Bring On the Market Vigilantes!
Here are some interesting questions: Can the next U.S. president hike taxes when so many countries are cutting theirs? Can the next U.S. president boost spending despite a big current budget deficit and huge upcoming entitlement liabilities? Can the next U.S. president put up barriers to trade and outsourcing without driving American companies offshore? Can the next U.S. president reregulate the American economy without also driving companies offshore?
And overarching all those queries is this megaquestion: Won't global stock and bond investors punish the equity and fixed-income assets—not to mention the currencies—of countries that attempt to run high-tax, high-regulation, high-debt, protectionist economies? (This is the very point raised by the always perspicacious Larry Kudlow during my spot last night on CNBC.)
My answer: Yes, the global investor class—the worldwide stock and bond market vigilantes—certainly will. And voters will undoubtedly notice in time. But that doesn't mean governments can't do terrible damage before folks figure things out. A wrong-headed approach to healthcare reform would be very hard to undo, for instance, just as it has so far been impossible to reform Social Security despite its obvious fiscal problems and relatively simple fiscal fixes.
And think about the opportunity costs. Instead of gearing up the U.S. economy to compete with rising Asia, we might spend a few years or more experimenting with the sort of policies that led the economy to near ruin in the 1970s—and then a few years more trying to undo them. (Richard Nixon once said it would take a genius to wreck the economy. Not really.)
The answer to a final question may be crucial: What will Americans be voting for next November—problem-solving bipartisanship or a sharp move to the left and dramatically larger and more interventionist government?
Tags: economy | Wall Street | stock market
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Reader Comments
It seems that although the Democrats and liberals are wanting "change" from the current policies, the type of change they want is not anything new, it is everything that is old. Everything that both Obama and Clinton are prescribing has already been proposed by several other Democratic presidents and presidential candidates, but they are banging their heads against the wall thinking that they will get a different result. It is no exception on the economy. Obama is lambasting Bush for the so-called "tax cuts" to the wealthy and the country being on the brink of recession, but what is his prescription? Repeal the tax cuts on the wealthy and raise corporate taxes (the very class of persons who continuously invest their money in the economy) and giving breaks mostly to the poor and old (the very class of people who invest their money the least in the economy). And what about the middle class? I would like to know who Obama considers the "middle class".
What Obama and Clinton are prescribing to fix the economy will probably work in the short term, but eventually the their long-term ill effects will become pervasive and hard to fix because Americans will become used to having them around (think Social Security and Medicaid). And, as Greg pointed, eventually investors the world round will grow jittery that they are losing money on their investments and take their money elsewhere. And the ones that will be left holding the empty bag are Americans that wanted the world promised to them, but didn't want to face reality with paying for the world promised.
Obamanomics
"A wrong-headed approach to healthcare reform would be very hard to undo".
I agree with the foregoing. However, Obama's healthcare policy might not be a total disaster. He will provide a limited subsidy; that subsidy would not have to be increased over time. Obamanomics will be bad for the economy, but his healthcare program might not be a total disaster.
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Stan8219@yahoo.com
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