Every now and then, the stock market exhibits irrational exuberance or pessimism. But these days, the market’s long-term trend is not irrational. For the first time since the Depression, events have aligned to create the very real possibility of something previously impossible: that the United States could fundamentally transition toward a more European welfare-state model.
“The market” is simply millions of decision-makers buying or selling based on future expectations. And they recognize a perfect storm when they see one. First, take vast economic upheaval and pain demanding attention. Second, add a popular new president with the “Old Keynesian” belief that solutions lie in major government spending and growth (where modern Keynsian models demonstrate limited impact of spending). Third, add the highly rare occurrence that both legislative bodies are of the same mindset with each other and the president, and the even rarer ability to veto most opposition to pass a radical restructuring into law. Finally, add the fact that this theoretical restructuring is no longer theory: the first steps are already being taken.
I ask: why wouldn’t the markets seem subdued? It was entirely logical for share values to descend from their October 2007 high, once we realized that our financial system had the cancer of securitized “nonconforming” loans that could never be repaid. Just as it was entirely logical for 2008 markets to recognize that we would probably have a President Obama – with a more European bent — dealing with our economic illness come January 2009.
Unfortunately, the European philosophy accepts there will be a permanent hit to business and employment because of the higher taxes needed to pay for higher government spending. For example, the Heritage Foundation’s James Sherk pointed out in an interview, Europe has averaged a 60 percent higher unemployment rate than America, and on average European workers remain unemployed more than 12 months compared to three to four months for American workers.
Presidents and policymakers should never react to day-to-day stock market movements, maintaining a long-term focus instead. But a true long-term focus will look to the past and recognize that U.S. affluence has been based on encouraging U.S. business and rejecting the European model. Yes, the economy is sick and we are working the cancer out of our system. But we shouldn’t risk killing the patient in the process.
Are Obama’s policies responsible for the stock market slide?
Since the conservative Washington Times announced “the honeymoon’s over” the day before Barack Obama took office, I suppose it only makes sense that the GOP 2012 game plan is to blame the president for a market slide that began its descent a full year before he came into power. Is the president turning us into — quelle horreur! — Europeans? Let’s take a closer look at just how much of this is Obama’s faute (that’s “fault”, for those of you still speaking English).
We know he didn’t invent the housing bubble or the credit crisis, we know he didn’t oversee the massive deregulation, all leading to the first large bailout on That Other Guy’s watch, and we’re pretty sure that the collective global economic meltdown isn’t his fault either.
In fairness, Obama is still learning how to walk that wobbly line that forces him to both chastise big business while he solicits our support in the government aid that might save it. Yet any inference that the market began to falter in anticipation of an Obama presidency is way off base. That was around the same time Lehman Brothers failed, WaMu was rescued and it literally looked like every bank in the country could go under. (I suppose the market rally the week before the election came because people suddenly decided John McCain had it in the bag? Hardly.)
These are uncertain times; it’s an era where a Comedy Central comedian feels more credible to us than an MSNBC analyst, where the once mighty GOP now turns, for direction and inspiration, to Jonathan Krohn, a 14-year-old with a knack for public speaking. No wonder political panic is rampant on the right. “Socialist” hasn’t had much traction; I can hardly blame them for throwing “European” against the market research wall, hoping the slur will stick.
Americans aren’t terrified of turning into Europeans; they’re rightly concerned about a deepening recession that impacts their lives on a daily basis. They have no trouble remembering and cherishing our proud capitalist roots, but you know what else sticks in their mind? That the perfect storm of events that brought us to this point has little to do with the leader we’re hoping will bring us to shore.