Every election cycle, you hear the same thing—Republicans are good for the economy and electing a liberal will tank it. This is especially the case this time around as we’re in the middle of the longest running expansion this country has ever seen—and no one wants the other shoe to drop. There’s a lot of fear that making the wrong choice will mess things up.
Not surprisingly, there’s very little evidence that either party has a particularly good or bad effect on the economy—and more evidence, in fact, that the President has very little impact on performance. That doesn’t stop people from taking credit or dishing out blame.
Rather than thing of our economy as a perpetual motion machine that will always just go up and down and that somehow a caretaker President knows exactly the right spot to kick it in order to get it to run correctly, we have to assess the unique challenges each time period presents.
Today, our economic competitiveness in the world is in serious jeopardy—and our ability to turn economic output into the health and wellbeing of our citizens has already slipped. This is of the utmost importance to measure, because, after all, what is the point of making money if you can’t enjoy it?
As I look upon the current state of the economy and the challenges that we face as an investor, it strikes me as being very clear what kind of an economy will work best if I’m seeking investment returns going forward—and that is a more progressive one.
What I mean by that is where new market entrants create healthy competition and push the boundaries of innovation. I mean a world where small business and big business can both thrive while sharing in their success with workers. I’m talking about an economy where the ills of an unjust society—housing, poverty, addiction, gun violence, healthcare, etc. don’t drag behind us like an anchor we forgot to address, costing everyone more and more human and monetary capital until we properly address it.
Here’s what I think a more progressive economy can do to ensure higher growth:
Technology has created an unprecedented lack of competition—especially given our reliance on platforms—and it needs to be opened up in order to kickstart more growth. Forty years ago, access to consumers was much more open than it is today. Advertising mediums were more diverse and there weren’t a limited number of companies that customers had to touch before they could spend. Today, you do more online shopping than ever before—and 50% of that goes to Amazon. You access the internet through, at best, two choices of ISPs at home. When businesses want to reach an online customer most effectively, they basically have Facebook and Google to choose from to spend money on, creating a scenario where these platform companies have all the data necessary to pick and choose category winners. Amazon can use purchase data to create new Whole Foods brands and Amazon labels. Facebook and Google can get into financial services while boxing out advertisers of alternative products. While the right might tell you that government regulation gets in the way of competition, it seems pretty clear that it’s lack of government regulation that is the biggest impediment. Have we forgotten that the only reason Apple even exists today is because Microsoft feared the government’s anti-trust enforcement in operating systems. Microsoft literally floated its nearest competitor, which was on the verge of bankruptcy, in order to avoid additional government scrutiny. How would things have looked today had Apple actually gone under, which Microsoft would have otherwise had no issue with? We would have never gotten the iPhone and mobile technology would probably be at least five years behind where it is today, if not more. No one says you can’t make a lot of money—but when a small number of companies control access to key resources, sit on cash instead of continuing to innovate, and block competition, this isn’t a path to a dynamic economy.
When you look at where the economic opportunities are, you have to look at where the problems are, and we face no greater existential threat to our economy than climate change. The creation of more sustainable goods, services, and transportation, cleaner energy, and environmental remediation technology represent a huge opportunity for the US to be a world leader and a growth opportunity. We’re not going to create lots of jobs building cars, but we might be able to do it building those windmill farms the President likes to make fun of. Only an administration that takes climate science seriously and thinks in terms of New Deal sized economic mobilization will be able to take advantage of this growth opportunity. Rolling back environmental regulations not only causes real economic costs in terms of healthcare and climate change related weather damage but it attempts to turn the clock back on an economy that just isn’t coming back and won’t be relevant in the future.
It is pretty clear that we cannot sustain this level of military spending—especially in a world where the enemies we face are either not even nation-states at all, or they are nuclear powers where we cannot dare entangle ourselves with in conventional military warfare. The war in Iraq has cost this country trillions of dollars that could have otherwise been spent on infrastructure—the way China has. From a purely economic standpoint, investing in diplomacy has a much greater ROI than investment in war—and any general will tell you that. We need to rebuild our State Department so we can redeploy all that capital into education, healthcare and infrastructure, versus things meant to either explode or eventually rust away.
To that end, we need to start taking into consideration wellness and other measures of the economy over and above the stock market as a measure of economic success. The opioid epidemic is literally costing the economy billions, if not trillions of dollars—so when you hear that stricter regulations and accountability stalls the economy, keep in mind what lack of regulations can do as well. This scourge has decimated communities and seriously damaged the labor pool with multi-generational consequences. When so few people even own stock, and so much of it is owned by even fewer, it just isn’t an accurate measure of how the average American or how a majority of Americans is doing. While our economy booms, our life expectancy is declining, lagging that of comparable countries. When two-thirds of the country can’t afford an emergency $500 expense and nowhere in this country can minimum wage cover the cost of a two bedroom house or apartment, it’s hard to say the economy is “working”. Sure, unemployment is low, but actual labor participation (the percent of working age people actually working) is declining. What is the point of making money if you can’t take care of people? Not only that, if more people’s basic needs are met, you’ll see more of a push towards entrepreneurship. No one is going to start a company if they’re tied down by healthcare costs and threatened by poverty—yet we know that all of our growth comes from the creation and success of small businesses. Whether they be local small businesses or venture backed startups, if we do a better job of providing for the basic necessities of healthcare, economic stability, and education, we’ll see more people set out to create new businesses—especially if the competitive landscape is fairer.
Economic mobility is also key to growth. You’re not going to start something new or strive to do anything if you can’t see yourself moving up along with the success of the company you join. We’ve gotten away from sharing the wealth in favor of outsourcing contract labor. There’s no way you can say that our economy is better when a janitor is better off 35 years ago than they are today—but that’s exactly the case when you take into consideration the lack of upward mobility that employee has, as evidenced in this NY Times story. Outsized economic success doesn’t need to come at the expense of wages and benefits.
Looking at progressive policy as being singularly about higher taxation, lower profit, and therefore lower stock market returns isn’t just short-sighted, it’s too narrowly focused. When corporations profit at the expense of workers, those costs show up in other places around the economy. When lobbying buys off our politicians, we’re not actually operating in free market capitalism—we’re operating in a form of socialism in which the government props up the wealthy.
I’m an investor.
I’d like to make a lot of money—and I think I’m only going to be able to do that if we have a forward-thinking economy, an educated and healthy workforce that has enough stability to take entrepreneurial risks, and highly competitive ecosystems.
I don’t see the right providing pathways to any of these outcomes.