The Free Market Capitalist's Survival Guide

How to Invest and Thrive in an Era of Rampant Socialism

Jerry Bowyer

• Publisher: Harper
• Year: 2011
• Print ISBN: 9780061824845
• eBook ISBN: 9780061994746
• Topic: Politics & International Relations
• Subtopic: Business Education
• Index: Politics & International Relations

America is hurtling toward socialism. What should a free-market capitalist do with his money? Economist Jerry Bower, a frequent contributor to the National Review, Townhall, and Forbes online editions, presents a crucial investment guide for laissez faire thinkers as the nation enters its most disturbingly anti-wealth and anti-business era in history.

Chapter One
Not Clinton

Barack Obama is a Fabian socialist who prefers a centrally planned economy to one in which the decisions are made by investors, entrepreneurs, and consumers. Fabian socialists differ from their revolutionary comrades in that they are committed to gradualism as a strategy. That was the case a hundred years ago when Fabianism first emerged, and it is even more the case now that socialism has been discredited in the eyes of the masses around the world. Fabians know that socialism scares people, and so they use their propaganda tools to project an image of moderation.

Initially Obama had appointed a number of moderates to positions of high visibility in his economic team. But when pressed by media to reveal whether he will back off of his tax hike pledges, he refuses to endorse anything more than a delay in hiking taxes. He will hike taxes, he said; it’s not a matter of whether, but of when. Members of the financial press, who tend to understand economics (at least a little) better than the generic press corps, seem unwilling to accept this answer. How could he stick to a tax hike pledge in the middle of cataclysmic financial disruptions? Some of them are personal acquaintances and even friends, and I have seen them gradually move from denial to acceptance. Obama is not a moderate, and now everyone knows that.

Why did it take so long for so many to come to that conclusion? It is because they failed to follow the Obama line of reasoning. Obama genuinely believes that markets have collapsed because they have been given too few regulatory restrictions. He genuinely believes that business has contracted because of the Bush tax cuts of 2003. If that is the case, why wouldn’t he have stuck to his regulatory and taxing agenda?

No Centrism

Yes, he has spoken favorably about some of the things that Clinton did, but not about Clinton’s centrist initiatives. Obama apologists have tried to appropriate the economic outcomes of the Clinton administration, but only because they wrongly believe that Clinton’s modest tax hikes on the wealthy in 1993 caused the boom that occurred later that decade. However, deep down there are some important differences between Clinton and Obama. Clinton had already recast himself as a Southern moderate long before he ran for president. Clinton had not come up through Hyde Park leftism, like Obama, into a brief stint as senator and Democratic presidential primary aspirant. Clinton came up through a culturally conservative Southern state. He gained and then lost the office of Attorney General, an inherently conservative law-and-order post. He had his crisis early, and that crisis forced him to conform to the politics of his state.

Obama has not suffered any comparable political crises so far, and certainly none that required a shift to the center. He came to the most powerful political, economic, and military post in human history with his leftism quite intact. It will not be surrendered without a life-transforming leadership crisis and a struggle.

Some of my colleagues were wrong to predict a shift to the center. They forgot one of the fundamental principles of modern presidential policy forecasting: Don’t be fooled by moderate appointments, especially cabinet ones. A new presidency is like a new kitchen—the cabinets are for show. The real story is behind the cabinets. In the modern presidency, staff positions trump constitutional offices. Look to the chief of staff most of all—a hyperpartisan attack dog named Rahm Emanuel. Some hopeful investors took solace in the appointment of a moderate like Tim Geithner as treasury secretary. They argued that he would be a moderating influence on President Obama, but the treasury secretary has shown himself to be a company man, standing on the podium and smiling and nodding his way through presidential remarks that come roaring out of the environs of the Far Left.

Besides, Geithner is busy running the financial world. Former secretary Henry Paulson (a captive of his own leadership path, as we all are if left to ourselves) left Goldman Sachs to come to the Treasury Department, which he quickly turned into a giant Goldman Sachs. The only thing Paulson has ever done in his career was to build and maintain a giant investment bank, so in a time of crisis, he went back to his baseline and re-created his old job at his new job. Secretary Geithner is, among other things, the CEO of the world’s largest investment bank, formerly known as the Treasury Department. He will have his head and hands full running this new financial behemoth, and he is dealing with the ripples of ripples of ripples that come with any government intervention into the market. Geithner is unavailable for the task of creating America’s new economic program.

For that, Obama will stay at home. No need to go next door to Treasury when he’ll have his economic team right downstairs. Lawrence Summers may have been a moderating influence on the tendency to overregulate and overtax, but in the end those decisions have been political ones. Geithner and Summers and Christina Romer and the rest of the gelded moderates have so far been brought in at the end, to stand near (but not too near) the podium for the announcement of yet another Five-Year Plan. The Left has been running the Congress and they have wanted to please their constituents back home. Members of the House of Representatives don’t have a four-year cushion before facing the voters again. They’ve got two years, which in today’s world means they have no cushion at all. The Left is going to want something, and they seem to have an inordinate interest in hurting wealthy people. They simply won’t stand for a renewal of the Bush tax cuts. They won’t stand for CEO pay to be left alone.

The Obama playbook has involved enormous increases in public spending. Summers won’t resist that; he was one of the first public voices to call for the stimulus that was enacted in 2008. Summers believes, as does Obama, that spending—not production—is the chief measure of economic health. As of the time of this writing, there seems to be no effectively functional voice of spending restraint in the West Wing. Yes, Peter Orszag of the Office of Management and Budget (OMB) has some history of squawking about deficits. I’ve debated him myself on this issue, but in the final analysis the deficit hawks in the Democratic Party are really arguing more for tax hikes than for spending cuts. And Orszag recently quit anyway.

Forget Obama’s calm demeanor. A good friend of mine wrote an open letter to the president-elect during the transition period in which he expressed the belief that maybe Obama was more moderate than my friend had feared. Why did he change his mind? Obama’s calm demeanor. I told my friend to stop looking at the faces of politicians, who tend to be less scrutable than World Series of Poker champions. FDR emitted an air of confidence and recovery as he enacted policies that took a short recession and turned it into the longest depression in U.S. history. Yes, we want our president to be calm; but more than calmness, we want wisdom. If personality could trump law, taxes, and regulation, then the Great Depression would have ended in 1932 instead of 1942.

Yes, Reagan was a sunny optimist, but he was an economically literate sunny optimist. He didn’t grin us into the booming ’80s, he governed us into them. The grin just told us that he enjoyed it.

If, against my expectations, Obama ever shifts to the center, the structure of his arguments will change. Obama is a reasonable man. I don’t mean that he holds reasonable views. I mean that he thinks in syllogisms and expresses them out loud in paragraphs; he really does explain himself. The trick (which really is no trick at all) is to listen carefully to what he actually says. Don’t look for code words, or signals, or “dog whistles,” or any of the other chicken entrails that pundits use to ply their professions. Listen to the “we should do A, because of B, C, and D.” His policy will shift when his thinking shifts, and since he likes to talk to the press, he will do it in full view.

Obama is not afraid to speak his mind. Many politicians are, and for good reason. They’ve been burned by a press corps that takes their quotes out of context (or even worse, in context) to create “gotcha” headlines. That’s why so many politicians babble those inane talking points that we hate so much. They call it “message discipline.” Bush, for instance, knew that if he started winging it, he would get into trouble. Knowing his limitations, he stopped winging it. Obama doesn’t know his limitations. He’s not afraid to think out loud. And he likes the sound of his own voice. He likes the sound of his own thoughts in his own voice. It’s not that he lets his guard down when he speaks; it’s that he doesn’t really have guards to begin with. It’s refreshing that he speaks his mind. More than that, it is useful for investors like us to be able to peer into his mind and spot the shifts and turns, which we can leverage to preserve and expand our capital.

So, what would a shift sound like?

First, let’s learn to read the president’s rhetoric without illusions.

During the second presidential debate, candidate Obama was asked questions by ordinary citizens in a town-hall format. The first came from a man named Allen Shaffer:

ALLEN SHAFFER: With the economy on the downturn and retired and older citizens and workers losing their incomes, what’s the fastest, most positive solution to bail these people out of the economic ruin? . . .

OBAMA: It means that we are cracking down on CEOs and making sure that they’re not getting bonuses or golden parachutes as a consequence of this package. And, in fact, we just found out that AIG, a company that got a bailout, just a week after they got help went on a $400,000 junket.

And I’ll tell you what, the Treasury should demand that money back and those executives should be fired. But that’s only step one. The middle class needs a rescue package. And that means tax cuts for the middle class.

It means help for home owners so that they can stay in their homes.

In order to recognize the redistribution philosophy in Obama’s answer, one must learn to understand the algebra of his rhetorical style—that is, you must learn to practice substitution for his verbal variables. The best example is “middle-class tax cut.” A large proportion of the people who get a check from the federal government pay little or no federal income taxes. Therefore, the check they get from Uncle Sam cannot possibly be honestly treated as a refund; therefore the amount of the check that exceeds the taxes paid is a transfer payment, not a refund. A tax proposal that takes more money from high earners and gives that money, in the form of a transfer payment, to moderate earners is no different in substance from traditional left-leaning redistributionist policies of the past. The only difference is rhetorical.

Substitute “transfer payment” for “tax cut” and you find candidate Obama proposing a general transfer payment to the middle class in order to stimulate the economy, and some sort of targeted transfer payment to delinquent home owners to stave off foreclosure. Note, especially, the “pivot.” The candidate was not asked a question about the middle class or even about economic recovery. He was asked about the financial rescue package. His mind went automatically to transfer payments as a cure to the financial disruptions on Wall Street.

Obama was clearly an advocate of trickle-up economics prior to the election, but did that change once he was elected? Many people think so; I do not. First of all, such a transition is, on the face of things, generally implausible. Liberal candidates move left during the primaries, right during general elections, and back left when in office. If a tilt right comes at all, it comes in the run-up to reelection, or (like Clinton) after a punishing midterm election. The wise investor kept a very close eye on the 2010 congressional races for a hint into Obama’s future policy direction. That election changed nothing.

President-elect Obama’s rhetoric did not shift after his own election. His first press conference focused on economic matters. As he stood at the podium, a collection of (generally moderate) financial statesmen stood behind him. Like props in a stage play, none of them had been given a speaking part.

All of the lines were spoken from the holder of the “office of the president-elect.” He reaffirmed his commitment to the redistributionist model, explicitly rejecting the possibility that he would reverse his position on taxes: 95 percent would get their checks, 5 percent would pay for those checks. Consumers would be stimulated. His campaign position was right, and was all the more necessary in a time of crisis. A meeting with some of the great economic minds of the Democratic Party had no discernible effect on President-elect Obama.

Nor, apparently, did his choice of key advisors alter his redistribution plans. As media apologists were waxing eloquent about the centrist credentials of former Clinton treasury secretary Larry Summers, Obama was explaining precisely why he had invited Summers to join him in the West Wing:

We’ll need to bring together the best minds in America to guide us. And that is what I’ve sought to do in assembling my economic team. I’ve sought leaders who could offer both sound judgment and fresh thinking, both a depth of experience and a wealth of bold new ideas—and most of all, who share my fundamental belief that we cannot have a thriving Wall Street without a thriving Main Street; that in this country, we rise and fall as one nation, as one people. . . .

Larry Summers also brings a singular combination of skill, intellect, and experience to the role he will play in our administration. . . . He also championed a range of measures, from tax credits to enhanced lending programs to consumer financial protections that greatly benefited middle-income families.

As a thought leader, Larry has urged us to confront the problems of income inequality and the middle-class squeeze, consistently arguing that the key to a strong economy is a strong, vibrant, growing middle class.

This idea is at the core of my own economic philosophy and will be the foundation of all of my economic policies.

Forgive the long quote, but it is important, if you are to be able to discern a shift in investment climate, that you learn not just to identify Obama’s positions on issues but to read the structure and flow of his thought as well. When Obama speaks in terms of national unity, he is brilliantly recasting class warfare as unity.

Genuine classical free-market economics does recognize that we stand or fall together; that Wall Street needs Main Street, and that Main Street needs Wall Street. But that is not the point that the president has continually made. Notice in the quote above that our national unity is unidirectional: Wall Street needs Main Street, period. If Wall Street is hurting, it’s not because U.S. corporate tax rates are higher than in the rest of the developed world, or that a wave of financial regulation post-Enron has driven financial activity to London and Dubai. No, it’s because there have not been enough transfer payments to the “middle class.” What does Wall Street do for Main Street? As far as Obama’s rhetoric is concerned—nothi...

Table of contents

• Cover
• Title Page
• Contents
• Introduction: Still in the Woods
• Chapter One - Not Clinton
• Chapter Two - Obamanomics
• Chapter Three - Applied Obamanomics
• Chapter Four - You Are Here
• Chapter Five - Principles for Surfing the Socialism
• Chapter Six - Debt Investment Strategies
• Chapter Seven - Equity Investment Strategies
• Chapter Eight - The Bush Boom, Bust, and a New Birth of Freedom
• Index
• Acknowledgments
• About the Author
• Copyright
• About the Publisher