In response to my column today, a longtime reader sends this:
Free market economics involves the application of immutable laws, and it’s those laws that allow us to forecast the effect of current events on various companies and the stocks and bonds they’ve issued. But investors will only play the game if they believe the rules aren’t going to change in the middle. When government begins ‘experimenting’, it makes it harder for investors to generate a long term forecast. This drives long term investors away from the market, or converts them into short term traders. The result is a massive increase in volatility as investors shorten their investment outlook because they can’t predict what’s going to happen far enough into the future.
Volatility is an indication of instability. It’s not a sign of a healthy economy but of an economy which has lost its way. High volatility isn’t what you expect from the worlds largest market, but from the emerging economy of a third world country. As you can see from the attached chart, when Roosevelt began his ‘bold persistent experimentation’ it drove away long term investors and that caused volatility to dramatically increase. It will almost certainly have the same effect when Obama does it.
Since he’s so determined not to learn from the mistakes of the past, I would expect him to repeat them. I’m betting that his poking and prodding will add to unemployment, reduce economic growth, and wreak havoc with the federal deficit. There is little doubt that he’s the wrong man at the wrong time. I’m just hoping that he is as devoid of principles as the Clintons, and that he finds a way to break his campaign promises or we’re in for a long painful recession, and maybe worse.