The problem for the Democrats is that the policies they prefer don’t lead to economic growth. They should, according to them – but reality has continually failed to perform as Democrats think it should. Regrettably this is typical. And the central problem for them is that they believe that the economy works best when the brilliant (cough) people in Washington direct who succeeds and who loses, rather than leaving important decisions like that to the whims of the market and the free choice of consumers.
As a basic rule, Democrats prefer an economy where they tax those who make smart economic choices and give that money to people who are making less intelligent economic choices. They call this principle ‘investing for the future’ or ‘spreading the wealth’. But taking money away from winners and giving it to losers isn’t exactly a formula for investment success. What’s worse, what they’re really doing is sending a signal to the people making successful choices and telling them that they need to act more like the people who are making unsuccessful choices – otherwise, they (the folks in Washington) will put their thumb’s on the scale to ‘even things out’.
If the Democrats really want growth, then they need to focus on economic liberty. If the private sector is free to keep more of what they earn, there is a powerful incentive created to do more of what works best. And when this incentive is felt by everyone, the result is vigorous economic growth. But for Democrats, this simply won’t do. If people were free to keep what they legally earn, this would result in what they call ‘exploitation’, where one person makes more than another, and those in government aren’t involved in the process at all.
At this point though, we’re out of options. Only economic growth can fix our fiscal problems. And vigorous economic growth cannot be provided by the political left without abandoning their principles of ‘top down’ economic direction and control. So there is the choice for Democrat pols the next election. They can either abandon their leftist ideology and embrace economic liberty to encourage growth, or they can ‘carry on’ and preside over the fall or Rome.
As for the voter’s, their choice is pretty clear too. No one seriously believes that someone like Nancy Pelosi or those lunatics on MSNBC can figure out how to encourage economic growth. So if the voters want to send the country over the economic waterfall, they really only need to turn to the political left one final time. That’s it. That’s all that’s required. If they really believe that ‘top down’, ‘command and control’, socialist economics really is the best direction for the country, then we are looking at the beginning of the end. We will follow in the footsteps of Greece Spain and Italy, on the road to default and economic collapse.
Even if the voters turn to the right, salvation is hardly assured; but at least it leaves us one final chance. We are in a deep hole, and it will involve many years of hard climbing. But economic liberty will at least make it possible. The only other alternative is the economic abyss.
I've written before that the whole purpose of a recession is to teach leftists that it won't actually be 'different this time'. It teaches them what works and what doesn't. But the stakes are much higher now than they usually are. So this next election is our final exam. There will be no other chances. Either we get it right in 2012 and continue on, or we continue to believe that it will be 'different this time' and we head for the economic abyss.
5 comments:
Yep, that's pretty much it. Spent last week in Europe visiting the largest hedge funds and money managers. Some takeaways: 1.) the bloom is well-off the Obama rose (even adjusting for any potential limousine liberals vs. fat-cat "finance" guy bias) 2.) they can't believe the US would be stupid enough to burn the house down, especially given the blueprint provided by their fellow European nations on what not to do
3.) China, and its hard vs. soft landing, was much more a front burner topic for the UK firms than for their US counterparts, and well ahead of Europe's sovereign crisis, oil price, US debt ceiling nonsense, etc.
The over-arching Dem strategy of "It's different this time" doesn't work. It's like betting on the asteroid hitting, only with worse odds.
I know it's 'inside baseball' stuff, by my people are worried as hell about the Chinese hard landing. The future for America has very few variables left (until the election anyway.) Downgrade, municipal fiscal stress, and QE3 of some flavor, and that will be it until the election. Even if you disagree with those items, the path without them isn't so far from the path with them. there is no major change of direction anyway.
But a Chinese hard landing would represent a real phase change for risk management. It's a completely different ballgame then - so it's got the attention of many of the US hedge fund guys I know.
One would think the differences btw most long only and L/S will be exposed and extreme should the hard landing and the resultant phase change for risk management come to pass. Resignation at not having a lot of cards to play seemed to be the order of the day for the long-only guys. Perversely, that 0 or 1 outcome is probably somewhat liberating too, even it it means Really Bad Things.
Yeah, but they've had a lot of that lately. Implied correlation between S&P 500 stocks is at the kind of record levels not seen since... well... since the end of QE1. Without diffusion between stocks the long only guys are all really just macro traders anyway...whether they like it or not.
Even long/short is no saving grace when everything is so correlated. In effect you end up with an S&P exposure x cumulative Beta of your book. At least until things change.
I have to admit, in some sense it would be a relief to have the whole thing blow up. (not that I'm hoping for it) At least then we can start talking about reality and quit all this Keynesian nonsense.
Is there a babelfish program to translate this stuff yer talkin bout?
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