April 17, 2019

A Rare Political Thought

Carroll Financial - A Rare Political Thought

Spring 2019 Quarterly Newsletter

Author: Larry W. Carroll, CFP®

Estimated Read Time:  3 minutes

 

If you’ve been reading my articles for years, you know that I don’t like to write political pieces. I am going to make an exception this quarter for a couple of reasons. First, because markets have been doing well and have had a good bounce back from a terrible December. No one wants to hear me say, “I told you that December was overdone.” Second, I think the Democratic primaries are going to be a hotbed of political and social discourse during the coming months.

 

One of the things that will be talked about quite a bit is socialism. Whether it is socialism with respect to healthcare or the redistribution of wealth in the country, socialism will be a hot topic. I read an interesting article about socialism that George Will wrote in The Washington Post a few months ago. It made me think about how we label people as socialists without a lot of thought as to what we mean by the term. In the article he quotes Karl Marx: “From each according to his ability, to each according to his needs!” Will then goes on to state that, “This is socialism now: From each faction according to its vulnerability, to each faction according to its ability to confiscate.”

 

I think of Bernie Sanders as a socialist. He wants free university and healthcare for everyone. I think that it is likely that there will be three or four candidates in the Democratic primary who will have similar ideas on their platforms. My question when I hear these ideas is always: “Who will pay for it and what will the quality be like for everyone?” It may not be immediately obvious, but I always think of immigration as well. We can’t afford as a country to provide more and more benefits to our citizens, while at the same time allowing anyone to be treated as a citizen.

 

Socialism is not necessarily dangerous to financial markets. However, we do have about 100 years of evidence that shows socialist economies grow slower than capitalist economies. In the long run, I do believe that spending more and more on social programs will slow the economy much the way that I believe taking on more debt will slow the economy. This is different than predicting a national crisis and the end of America. I have never and will never predict long-term disaster. Those who do are not paying attention. America has proven to be very resilient and capable of overcoming challenges. However, we could certainly see an extended period of slow growth that we impose upon ourselves.

 

As the political rhetoric heats up in the coming months, remember these two things:

  1. Financial markets tend to grow despite political decisions.
  2. Most political talk is just that… talk, which will never become a reality.

 

 

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