The most insane fantasy Democrats sell is that low-income and middle class families can have any positive fate independent of wealthy families and corporations. That you can punish the latter and it’s not going to end in lower employment, lower wages, decreased benefits, decreased tax revenue, and therefore a weaker safety net. You do not have to love or admire billionaires to understand why this notion is problematic; it’s economics 101. Our country cannot function without significant on-going private investment. Economic growth stagnates when our government becomes an incentive to invest overseas or to sit on cash. It wasn’t an accident that President Obama went around trying to convince people that sub-2% growth and 1990s wages were the “new normal.” Big government politicians are bad at basic economics and they always have been.
But there is a difference between a moderate that is bad at economics and a progressive driven by economic resentment who thinks Hugo Chávez is an expert on prosperity. Our country is sufficiently resilient to tolerate the first scenario.
It seems to be a foregone conclusion in the financial world that a progressive candidate winning the 2020 presidential election would destroy the economy, and not at a slow pace. With candidates like Warren and Sanders supporting wealth taxes and all Democratic candidates attacking tax reform (which spurred significant domestic investment), there is an immediate incentive to sell US assets and put them in foreign vehicles and tax havens. There is an immediate incentive for corporations to invest in plant overseas to the peril of American workers.
Unlike charlatans like Paul Krugman – who thinks Americans electing anyone who disagrees with him will be economic Armageddon – this notion is routinely backed lately by financial institutions and wealthy investors themselves.
Swiss bank UBS published a survey of thousands of households with assets over $1 million (which I would not consider a good threshold for “wealthy” these days, but that only amplifies the point here). UBS reported that 55% of the households surveyed expect significant market volatility next year, and 25% of their average assets are in cash. A whopping 60% of those surveyed expect to increase cash holdings in anticipation of politics-driven volatility next year. That means they won’t be investing that money in stocks (corporations).
I do not think there is reason for a panic, and the financial markets are clearly pricing in another term for President Trump. (Even major Democratic donors say they are sitting the election out or backing Trump if Warren is nominated.)
But the tail risk for being wrong is enormous. Gaffe machine Joe Biden is probably going to be out of the race after a dismal performance in early states puts real numbers on how unpopular he is with anyone under 70 and folks who are exasperated with career politicians. It’s unclear whom his supporters will shift to, but it kind of doesn’t matter because they are far outnumbered by progressives in the primary contest.
If you think polls are providing any useful information whatsoever, progressive candidates taken together represent more than half of the Democratic electorate. Absent some compelling moderate entering the race – and approximately zero names come to mind – the Democrats are likely going to nominate someone who wants $100 trillion in new government spending and to abolish ICE.
How do sane people not worry about how to hedge their portfolio against this event?