Spotlight Weekly – Milton Friedman Strikes Again

Once again, we have a disaster with roots going all the way back to economist Milton Friedman.

It was a ticking timebomb in some portfolios.

In the 1970s, the business world embraced economist Milton Friedman’s theory that a business only existed to make money for its shareholders. Here’s what he said:

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

The problem with this idea is that corporations cut corners on safety, to maximize profits. This is how the BP Deepwater Horizon disaster happened. It’s how the BP Texas City refinery exploded. It’s how the Union Carbide plant in Bhopal, India killed nearly 4,000 people.

The list is long, and it just gained another member. On February 3, a Norfolk Southern train, carrying hazardous materials, derailed in East Palestine, Ohio. A bearing overheated on one of the 150 cars on the train.

The Rail Workers United organization commented on the crash:

There is no way in the 21st century, save from a combination of incompetence and disregard to public safety, that such a defect should still be threatening our communities.

The crash will have a material impact on Norfolk Southern’s shares

The company will be at the center of controversy for months. I expect the company to have to pay out tens to hundreds of millions of dollars.

This is the kind of risk we take by owning giant old, legacy operators who still cut costs everywhere they can. We recommend our readers take long, hard looks at any holdings like Norfolk Southern.

They can be ticking timebombs in your portfolios.

Best regards,

Matt Badiali