The mind reels.

Still, here I am once again. In had no way to avoid this sojourn to America's cultural back water. Some of the greatest brains in my business are here for the next two days, and I need to be here to glean whatever bits of wisdom I can. Happily, I'm staying here, and I must say for a hotel located in a squalid hellhole of a state, this baby ain't bad.

Tonight after I arrived I dined in the courtyard restaurant and had a delightful meal. Shrimp cocktail, Austrialian Barramundi roasted in a wood burning oven, goat cheese polenta and a couple glasses of white burgundy certainly eased the pain of being in Jethroville.

While the shrimp disappointed, the Barramundi in particular was a real delight. It was butterflied, roasted and served with a pickled corn chowder relish type thingy that worked well together. Now one must ask the question, "why, if you're in Florida would you order a fish from Australia?" Well, the truth is that as much as this violates my basic principles of eating local, my waitress was quite insistant that I go with the Barramundi. Ussually I reject such suggestions as just another lame attempt to move something that ain't movin' well on the menu, but tonight seemed different.

The thing is that when I'm on business trips I often find myself dining alone and I've learned a couple things. The primary of these lessons is that when you go into a restaurant alone, the service staff tends to bond a little bit with you. Now don't get me wrong because I do not like the whole, "My name is Chuck and I'll be your server tonight" thing and generally you wouldn't catch me in such an establishment unless I was stranded in a town where TGI Friday's was considered fine dining. I expect my wait staff to be professional, efficient and most of all properly solicitous. Still, when you dine alone, a good waiter will go a little extra mile to take care of you.

Tonight was no different. As a result I trusted my waitress' opinion and was well served as a result. My only mistake? This weekend the hotel is hosting the Wine Spectators' Food and Wine weekend. What's wrong with that you ask?

I leave Friday afternoon.

The Teeth Were Bad Enough....Now This?!

I could deal with the bad teeth. I mean the truth is we Americans are undoubtedly obsessed with personal appearance and our cultural tradition of slapping braces on every child prior to their 11th birthday has probably reached unhealthy proportions. Really, who cares if a person's teeth are a little crooked? Certainly our English brethren don't.

But this my friends is beyond the pale.....or the bowl as it turns out. Words fail me, so I'll let London's mayor, "Red" Ken Livingstone inform you:

"London Mayor Ken Livingstone lifted the lid on his toilet habits, saying Tuesday that he hasn't flushed in 15 months, according to wire reports.

Livingstone said there was "no earthly reason" to bother if there was just urine in the bowl.

The mayor urged Londoners to waste less water when getting rid of their own waste, advising gardeners to fill up a bucket and hurl it on the plants as the region around London suffers its worst drought in a century.

"If we continue to waste the amount of water that we do, London will run out of water," Livingstone, 61, said."

Red Ken, seen above keeping his kidneys full of liquid, raises a few questions along with those lattes. The first, and frankly most disturbing one is this. Why, after 15 MONTHS is his bowl only full of urine? I don't want to get too personal here, but have his bowels completely shut down? If so, I recommend he take advantage of that marvelous English public health system we always hear about!

My guess though is that Red Ken's bowels are working just fine. Look at that face. I'm not clear on when the picture was taken but he sure seems happy. If he were in the midst of a 15 MONTH BOWEL STOPPAGE I'd expect to see more of a grimace, if not some good old fashioned writhing in pain. We've all heard of the stiff British upper lip, but come on, the man is human after all.

So I suspect something else is awry here.....something very liberal. Ken is nicknamed "Red" Ken for his supposed liberal leanings after all. Lets think, what do we know about liberals, hmmmm........

Well we know they like big government solutions right? Probably not much to go on there. Ok, well we know that they love mis-guided environmental policies, and while this certainly is one such example, it still doesn't explain the Case of the Missing Poop. Hmmmm.....what could it be.

Ah ha! Liberals believe in sharing! The old from each as he is able to give, to each as they need right? Well, I think if we talked to some of Ken's fellow Londoners they'd tell us that the man is full of.........well lets just say he is full of "it". Ok? So, he certainly is able to give, and my guess is he is "giving", in locations that are not his own bathroom!

Imagine the horror then of being this man's friend. Cue dream sequence music.......

"Honey, someone is at the door, who is it".

"Why it's Ken again dear"

"What's he want at this bloody hour"

"Says his toilets stopped again"

"Again?"

"Yes, again. He want's to borrow ours oh dear, and he's got the Times with him"

"Well alright then, but perhaps we should suggest he try something other than bangers and mash for lunch".