The stock market is always right. Nonetheless, I must admit to being more than a little annoyed that the stock market greeted the election results with a two-day nosedive, the worst two-day decline since the crash of 1987. Even Friday's 250-point gain was little solace.
It smacked of Wall Street pique that the next president appears to be no friend of "the Street." But the economic platform of our new president came as no surprise, so why the selloff?
Yes, he promised to tax capital gains at the same rate as ordinary income, which would represent a huge hit to those who still have any capital gains remaining. But the smart money had already priced that fact into the stock market, selling earlier in the campaign as the candidate's momentum picked up.
Certainly, President Obama will take a more populist approach to digging America out of its economic mess. But realistically, how much more could Wall Street have expected in the way of aid from the government? More than a trillion dollars has already been injected directly into the banking system by way of guarantees and capital stock purchases.
With the global financial markets resisting transparency, clarity and centralized clearing of transactions, all the liquidity in the world won't restore trust and spur lending. So why not try from the other end -- by helping the debt-ridden consumer?
On balance -- priceless!
The stock market, as measured by the Dow Wilshire 5000 Index, lost $1.2 trillion in the two days following the election. Part of that came from fear of the unknown impact of the next President's (and Congress') planned policy changes and spending programs.
It reminds me of the MasterCard commercials that tote up the price of components of an event: "Tickets, $100; parking, $20; pop corn, $15." But remember the punch line is always the sum total of the experience.
And in the case of the global impact of the election of Barak Obama as the next President of the United States, the overall impact is indeed PRICELESS!
America now has the opportunity to regain global trust in our basic principles of equal opportunity. If one picture is worth a thousand words, we have demonstrated the true strength of our democracy, with a capital D. We didn't have to go to war to spread democracy. All we had to do is demonstrate beyond the shadow of a doubt -- and beyond hanging chads -- our national commitment to our unique political system.
And in doing so, we have visibly inspired millions of people around the world to give us the benefit of all the doubts that have been raised in the past eight years.
Priceless, but costly
Now comes the tough part. As we try a different approach to restoring our economic growth, all the hope in the world can't deny economic reality. The jobs figures last Friday demonstrated the immediate need to grow the economy. Now there will be even greater expectations of some sort of government-directed public-works program.
The real issue is how to pay for all of this spending. And on that score, President-elect Obama may have a very appropriate role model in the actions of President John F. Kennedy.
It was Kennedy who famously said: "Paradoxically, the way to increase tax revenues, is to cut tax rates." Those are my italics.
When Kennedy became president, the top personal tax rate was 91%. That's not a typo. Almost every penny of the last dollar earned by top wage earners went to the government -- and the economy was stagnant.
Kennedy became the largest tax-cutter in American history at that time, cutting the top personal tax rate from 91% to 70%. He also cut the top corporate tax rate from 52% to 48%. Unfortunately, he did not live to see the resultant spurt in growth that came to be known as the "Kennedy Boom."
Cutting taxes to spur economic growth is not a Republican vs. Democrat issue. It is a growth vs. stagnation issue. And since the top 10% of tax returns produce 60% of the tax revenues, that is where rates will have to be cut in order to produce more jobs, more economic growth and then more tax revenues.
President-elect Barack Obama has given ample demonstration of his insight, intelligence and his appreciation of his place in history. That is why the world, and the markets, should be filled with hope, even amid this very real economic slowdown.
And that's The Savage Truth.