Why is America inexorably becoming a socialist country? 0

In an article at American Greatness titled Wall Street Will Die, Theodore R. Malloch and Nicholas Capaldi write:

Something was radically different about the stock market in 2022, and it was not simply that it was a massively down year. A more profound change has occurred.

The entire economic system is focused on growth, and therefore is designed to bring together creative people who lack resources with people who have resources. This is the genius of the U.S. market economy.

Here is how the stock market used to work. It goes up and down but over time it always has gone up—it must go up, long term, or the whole system collapses. The way to prosperity is to buy and hold a diverse portfolio of value stocks. Trying to “read” the market short term is a risky business. … Buying and holding in a patient fashion over the long term has always been the way to prosperity.

As Friedrich Hayek explained long ago, the market economy is not a mechanical system that can be predicted. But you can bet that over time the market will go up because the entire economy is geared for growth. This means some general strategies will work well in the long term.

Most investors rely on wealth professionals and financial advisors. The professionals do not and cannot know which individual stocks will succeed. What they do know is how to read the tea leaves—charts, graphs, comparisons to earlier analogous situations, interviews with CEOs, studies of foreign governments and exchange rates, company ratings and valuations. This is old-fashioned inductive reasoning. Mostly they play follow-the-leader or follow-the-rising-star. Remember the number of salespeople on Wall Street far outnumbers the number of researchers. Following the stock market publications, like nearly all forms of journalism, has become a form of entertainment. Just think of Mad Jim Cramer. As long as we believe that the market, in general, will go up, the fun will last.

A second way of earning money is to sell short (culturally sometimes considered anti-American). Selling short still requires that somebody has to buy—somebody who still believes that the market is eventually going to go up. In bad times, hedge funds could manipulate the market by driving it up one day (we have been conditioned for optimism) and then selling it the next. This works as long as the public in general believes that the market will go up over time. No matter how bad things get, some hedge funds will thrive, will be in the news, and therefore contribute to the myth that there are experts who really know how to win and play the volatility.

When Republicans control the government, certain industries are favored because those industries support Republican candidates and policies. Favoring certain industries is compatible with and generally requires a healthy economy—otherwise the favored industries cannot sell their products or services.

When traditional Democrats controlled the government, a different set of industries was favored for the same kinds of reasons and with the same assumptions—namely, a robust economy helps favored economic interests, including labor. The political parties before now did not do much damage—what they did was skim the cream for their more influential constituents. There have been many years when having a Democrat in the White House was better for the stock market or for certain stocks.

In both cases, members of the government have inside information about how government regulation will create winners and losers. From time to time, parties will make mistakes (remember, nobody can really predict) and be voted out of office. Not to worry. The other party will eventually be in the same position, and each party gets another bite of the apple ad infinitum.

However, 2022 was a real disaster for the stock market. U.S. stocks had their worst year since 2008 (the final year of George W. Bush’s presidency).

The Dow Jones Industrial Average started at 36,585 and ended at 33,147. The S&P 500 started at 4,797 and ended at 3,840. The NASDAQ started at 15,832 and ended at 10,466.

The declines were 8.6 percent, 19 percent, and 33 percent respectively. There was no point in trying to buy on the dip because the dip had no clear bottom.

You see the overall context. What is different now? Well, the present Democratic Party is not interested primarily in skimming the cream. They want to kill and eat the cow, redistributing the scraps.

What market predictors sometimes forget is that the economic realm and the social realm are interconnected. They influence each other. In Joseph Schumpeter’s famous words, economic growth is a form of “creative destruction.” Economic growth or progress is accompanied not only by changes in economic institutions but by social change as well. Some of the latter are easily perceived as causes of social dislocation.

Republicans have been focused primarily on growth (liberty); Democrats, meanwhile, have focused on the (mal)distribution of wealth. There has always been a conflict between rival elites for the leadership of America: entrepreneurs (business leaders) versus professional politicians and bureaucrats and their academic allies who favor the therapeutic state.

What has changed is that Democrats are now prepared to sacrifice growth in favor of distribution (or what they call equality).

Actually, they prefer to use the term “equity”, by which they mean “equality of outcome”, ie. everyone being as poor as everyone else. Except themselves. They seem to believe that their own wealth will be unaffected, undiminished.

What the Democrats needed to be able to demand fundamental redistribution was the perception of a social problem so grave that it demanded total and permanent political control. COVID was the warm-up, and here we saw blue states sacrifice economic growth for the (mis)perception that mandatory masks and vaccines could overcome all viruses.

The present alleged permanent and overriding crisis is the environment (global warming, climate change, or whatever expression is popular this week). Survival of the human race does not depend upon or require infinite long-term growth according to this view. More to the point, survival may be incompatible with growth.

[Read or] reread The Limits to Growth, published in 1971 by the Club of Rome and based on a faulty MIT model, to review the argument. Many have been personally reassured by the current Jesuit Pope, as well as the autistic Swedish girl, Greta Thunberg, that it is not possible for the whole world to enjoy the lifestyle of the American middle class and that this standard must end.

The trick for the Democrats was to manufacture a crisis that requires or dictates permanent government intervention in the economy. Democrats have figured out how to win elections through mail-in ballots by registering, harvesting, and assisting hordes of people who never used to vote. The current base of the party consists of people who are the least likely to be invested in the stock market (African Americans, Hispanics, young people, single moms, and the poor). The worse the economy becomes, the more we seem to require a quick fix from government intervention (additional indexed benefits). Lack of growth will drive more people into the lower classes, and they, in turn, will vote routinely for Democrats.

Immigration is the icing on the cake. We can redefine “growth” so that there is always some form of (Orwellian) “growth.” Why not—we do this with everything else. Remember, Franklin Roosevelt was elected three times over 12 years without getting us out of the Great Depression before World War II saved his administration and reputation.

In an emergency, there is always the possibility of raising the national debt (the invisible form of taxation). We can always raise the national debt; Congress does it regularly. It stands at $31.4 trillion and is growing each year. We can always count on other countries to play follow the leader. We do not have to worry too much about the debt going up in the long term because the politicians of both parties who favored and voted for it will, by that time, be dead, even if the interest on the debt is itself a killer. Having a credit card without repayment is a convenient government course of action.

Welcome to the new normal.

Mind you, this is not just a temporary limit on economic growth. It is the end of the dream—and, as a consequence, the end of the stock market itself. Why invest if there is no chance to profit and see your investment grow? Wall Street does not want to admit it, but in a thoroughly socialist economy, there is no need or reason for stocks. Over time companies will cease to exist, the market will be dictated, and the state, through its regulatory bureaucracies, will control everything.

But why are the Lords of Commerce and Industry allowing this to happen? And not just allowing it, but promoting it with passionate enthusiasm?

Is it because they expect to be the government?

If not that, then what? How do they explain it to themselves?

Posted under Capitalism, Economics, Socialism by Jillian Becker on Sunday, January 22, 2023

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