My father often said: sometimes its who’s talking not what’s said. Leadership matters, that’s why its important to find the right person to listen to about taxation, because its a dangerous form of social engineering. An overt ideological pretext isn’t useful either, the kind often used in Europe and among Keynesians. Gone is any notion of equity or capital formation. Its all about the demand side of the equation, that’s because Keynesian technocrats view working folk as chattel and the state as monolithic.
But Chicago & Vienna have more in common that often acknowledged; more Hayek less Keynes is the solution to our Republic’s fiscal worries. But to achieve this, we’re going to need stronger families, sound money, smaller government and surging equity, capital markets. Growth matters more than redistribution.
This isn’t a world of fixed exchange rates and static social classes, we’ve got plenty of disruption that welcomes challenges that are fit for America. The ‘Goldilocks’ economy of strong growth and low inflation matched by currency accords is long over. But so is secular stagnation, the canard used by Keynesian types to evade the very responsibility to assume during upticks.
The real worry isn’t just diverging government yield curves, but stagnant corporate bond markets that aren’t liquid anymore. The massive loss of IPO’s is matched by unwilling consumers underwriting failing monetary policies and redistribution masquerading as social engineering. The working person knows a thing or two about getting screwed. What no progressive ever acknowledges are trends in the social base line of empty malls and surging corporate buy-backs.
This is why people flock to Robert Shiller’s CAPE index. His cyclically adjusted price earnings ratio averages corporate profits over ten year periods. It remains a standard bearer measuring valuation. Shiller’s CAPE index finds that today’s exceedingly high valuations match those of 1929. Don’t panic though, there’s sound reasoning why this is occurring.
Profits are high relative to GDP at the moment, but most of this is explained by a shift favoring capital at the expense of labor during the great recession of 2008. It also reflects a greater concentration of monopoly like wealth at the margin. Such short term views don’t appreciate the fusion of labor and capital under digitization that occurred after the end of the Cold War. It is this shift that is permanent, evidenced in surging education programs, podcasts, TED video’s and other forms of irregular education.
We should remember that future equity returns are dependent on two sources: growth in profits or the market’s placing a higher valuation on future profits. Likewise, GDP growth is dependent on surging employment matched to productivity enhancing technology. This is why corporate tax cuts matter.
Currently, the longterm CAPE trend is 16.8; today it is 30.
Next summer will tell if team Trump has delivered on growth. My monies on the working American.
William Holland
William Holland 