The Death of Liberal Economic Elitism

In 2008, in the middle of the banking crisis, it started to become evident that Senator McCain and the Republicans were in for a big surprise as Barak Obama’s poll numbers suggested that he was on his way to the oval office. This was a time of great concern for the international banking sector as credit began to seize all around the world. There were many contributing factors that led to the crisis, timing, demographics, a real estate bubble etc.… Many books have already been written about the structural problems which were the foundation for a near collapse of the global financial system. But something happened that wasn’t expected, Capitalism became the villain.  As the entire free world was embracing American style free market capitalism, we here at home were turning our backs on it.  The result was a birth of a new economic ideology, the Obama ideology…or what I like to call, ‘Liberal Economic Elitism’ (LEE).

LEE had taken the old notions of capitalism and turned them on its head. To paraphrase Dr. Milton Friedman’s analogy, “There are four ways of spending money, you can spend your money on yourself (The most efficient use of capital), you can spend money on someone else, you can use other people’s money to spend (Like a T&E account), and other people can spend other people’s money.” LEE is the ultimate use of ‘Other people spending other people’s money’, or as the Great Nobel Laureate would say, “…the most inefficient way to spend money!”. 

The experiment in LEE created a government which grew out of control, racking up debt and experienced very little in the way of growth leaving the economy in a real predicament. Even with record low interest rates coordinated by global central banks, the economic condition was not fertile enough to create the needed basis for real growth. The economy became over taxed, over regulated and had no real fiscal stimulus; which is essential.

In the final analysis, it was a failure with investors and corporations making unproductive investments such as stock buybacks and maintaining cash overseas. The ‘productivity miracle’ which ex FED chairman Greenspan used to mention dropping dramatically and corporate cap-ex ground to a halt in some cases. Capital preservation became the mantra; That is not the way an economy grows. It became very reminiscent of the dark days of Jimmy Carter when, as a college age kid, I was sure that there was another answer…Then came Ronald Reagan.

So now that Liberal Economic Elitism is dead, what next? The equity market went from a ‘Sell rallies ‘mode, to a ‘buy Dips’ market overnight. It’s not the Trump victory as much as the sweep in congress which creates the foundation for serious, pro-growth legislation.  The twin-engine economy (Monetary and fiscal) has been sputtering with only one engine working. As we see the needed tax cuts, the lifting of regulatory burdens and real stimulus to create jobs, look for an economy which surprises everyone in 2017. 

So, let’s call it a do over. Liberal Economic Elitism failed, period! For the first time in years we can say that the ‘Reaganesque’ formula is being prepared to generate 4-5% GDP growth in the next few years. Even if you didn’t like the messenger, you should love the message; Supply side, less regulation and unleashing the American entrepreneurial spirit! Freeing up much needed seed capital to make the economy grow instead of making nonproductive investments is the key to prosperity. Sounds like the start of another great bull market to me!