The One has a clearly socialist agenda. Many of his policies are right out of the Socialist Playbook. The clearest example being the “Auto Bailout”. Right behind it is Socialized Medicine. (That is not a statement of my POV, it is a statement of the definitions and how they apply).
One of the tenets of Socialism is the “avoidance of bankruptcy”. Instead of using the capitalist bankruptcy process where assets of a troubled firm are handed over to the creditors (typically banks or bond holders – i.e. capitalists) the assets are held to be a public good. Typically they are ‘taken over’ by a public purchase or public conservatorship, or handed over to “labor”. In the case of GM, for example, the U.S. Government took an ownership position (as it did in many of the banks) and handed more ownership to the Unions. (Bypassing the existing law and existing Pension Benefit Guarantee Corporation process). This is a very simple and very direct Socialist Policy behaviour.
Another of the classical behaviours of Socialism is that certain goods are to be provided to the population at large at the insistence of the Government. The most common being some sort of public medical care system. The details often vary, but the bottom line is that such services are not based on an “ability to pay” but on a “need” basis. With the government mandated health care program, we are now such a nation.
Finally, there are the “regulate and unionize” processes. These come more from the Fascist flavor of Socialism, but they are classical pillars. Fascism as a word comes from the Italian word for a ‘bundle of sticks’ that are stronger together than any one stick alone. It was the term used for Labor Unions. There is a very long alliance of labor unions with Socialism. It is seen as a core feature of all flavors of Socialism, from the Communist pole all the way through to the Fascist one. Similarly, any market that can not be outright nationalized, is made conformant with Central Planning and Central Control via regulatory bodies and agencies. (Again, these are questions of ‘definition’, not of my belief, wants, hopes, desires, nor anything at all to do we “me”. It’s just what things mean, and what those economic forms do.)
So it is very simply a matter of definition that the Obama political orientation is one of Socialism. That ought not to be a surprise to anyone. “Forward” is an old Socialist slogan from way back, and Obama was raised and steeped in Socialist teachings throughout most of his development. I’ve also often said that I can likely make a better case for Lange Type Socialism than for other forms, in particular as compared to Free Market Capitalism. So again, this isn’t about me; my beliefs, my wants, needs, desires, or much of anything else. It is only about “what are the definitions, what are the hallmarks of an economic system, and what does this imply for the future.” What we have, as of tonight, is simply a confirmation that the majority of America wants that economic system. That observation says nothing about approval, nor disapproval, of that system by me.
It is critically important to be dispassionate about the facts, about definitions, and about observing the reality.
That reality is simply that America has said, via this election, that it approves of the Socialist policies of Obama and the Democrats. It would be a grave error to NOT recognize that fact, and similarly a grave error to not properly categorize those policies as what they are. “Third Way” fascist Socialism. ( Please note that I am not using the term “fascist” in the current trendy “you are evil” pejorative sense. That usage is NOT accurate. “Third Way” Socialism was a proper synonym for fascism from the beginning. Divorcing those two terms from each other and daemonizing “fascist” is a political behaviour, not an economic reality. I am using it only in the economic sense of “central planning, with private corporations and private labor unions under government direction via central planning and regulation as in classical ‘Third Way Socialism’ first pioneered in Italy by the Fascists.” As an economic ‘term of art’ and NOT as a social pejorative. It is contrasted with Communism where private corporations and private unions are abolished and all industry and labor are properties of the state. An older and more severe form of Socialism.)
So back on thread.
America has embraced “Third Way” progressive / socialist policies. It has selected for re-election a president who embraces them, and endorsed his application of them. (Effective nationalization of 1/6 of the economy via “Obamacare” and the Central Planning of the medical industry. Effective partial nationalization of the banks and auto industries via an ‘avoidance of bankruptcy’ process. Etc.) This has implications, and it can not be ignored.
So anything else from this election that needs to go into the future planning paradigm?
First off, we have “Israel under the bus”. Obama has actively snubbed Israel and bows to Arab leaders. This matters. So we can fully expect that Israel recognizes this (they being rather smart folks…) and will adjust policies accordingly. IMHO, this essentially guarantees that there will be NO U.S. strike against Iranian nuclear facilities. That, then, essentially guarantees that the only parties who will take them our are the Israelis. That, then, sets the schedule as dependent only on Iranian rate of advancement to goal. Make a decent guess on the state of the Iranian nuclear bomb program, you know pretty much when the Israeli / Iran war happens. An essential consequence of that will be an Israeli / Syrian – Lebanese – Hezbola war. (or ‘Iranian Shiia by Proxy’). My best guess on that is “about 1 to 2 years”. So figure about 2014 as a reasonable date estimate. Probably about June to September.
There is an entire scenario of ‘what happens next’ that comes out of that strike, but that will be “for another day”. It has several dependencies on ‘things not known'; but we can now say that any U.S. Involvement will be minimal, after the fact, and likely of the form of criticizing Israel. (There’s a small chance we might provide hidden logistical support, such as satellite data, but unlikely from an Obama administration.)
Essentially, Israel is now ‘on its own’ in these matters and will not be looking to the USA for much. IMHO, in the long run this is likely a good thing for Israel. They are now also free of any need to worry about what the U.S. thinks, or of any need to get U.S. approval prior to doing what they need to do. After the fact, they will want to ‘smooth ruffled feathers’ to keep their subsidies coming, but frankly, as long as the Egyptian / Israeli money flows are kept in balance from the USA, it likely doesn’t matter much. I doubt that even Obama would be willing to cut Israeli payoffs below the
bribe money foreign aid sent to Egypt as the ‘optics’ to the Jewish Vote for Democrats inside the USA would be problematic. “Passive aggressive” failure to support via actions and policies is all we’re likely to see toward Israel. Nothing as obvious as asymmetric money flow to Israel and Egypt.
As the use of Labor Unions is a foundation stone of Socialist processes, we know they will have increased power and favor. The Public Employees Labor Union (SEIU) will get loads of ‘benefits’. Expect any State that tries to curb their ability to feast at the public trough to be squashed by the Obama Administration.
This also implies that any State, county, or city trying to get out from under the crushing debt load of labor costs will be hard pressed to do so. More cities will have bankruptcy issues. Less services delivered and more money into public employee pension, pay, and retirement packages. If you are looking for a job, go get hired by a government agency on a union package. Greece and France, here we come.
Any industry with large labor consumption can also expect higher costs. In California, as I type, a local initiative to raise the minimum wage is passing with a decent margin. While this always sounds good, a ‘minimum wage’ via fiat has very negative consequences. Those who keep a job gain, but everyone else loses. Prices MUST rise and so must unemployment. Realize that I do not like this. But it isn’t about me, what I like, want or would prefer. It is about what actually happens in economic systems. What I like has no effect on the laws of Economics. Raise the price of something, you get less of it. Raising labor costs gets less labor used. Period. Raising the prices of things made by that labor reduces sales. Period. So we can expect “wage push” inflation, and more flight of industry to other locations. (Not exactly a surprise). Continued high unemployment too; especially among minorities and the disabled. Oh Well… it’s what we have voted for.
So fewer folks working (but taking home more money each while producing less), and fewer private businesses with more bankrupt local governments. Likely not a major shift on those metrics, but more of an assurance that things will stay that way and with a modest increase of trend.
Since Obama can now “be more flexible”, we’ll see continued application of “rule of fiat” via executive order and appointment of ideologues to agency posts. The D.O.E. and E.P.A. will run rampant over the energy industry to enforce the “green agenda”. Expect coal to continue losing. Fracking to be daemonized (so natural gas prices to slowly rise) and continued large public funded ‘subsidy honey’ to be bestowed on Stupid Green Darlings. GE likely to win (as they are in political favor and make windmills and curly light bulbs). A variety of “dumb but green” companies will continue to be given large slabs of public money (so invest along with AlGore, but bail before the bankruptcy / nationalization).
Oil and Coal industries domestically will continue to face hostile agencies and regulations and with “permitting” based on political calculus, not energy needs of the nation. More “bird chopper” windmills (and thus more GE Gas Turbines as backup power for them). More solar panels making $1/2 per kW-hr electricity instead of nickle a kW nukes. “Energy costs to necessarily skyrocket”. Oh, and get used to $4 gasoline; but not too much, as it’s likely headed to $6 in 4 years. Rail shipping likely to win and trucking to lose. The return of the “econo-box” car as the norm and big pickup trucks being displaced other than for the few rich folks who can feed them.
Texas will continue to have excellent economic competitive advantages v.s. the other States (such as California) due to the tax and energy cost issues. So home builders in Texas will likely do well.
Europe & Russia
Europe loves Obama. He’s a “Euro-Socialist” right out of their playbook. Similarly the UN will be having a love fest over this. So we’ll not be critical of European Socialist fubars, nor will we be pushing U.S. interests. Instead we’ll be playing as part of the Global Socialist movement. Putin will get his “flexibility’ too. Not sure what Obama horse-traded to Putin, but that deal is now done; whatever it was. My guess would be the exit from Afghanistan. Handing that area back to Vladimir and friends ( to tussle with the UK / EU over it…)
Likely the USA to continue as “Europe’s Rent An Army”. Against whom is a bit unclear. Especially as we’re cutting back on military people and materials.
So ‘what does the EU want’ that Obama can give is an open issue. My guess would be continued ‘policing’ of the oil lanes from the Persian Gulf to Europe.
The Fiscal Cliff
This will all depend on the Republicans. How will they react?
This is a broad and very much unknown question. More than just The Fiscal Cliff (TFC). Obama will be pushing hard to say that this is a mandate of some kind. (Never mind that it was a ‘squeaker’ on popular vote). Yet the Republicans did not lose much control in the House.
So will they ‘cave’ and play lap dog, hoping for some crumbs in legislative pork packages? Or will they continue to act as a ‘prevent defense’ stopping too much Democratic Porkulus? Nobody knows.
I expect we’ll see a minor ‘kick the can’ on TFC, perhaps until after the next 2 year election cycle. It is also possible that we’ll see a deadlock leading to TFC. IMHO that would not be a bad thing. Yes, a lot of government spending would get cut. Much of it in programs I think are important. But that’s sort of the whole point, isn’t it? Every program has folks that think it important. If nothing else, it would chasten the folks in Congress just a bit… Besides, TFC is at most a minor reduction in the rate of growth of government. I can think of worse things (much worse) than having the Feds put on a forced diet for a while.
The real issue is how much, of what, can Obama and the Democrats offer in bribes to the Republicans to get them to play ball. Will the Republicans be willing to spend 4 years “getting nothing” to assure the Democrats are stymied too? One can only hope….
With nearly 1/2 the country NOT voting for Obama and the Dims, the Republicans would be well served to represent those folks and not endorse Democrat spending / taxing plans. But will they? Or will they see the Romney loss as a “support the Democrats or lose” signal? They tried being “Democrat Lite” in the past and it did not end well. Neither for them, nor for the nation.
Expect TFC to become the center stage issue Real Soon Now…. IFF we go ‘off the cliff’ the dollar will be more sound and there is some hope for a more limited Federal Government that does less to gum up the works of free markets. IFF we ‘kick the can’, expect continued Federal Government growth, massive ongoing over regulation and strangulation of industry, and a rapidly inflating currency. Do not expect any actual fix to the budget / spending problems of the government. Just not doable. So in a ‘kick the can’, the dollar will ‘have issues’. In a TFC scenario, expect the dollar to benefit.
Once, long ago, I turned about $5000 into $40,000 on a turn of the bond market. U.S. Treasuries were going for about 12% interest rate. Reagan was in office and we took a big hit to get inflation under control. I bought “Strips” (U.S. Treasuries with the interest payments removed and sold to someone else who wanted the income). These were selling at a great discount to ‘face value’ of $1000 each due to the steep discount of 12% compounded over many years. But I knew that rate would not hold. So bought them. As rates fell toward 4%, the value rose greatly. Now the process will be going the other direction. As soon as The Fed stops buying all the debt, interest rates will rise. A Lot. Eventually once inflation is out of control again, and a new Fiscal Conservative is in power, we’ll have a ‘buy strips’ trade again. Last time I bought a ‘ladder’ of 5, 10, and 15 year maturities. Next time it will be a lot more 15 and 20 years at deeper discounts and higher gains… But first comes the rising interest rates, short bonds, trade.
TFC issue will be used as a hammer to demand higher tax rates and more taxes from business. This will drive much business away or out of business, and raise prices at the survivors. This administration will be pushing hard for higher tax rates (expecting that to produce more tax revenues). It will not increase revenues as it will halt economic growth. At present the ‘growth rate’ is about the same as the interest rate and nominal-inflation (less than real inflation) meaning that the ‘growth rate’ is fictional and really just inflation adjustment. So higher tax rates will result in lower real tax revenues. This will come as a surprise to the Democrats and Obama. Then again, for them it is more about the ideology of ‘wealth distribution’ than about the reality of wealth creation. So the hammer will be swung. Repeatedly.
That will lead to ever more ‘stagflaton’. The failure of real revenue to manifest will lead to even more deficit spending and even more tax rate increases. Leading to more stagflation. Likely about 6 years of it. (Since even if in 4 years the polices are reversed, there’s at least a 2 year lag for economic changes to happen.)
So we’ve got higher taxes, higher labor costs, and an inflationary low or no growth environment for years to come. Welcome to Europe West…
It is highly likely that Obama will get to appoint one or two Supreme Court judges. This will bias the court to “the left” for at least a decade to come, likely 2 decades. That will be the ‘trump card’ on Socializing America. So cases that do end up at the Supreme Court will start falling to the Progressive / American Liberal / Socialist side. At present the court is more or less balanced (with a slight left tilt). It will become a political court with the first appointment. Likely also about 2014 to 2015.
As the Democrats have been prone to appointing relatively young justices, and women (who live longer than men, typically) that bias is likely to be in place for decades to follow.
It’s late. There’s more I could write, but I think this is the ‘big lumps’.
Investing in America is not likely to be a good idea, going “Forward”. Socialisms tend to cream off a bit of “squeeze” from businesses. Profits are reduced as ‘redistribution’ happens. More money goes into labor costs and government costs, less into growth of plant and equipment or investment in growth. Sometimes whole industries are nationalized and made subject to government decree. (We’re seeing the early stages of that in medicine).
The government will be picking “winners and losers” so it will be more important to have political connections than economic acumen. Knowing what government is funding and where the pork is going will be more important that looking at individual corporate performance or markets.
In general, the business outlook will be much less good; though particular well lobbied and well connected businesses will do better. Small businesses in particular will be hard hit by wage and tax changes.
Who will win? Hard to say at this point. Likely “green energy” and companies like GE that are well lobbied and can buy the laws they want (like the light bulb ban). I’d avoid Defense Industry stocks as the military will have ongoing budget cuts, one way or another. Also I’d avoid medical stocks. As health care gets increasingly socialized, there will be ever less market driven profit center business and ever more mandated generic “one buyer” type markets. Just look at Medicare and Medicaid as examples. Less choice and low payments. Headed to even less choice and with money diverted to other programs now. Essentially, when Socialist oriented government moves in, it immediately attacks business and free markets. So “don’t be there”.
Where to be? That will take more work. Domestic energy production is not a favored industry, but has some real growth going on due to fracking. Yet that will be attacked and have higher taxes. Perhaps ‘service industries’ to government… I suspect that investments in other nations might do better, but even that is a bit problematic. Still, it is the direction of change that matters, not the actual position. So Mexico has been doing well, as has Canada. I’d avoid Africa due to various political instabilities, along with the Middle East. India and Indonesia have been ‘sporadic’, while China is going to ‘hit a wall’ on exports. As the USA falters economically and the EU is on the verge of breakup, their major markets are ‘having issues’. Just not seeing that improving any time soon. The EU is rapidly headed to a big mess too. Russia is headed back to a political dictatorship of Putin and friends. Japan is in stagnation and with a very high debt burden and dropping exports. So I’m just not seeing where there’s anything good at the moment. It will take more detailed study.
So that’s what’s on the agenda for later in the week. Watching what markets do in the next few days. Seeing what that indicates about where money is flowing, so what the ‘consensus vote of the dollars’ is; about where to move money.
Is this Dismal? Not really. Yes, Economics is called The Dismal Science. But “Third Way Socialism” has a knack for making money for a decade or two. Mussolini and the Third Way Fascists of Italy were lauded as an economic miracle at the time. Hitler and his style of National Socialism had their own economic miracle, pulling Germany out of a strong economic funk and depression. It can be ‘good for a while’. It is only later that it implodes. (Often from turning into a Tyranny. Sometimes from just running out of money to tax and consume as happened in the U.K. Socialism) So we might well have a decade or so of places to make some money off of the political economic process. Things like “high speed rail”, if endorsed by a government, can have a sudden influx of money, thus a profitable trade. You just have to pay more attention to political favoritism and less to fundamental economic sense. Like I said, the “Market Socialism” like Lange Type Socialism, have their merits and can work fairly well. It is just their slide into tyranny and tendency to suppress innovation and liberty that eventually bring them down. But maybe “this time is different”… One can always hope… “But hope is not a strategy. -E.M. Smith”.