Saturday, February 28, 2009

Capital Is On Strike

I've been reading Amity Schlaes book, The Forgotten Man - it is excellent. It is a book about the Great Depression. I did not start reading it because I think we are heading into a Depression, it has been on my list since it came out in 2007. I started reading it because I wanted to see what parallels there are between now and back then.

I won't write a full review of the book now, but I will say that I do not want it to end, Amity is a truly gifted researcher and writer.

Last night I came across a line that she used to described businesses at that point in time (after FDR's re-election), she said that "Capital is on strike". FDR was hell bent on punishing business and thus business responded the way you would expect, they sat on the sidelines. Why risk capital if the most of the profits go to your silent partner (the government), but you are stuck with all the losses and the risk if the entity fails? Without a friendly environment for business there will be very little - thus no real job growth.

As then, we are now - Capital has gone on strike. An environment that treats businesses and corporations as evil (not to mention capitalism) is now in vogue in Washington and this has played itself out in the dramatic fall of the stock market. When FDR started his second term the stock market began to plummet due to an environment that was not friendly to business, it became evident that anti-business, anti-capital and socialist ideals would not pull the United States out of depression. Roosevelt lost a lot of support and the last real New Deal legislation that got passed was the minimum wage.

Until and unless we see a balancing out of the current anti-business sentiment in Washington, we will not recover. We need Capital to go back to work, we need to entice it, encourage it and incentive it. That is not to say we shouldn't regulate it. Of course we didn't get into this situation because of a lack of regulation, but there was a lack of enforcement in many areas.

I am an eternal optimist and I've met enough American's to know who really keeps this country running. We will survive this Great Recession, but we must stop the practice of demonizing the only engine that provides long term growth in this country - small business.

A great man once said "Get on your knees and pray like it is up to God, then get up off your knees and work like it is up to you" - that is the spirit of this great country.

Scott Dauenhauer CFP, MSFP, AIF

P.S. That great man is Sam Cochran (thanks Gregg)