I noticed this morning on Yahoo Finance the site’s plaudits for a Dublin-based stock investment company that had racked up a gain of 29 point something percent over the past year, trouncing most of its rivals. What the article skipped over was the fact that both the S&P and NASDAQ gained 32 point something percent over the same period. (Working about an hour a day, and helped substantially by my son Brendan’s advice, my non-index fund IRA gained 43 point something percent over the same time frame. Yes, I used to be a professional investor and yes I typically underperform during the onset of bear markets, but what I’ve just written is the typical pattern–professional active stock managers underperform the market pretty continuously.) The telling part of this to me is that Yahoo Finance appears to have simply rewritten a press release without thinking to check the facts–or worse, not understanding that, in theory at least, the reason for paying a high fee to active managers is the belief (forlorn hope?) that over time they’ll do better than an index fund. The reality, however, is that almost no active manager does. Hence, the attractiveness of index funds.
The Mets and the Phillies are meeting for the first time ever in the playoffs.
Every first-year economics student knows tariffs are bad (with some exceptions for protecting fledgling industries in emerging economies). Think: Smoot-Hawley and the Great Depression or the state of the US auto industry after fifty years of protection against foreign competition.
Every economics student also knows that the wealthier one gets, the less one spends as a proportion of income. This implies that the worst possible way to stimulate economic growth through tax policy is to give tax breaks to the wealthy. Why, then, was Reaganomics so successful? I think Reagan was successful in spite of his tax policy. When I went to work in the stock market in late 1978, US Steel, like most other mature US companies, was operating with plant and equipment built in the nineteenth century. German and Japanese competitors, in contrast, were making higher quality steel at much lower cost from mills that were less than twenty years old. Put a different way, unlike the case in the US, those countries’ industrial bases were destroyed during WWII, so they were forced to rebuild from scratch–and ended up with much more profitable and efficient plant and equipment. Instead of modernizing, many US companies simply pushed their problems down the road by lobbying for protective tariffs. Reagan, however, permitted corporate raiders to take over and modernize corporations that declined to do this themselves–using high-yield (aka “junk”) bonds rather than loans from establishment banks as a key source of finance (this ended up badly, but that’s another story).
The big failure of Reaganomics is the decrepit state of domestic infrastructure–roads, bridges, rail lines, electric power, communications, schools… Put differently, Reaganomics assumes, incorrectly, that there are no such things as public goods, which private individuals have no interest in providing.
All this means that Trumponomics–a mindless repeat of Reaganomics–is a recipe for economic disaster.