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The Market Is a Pundit

Wall Street South
The other Washington

It used to be that markets would react to GDP figures, employment numbers, balance of payments, producers' indexes, consumer sentiment, and housing starts. That may be true, but these fundamentals have less predictive power than they once did, and that is because price changes are driven primarily by events in Washington, D.C. When 10% of your economy disappears over the course of a few months due to an unprecedented global pandemic, and the government replaces all those lost incomes with newly printed money, it makes sense that the government's decisions predominate fundamentals, because the fundamentals are a result of the government's decisions.

It's not normally so, or at least isn't, outside of the two times it's happened in the last twelve years. Free market purists have bewailed the centrality of government action to the health of the markets, for good reason: it creates moral hazard, otherwise known as capitalism for the poor, and socialism for the rich. Private companies take larger and larger risks because, why not? The government will clean up the mess.

It is undoubtedly a better thing to avoid the needless human suffering that widescale unemployment causes, especially in a country with so frayed a safety net that record numbers of citizens are food insecure. Economically and ethically this is the right thing to do. We have capitalism for the sake of people; we don't have people for the sake of capitalism. And so it is that, just as extraordinary drawdowns in the economy should be socialized, so it is that extraordinary windfalls should be socialized, too. When the economy returns to full vigor, marginal tax rates should be increased both to lower the debt, and to allow the beneficiaries of capitalism to give back to the society which affords them largesse. This is both ethical and patriotic.

Perhaps the next administration and congress will deliver a reinforced social safety net, rationalize tax policy and make productive investments in the economy that will help the country grow out of its debt at the same time that it raises taxes to pay it down. We look forward to a future in which Americans can go whole weeks without hearing about what's going on on Capitol Hill. Until then, expect risky assets to dance while Washington fiddles. Make America boring again.

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