Tuesday, January 15, 2013

“And Now Let the Wild Rumpus Start[1]”: Where the Firearms A


“And Now Let the Wild Rumpus Start[1]”: Where the Firearms Are

I’m not terribly optimistic about the prospects for meaningful regulation of firearms or ammunition.  Moreover, I believe the National Rifle Association gets far more credit or blame than it deserves.  It’s true the NRA is vocal and makes provocative statements.  It’s also true that they precisely target their campaign contributions to reward supporters and punish opponents.  However, its demographics and finance are the major reasons that little of substance is likely to transpire.

Let’s begin with the financial reasons.  Late last year I wrote about the decision by the private equity firm Cerberus to sell the gun manufacturer Freedom Group.  Cerberus has started the process by appointing Lazard to handle the auction.  Cerberus will merely wash its hands of the investment, and Freedom Group will wind up in the hands of a new investor who will milk the company for its cash flow. 

Cerberus’s investors, the institutions that could have an impact on the firearms industry, have taken one of two approaches.  Most investors have remained completely silent, and a few like the California pension plans, have talked about divesting their firearms holdings.  CALSTRS, the California Teachers’ pension and a major investor in Cerberus, acted last week by announcing the divestiture of its tiny stakes in Sturm Ruger & Co (NYSE: RGR) and Smith and Wesson Holdings (OTC: SWHC).  While CALSTRS Chairman and the State’s Treasurer made strong statements about gun control, CALSTRS is merely following Cerberus in washing its hands of firearms and ammunition.  The pension plan has done little more than issue a great press release that other State pension plans may choose to borrow.

Rather than using their financial clout to reign in US firearms manufacturers, institutional investors are just walking away.  After falling sharply in the wake of the Newtown shootings, the two publicly traded stocks have started to rebound in a sign that business as usual is returning to the gun industry.

Miscellaneous Meetings (1997)

Turning to demographics, I’ve been interested in figuring out where the guns are in the United States.  While I couldn’t find good data on gun ownership, I did find the FBI’s state-by-state statistics on background checks for the past 12 years.  We can get a much clearer picture of where the balance of power lies on the question of guns by adding census data to the FBI’s numbers and throwing in the NRA’s ratings for our US Senators.  The table below sets out a pretty good case that our senators aren’t voting a certain way because of the NRA, but rather they are reflecting the gun purchasing habits of their constituents.  The NRA, in turn, is feeding off this trend.

On average there have been 43 background checks for every 100 Americans in the past 12 years.  If you exclude some 75 million people under the age of 18, the figure jumps to 63 checks per 100 adults.  The data gets interesting when you look at the distribution across states.  For example, Kentucky’s citizens had 341 background checks per 100 people, and Wyoming and Utah followed up with 108 and 104 background checks per 100 people.  By contrast, New Jersey and Hawaii only had 7 and 9 background checks per 100.




When I add the NRA’s ratings into my little database (taking the average rating for each of the two senators per state), you see the tendency of Senators to vote with the NRA where the citizenry is actively purchasing firearms.  The 21 states where the Senators have an average rating of B or better required 80 background checks per 100 people, while the 15 states with a D or lower rating required only 36 checks.  The 14 states where the Senators had an average rating of C necessitated 58 checks by the FBI.  Interestingly, most of the states where the Senators are in the middle of NRA’s grades were battleground states in the last Presidential election.[2]  It turns out that the Senators and the NRA are merely following the constituents.  The math would suggest that there is less than a majority in the US Senate for meaningful gun control, and certainly not enough votes to invoke cloture if there’s a filibuster.[3]

If big investors aren’t going to bring pressure to bear on arms manufacturers, then politics will likely rule, and the folks with guns have the votes.



[1] Maurice Sendak, Where the Wild Things Are (1963)
[2] President Obama carried 27 states including Washington, DC and the average number of background checks was 43 per 100.  Governor Romney won 24 states where the average number of checks was 70 per 100.  Pennsylvania, Colorado, and Illinois were three states that the President managed to carry despite an above average number of background checks per capita.  In each of those states, I’d bet that the highest number of background checks came from areas that look more like Kentucky or Wyoming.

[3] If my math is approximately correct, there are only 30 solid votes for gun control, 42 against, and 28 in the middle.  Even if the Senators from state’s with a modest number of background searches split, like Florida (Nelson (D) and Rubio(R), it looks like tough sledding.  For gun control proponents this math is hard to swallow, because a majority of the population tends to come from state’s with well below average numbers of background checks.

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