Hi Guys,
In our dynamic Capitalistic society change is inevitable. Austrian economist Joseph Schumpeter recognized its dominant characteristic when he penned the term “creative destruction”.
The economists of the past recognized the tight linkage that exists between economics and government when they termed their emerging science as “political economics”. Adam Smith was a Political Economist. That was no accident. It is a daunting challenge to separate politics from economics.
The coupling between economics and politics is self evident with the citing of just a few uncontroversial statistics. The government share of GDP is now well over 20 %; it is a major GDP component without producing any recognizable consumer product or value added enhancements. Tax structure, rules, and regulations directly impact business decisions and employment levels. Government policies matter greatly.
It is important to remember that neither the big-government Keynesian nor the small-government Austrian economic philosophies promote end-point polemics. Neither advocate monarchies or anarchies. They both are on the scale between these nonstarters. Both economic policy wonks and political party camps gravitate between these book ends depending on the special situational circumstances and the particular proclivities of the candidates competing for office. Often, our most perplexing question is “who do you trust, baby”.?
One definitive way to illustrate the power of government is through the Laffer curve, which was made famous during the Reagan era. Here is a Link to an excellent summary of it by the man who popularized it:
http://www.laffercenter.com/arthur-laffer/the-laffer-curve/The curve is conceptual in character and is designed to simply “illustrate the tradeoff between tax rates and the total tax revenues actually collected by the government”. Note that the curve is double valued with increasing tax rates generating more revenues until a tipping point tax schedule. When that tipping point tax rate is exceeded tax revenues decline as the higher taxes act as an economic disincentive. The controversy is about the identification of the precise tipping point tax rate.
Certainly my own concepts of the way the world works has changed as I matured and gained experience. When I first voted in the Presidential elections of 1956 I favored Adlai Stevenson over Dwight Eisenhower. I was solidly educated under the influence of the government pump wisdom of John Maynard Keynes over the free market concepts of Ludwig von Mises.
Since that 1956 starting line, I have voted for 6 Democrat candidates, 7 Republican hopefuls, and even 1 Libertarian. Some people might consider that a schizophrenic pattern. You guys might be surprised that in 2000, I honored Libertarian candidate Harry Browne as my Presidential choice. I will never again waste a vote along pure ideological lines. Browne recently passed away, but he was a highly respected financial advisor who wrote “Fail Safe Investing” and was the originating brains behind the Permanent Portfolio mutual fund.
From my voting record, it is obvious that party loyalty is low on my selection criteria list. My highest priority and most heavy weighing is placed on softer, subjective elements like practical problem solutions, honesty, and trustworthiness attributes. Among these my trust assessment dominates.
Some noteworthy sayings eloquently define my thinking on these matters. Here are a couple: one from a World War leader, the other from a less well known Southern Baptist preacher-man, organizer, and author.
From Winston Churchill:
"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."
From Dr. Adrian Rogers:
"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."
As a general characterization, I am a conservative, smaller government protagonist. But I fully acknowledge that a completely conservative federal government does not automatically deliver superior investment rewards. I respect and listen to the other viewpoints.
The historical data in this regard is very clear: a mixed government statistically produces superior investment returns. Here is a Link to one data collection format that clearly illustrates this factoid:
http://www.cxoadvisory.com/4036/political-indicators/revisiting-party-in-power-and-stock-returns/As usual CXO Advisory Group does an excellent job at summarizing the statistical data sets. Enjoy.
Here is a Link to an even simpler presentation chart of the marketplace returns data as a function of political party control:
http://www.globaleconomicandinvestmentanalytics.com/archiveslist/investment-research-tv-index/927-stock-market-returns-by-political-party-coFrom the singular perspective of an investor, a mixed party power structure is attractive. Of course, that is likely not the case when considering expanded measures of government performance.
Although the statistical data are, in fact, the uncontroversial baseline data, the private interpretations of those data sets are always open to diverse opinions, conclusions and debate. Usually, all the various positions have some merit.
The referenced data sets clearly show that a Democratic Presidency when coupled to a Republican Senate and House generate highly attractive equity returns. That’s the raw data; you can exercise your individual interpretations with whatever instincts, insights, perceptions, prerogatives, and biases you choose to introduce into your decision process. That’s solely your private task, but also your duty as an informed citizen. Just not remember to vote, but to vote with the attention that you devote to your portfolio.
For us, at this moment, we’re watching, waiting for developments, keeping our powder accessible, and our options open. At this time, we are carrying a higher percentage of cash, short-term corporate bonds, and several Guaranteed TIAA Traditional account positions than we normally do in our family portfolios. TIAA-CREF still contracts for guaranteed returns at a 3 % floor level for those clients who qualify to do business with them.
It is likely our family portfolios (which are managed as a single, integrated entity) will change either just before the election date, or just after it, depending on evolving circumstances and election odds. Regardless of the election outcome, the changes will be relatively modest; we do things slowly and in moderation in our household.
So, “Who do you trust baby”?
I wish you guys success with your individual plans this critical election year. Good luck to all of us.
Best Regards.
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