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Wall Street is Voting on the Candidates – In Need of a “Cold Shower”? January 30, 2008

Posted by John in Technology.
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By Anton Wahlman

Proper schooling includes the study of the things in life that have withstood the test of time. This includes objects of art (Leonardo da Vinci), literature (Shakespeare) and politics (the Declaration of Independence, the Constitution). These are items in life who are classical because they are each fundamental in their own disciplines.

With the most interesting political campaign in a generation in full swing, it is worth reflecting on the extent to which what is being discussed in these political debates will go down in history 25, 50, 100 or more years down the road as “classical” – or important in the eyes of history.

Let me suggest that at this point in the political season, as interesting as the fights may be from a multiplicity-of-candidates perspective, the actual content of the issue disagreements isn’t fought in a particularly classic way. What do I mean by that?

First, let’s define what is the classic debate in politics. It is pretty simple, actually. Everything that is done in the world, every dollar that is spent, is either done so by someone who is in charge of himself (or the family/children), or by someone who has taken the resource or forced it to be directed in any other (involuntary) way. That’s the government, which taxes, spends and regulates. For this reason, the classical debate in politics is very simple: Should the government tax/spend and/or regulate something, or should it not? If the individual is in control of his property, it is capitalism, but if the government regulates it and/or taxes/spends it, the thing in question falls in the column of socialism.

Almost every viewpoint in politics can easily be analyzed in this manner – capitalism vs socialism. It used to be a big geopolitical struggle between the free world and The Soviet Union, but the geopolitical struggle has now been replaced by the desires of radical islam and of ever-growing government at home.

In this context, the current debate of taxes and spending is pretty pathetic. Let’s start with Obama and Clinton. They are both in favor of raising Federal income taxes to well over 40%, raising the capital gains taxes from 15% to well over 40%, and probably also raising the corporate income tax from 35% to that over-40% rate. In other words, doing their best to make sure that the value of all companies on the stock exchanges will see their values tumble dramatically. By reducing corporate profits, and the share of those profits that go to their owners, it is a most basic corporate finance iron law 101 that the values must decline. Hence, a major reason for the stock market decline over the last couple of months. If there is a chance Obama or Clinton may actually raise those taxes in 2009, better sell those shares now before they go down another 20%. This is pretty simple – and prudent – risk management by those who own shares.

The most baffling point about the proposed Clinton/Obama tax hikes is their concurrent reaction to the recent market downturn and fears of recession. Both candidates are in favor of immediate tax breaks to avert a recession!

Hmmm, the economy is going South because of the fear of 2009 tax hikes, so therefore the same people who are proposing those tax hikes now want immediate tax cuts! Why doesn’t anyone call these deeply self-contradictory candidates on this evident inconsistency? It should be the first question in every interview/debate.

Unfortunately, the current crop of Republicans are not doing too much better in these departments either. While they pay lip service to avoiding tax hikes, and in some cases propose some (mild) tax cuts – such as a cut in the Federal income tax rate from 39.6% to 30% – they are fairly silent on specifics with respect to overall government spending. This year, the Federal government spends approximately $3 trillion, or $10,000 for each of us 300 million Americans. That’s up dramatically from 1962, when the Federal budget was $100 billion, or some $500 for each of approximately 200 million Americans.

None of the leading Republican contenders – McCain, Romney, Giuliani or Huckabee – have the courage to spell out specifically what – if anything material – they would cut from this giant $3 trillion bureaucracy. None of them has proposed abolishing a single government department, as far as I know. None of them points this out in socialism vs capitalism terms. All of them have bought into the principle that big government is here to stay, only that it should grow at perhaps 2% per year instead of 7% or whatever.

What we are left with here is therefore the cowardly Mexican standoff between Republicans and Democrats: Clinton/Obama are unwilling to accurately describe their plans for taxing and spending as a step into a future of socialism, and McCain/Romney/Giuliani/Huckabee are unwilling to admit that they are unwilling to change the status quo by anything but a rounding error.

There is therefore nothing classical about this fight at all.

Rather, the current in-fighting in the two parties focus almost exclusively on personalities and resumes – not actual policies in the context of the eternal struggle between capitalism and socialism. Someone is for “hope” and “change”, whereas someone else is for “experience” and “judgment.” But is someone willing to take a stand for and against socialism and capitalism?

Not any of the leading candidates, that’s for sure. With some degrees of difference in general direction, they have all basically bought into the model of big government, and the debate is about fine-tuning its size. Granted, it is important for the future of the stock market, economic growth and prosperity whether taxes are at 8%, 28% or 48%, but it doesn’t address the issue of the very fat $3 trillion annual Federal budget.

There is only voice pointing out that the Emperors have no clothes in terms of the narrow scope of the debate: Ron Paul. He points out that almost all of our $3 trillion budget is unconstitutional and socialist. The original constitution spells out that the only legitimate functions of the Federal government are the maintenance of a judiciary and a defense against foreign enemies. If we had a constitutional government today, it would cost somewhere well below $1 trillion, or well below $3,333 for each of us 300 million Americans.

Example in point: The framers of the constitution had as a key objective to make sure that the government does not get its hands on the education of our children. “Public” (socialist) schools didn’t exist until all of the founders of our constitution had died, in 1848, coincidental with Karl Marx’s publication of Das Kapital. I’m not a conspiracy theorist, but I couldn’t help noticing…

Yet today, the Republican candidates for President (except for Ron Paul) don’t propose the abolition of “public” schools. Same thing for other big budget items such as social security, medicaid and medicare. All these things are, in fact, socialist programs and therefore not-so-coincidentally unconstitutional.

So there you have it – today’s political debates have been reduced from comparing the classical differences between socialism and capitalism, to emotional nonsense such as whether we need a President who is for “change” and claims to be able to “unite the country.” How do you “unite” the views of the person who will see a huge tax hike to pay for some government program with the bureaucrats and the alleged beneficiaries of such a program?

America needs a cold shower of hard and fundamental choice: Should we follow the constitution and dramatically deflate the size of the government budget and its millions of regulations, or should we march forward into full-fledged socialism? We know where Obama/Clinton stand, although they dare not say it. Unfortunately, we also know that McCain/Romney/Giuliani/Huckabee aren’t proposing much more than “holding the line.”

The stock market has been voting in recent months, and its verdict isn’t all that rosy, as it starts to discount the probability of a leap into more socialism in 2009 and beyond. In the meantime, the rest of us can also vote our conscience – Ron Paul.

Comments»

1. Cory McMannus - January 30, 2008

Great post. Much deeper than the other tech blogs. Thanks. I’m not sure I agree with Techcrunch. The capitalism society is the key to the financial markets. However, voting for Ron Paul is simply a protest vote.

Anyway nice piece.


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