I’ve seen many articles about how Wall Street is attacking progressives, especially progressive Democratic candidates Elizabeth Warren and Bernie Sanders. Both have responded in pretty much the same way: If Wall Street doesn’t like us we must be doing something right. And, send money.
Come to Dinner
Last week, my wife and I experienced firsthand a less public but more insidious version of the attack. We’ve been Fidelity Investments customers for more than a decade and have a trusted relationship with one of their client advisors. He periodically invites us to a customer dinner at a local country club featuring a speaker. This year’s topic was billed in the invitation email as
An Evening with Bruce Johnstone
Economic uncertainty with politics and market volatility. Will free market principles be offset by politics and trade wars? How might we change the culture in DC to reduce uncertainty and improve confidence?
Sounded interesting. Johnstone was one of the most successful equity income fund managers in the 70s and 80s and now has the title “Managing Director & Senior Marketing Investment Strategist” at Fidelity. Hard to know what this means, but the food is good, the price (free) was right, and we’ve learned some things at previous dinners.
Well, the food was good. But the talk was a rambling screed of Republican talking points and explicit attacks on Elizabeth Warren, all couched as investment advice. (To be fair, Johnstone did say that legal immigration is good for the country and the economy.) If there had been data or evidence or compelling logic I would have patiently and thoughtfully listened. But, no, it was all just talking points backed by innuendo.
I won’t bore you with all of it, but there are a few egregious examples that are worth discussing.
Socialism leads to Venezuela and Cuba
Johnstone said that socialism leads to Venezuela and Cuba. I’ve been to Cuba and it’s economic situation is indeed awful. And, I have no doubt that Venezuela’s economy is awful too.
But Johnstone wants you to connect the dots, with no evidence, that
- Venezuela and Cuba failed because they are socialist.
- Electing a progressive Presidential candidate will make the US socialist, eliminating capitalism and the power of free markets.
These are both ridiculous: Venezuela and Cuba failed because they are corrupt, they are dictatorships, with leaders for life, centralized planning, and little free market. Cuba also suffers from the decades-long US embargo (which they call “the blockade”). And, neither Sanders nor Warren advocates converting our economy to socialism.
What they do advocate is government funding of services like health care and education, which many people consider basic human rights in a wealthy country like ours. And, they advocate changing our tax policies that allow a very tiny minority of our people to own the vast majority of our nation’s wealth.
Johnstone said that regulations cause uncertainty, which stifles economic growth. So we should deregulate.
To support this, he showed a graph of the number of pages published in the Federal Register each year. I don’t have his chart, but this data is widely available and often cited. He pointed out how regulations are decreasing under the Trump administration and how good that is.
This thinking is flawed:
- Pages published in the Federal Register may add regulations or may remove regulations. Page count reflects activity, not what that activity accomplishes.
- Many companies benefit from regulations that inhibit their competitors, subsidize their products, or that provide legal protections (e.g., my product met government safety standards so I’m not liable that it injured you.)
- Regulations can protect society from runaway focus on short-term profit at the expense of harm to society and to the economy. We’ve been to this party, for example, with the latest recession.
- If the issue for companies is, as Johnstone said, uncertainty, deregulation will be just as harmful as regulation.
Elizabeth Warren is Bad for the Economy & The Country
Juxtaposed with his socialism screed, Johnstone showed this cover from the October 26th issue of The Economist, implying that electing her would lead to Venezuela and Cuba. What he didn’t do is actually discuss what the cover article said. Here are a few quotes:
- “But as remarkable as Ms Warren’s story is the sheer scope of her ambition to remake American capitalism. She has an admirably detailed plan to transform a system she believes is corrupt and fails ordinary people.”
- “Plenty of her ideas are good. She is right to try to limit giant firms’ efforts to influence politics and gobble up rivals.”
- “But at its heart, her plan reveals a systematic reliance on regulation and protectionism. As it stands, it is not the answer to America’s problems.”
- “Some Republican and Wall Street critics claim that Ms Warren is a socialist. She is not. She does not support the public ownership of firms or political control of the flow of credit. Instead she favours regulations that force the private sector to pass her test of what it is to be fair.”
- “However, if the entire Warren plan were enacted, America’s freewheeling system would suffer a severe shock.”
So, The Economist has some issues with Warren’s platform but is quite balanced in their analysis. She wants to “remake American capitalism” — what she calls “big structural change” — but she most definitely doesn’t want to lead us to Socialism and Venezuela/Cuba.
You’d never know that from what Johnstone said and implied.
Taxing the Wealthy Stifles Innovation
Yeah, Bill Gates said this recently. And other billionaires like Mark Zuckerberg are piling on. But where’s the evidence? This country had plenty of innovation in the 50s and 60s when taxes on the wealthy were very high.
Are we really to believe that Bill Gates decided to build Microsoft because tax rates on billionaires were low? Of course not. He was a brilliant “kid” who also turned out to be a successful businessman who built a huge business using a combination of good product and technology decisions and monopolistic business practices.
Did Mark Zuckerberg analyze tax rates on billionaires in his dormitory at Harvard when he started what became Facebook? Like Gates, Zuckerberg built Facebook through a combination of good product and technology decisions and monopolistic business practices.
It is hard to imagine that high taxes on billionaires would have stopped Gates or Zuckerberg. Just like the high taxes of the 50s and 60s didn’t stop an earlier generation of innovators at IBM from revolutionizing computing through a combination of good product and technology decisions and monopolistic business practices.
This attack on progressive candidates by industry and extremely wealthy people is going to ramp up as these groups feel that their dominance is threatened. We’re already hearing billionaires whine about potential tax increases. And Amazon spent over $1.5 million on the 2019 Seattle City Council race — a drop in the bucket for Amazon but a big deal in a city council race.
It is important to question the unsubstantiated claims and innuendo that are being made in these attacks.