I'm debuting a new use of the swami for people who blame market outcomes on their political opponents -- check out this monologue in which noted economist Glenn Beck (PhD, Headline News) blames part of the market decline on Obama:
Trillions of dollars in wealth, evaporation; it`s all going away. And it`s natural that most experts are conveniently pointing the fingers at the usual suspects.
Oh, it`s the home foreclosures. It`s the greedy CEOs on Wall Street.
Well, while all of those things are absolutely playing a huge role, there`s something else playing a role that everybody, except the market, seems to have forgotten about -- the presidential election.
The "REAL STORY" is that while investors hate recessions, they hate uncertainty even more and right now we`ve got nothing but uncertainty. There`s uncertainty about corporate earnings, there`s interest rates, but now with Barack Obama`s now seeming inevitable coronation right around the corner, there`s also massive uncertainty about how much worse the policies of a filibuster-proof Obama administration will make things.
The market is always looking ahead, and right now they`re only seeing high unemployment and massive inflation coming next year. They`re also seeing a president whose answer to our problems will be to raise taxes and move money from the rich directly to the poor.
...[I]f words matter to Obama so much, then someone should ask, why he insists on using the phrase "tax cut" when talking about his plan for the Treasury to write checks directly to the people who don`t pay any income tax...
[S]tock markets don`t like it either. Investors who are now looking into 2009 and beyond are beginning to figure out that Obama`s pledge to cut taxes for 95 percent of the "working families" is a joke. The truth, which you will find in the fine print, is that he`ll simply change the meanings of the terms...
Instead of calling a check from the federal government welfare, as we do now, he just calls it a tax credit.
According to the tax foundation, these tax credits a.k.a. welfare checks will rise from $407 billion a year to over $1 trillion a year in the next decade. If anyone is still unsure whether or not what kind of economic policies does he have and will they help America recover quickly, take a look at your most recent 401(k) statement because the markets have already decided.
Update 10/16 10:50 AM: National Review Online's Kathryn Jean Lopez reprints similar nonsense from a reader (via Hilzoy):
An e-mail: "OK, I'll say it...I believe today's massive decline
was, in part (and maybe a big "in part"), in fear that the debate tonight won't go well for McCain and the implications that will have for an Obama victory. The likelihood of a recession has been talked about and, probably, factored in to a lot of folks' thinking already... ...if tonight's debate tracks well for McCain, you'll see a positive response tomorrow; if it doesn't, hold on; it won't be pretty. Call it: 'Flight to Safety (from Socialism).'"
In general, all cause-and-effect comments about economic conditions are unprovable judgments. There's no way to re-run the actual economy under various alternative scenarios. E.g., economists still disagree about whether FDR's actions shortened or lengthened the great depression.
Causes of stock price changes are even more difficult to pin down because investors are always trying to look forward. Deciding a cause involves reading the mind of investors as a classs.
With that caveat, I find Beck's comment (which some others are saying as well) to be plausible. Look at some figures:
Today, the federal income tax rates on dividends and on long-terms capital gains are both around 15%. Suppose a wealthy investor buys $1000 worth of a stock which is paying an annual dividend of $100. The investor keeps around $85 of the dividend (before state income tax). If he eventually sells the stock for $1100, he will keep about $85 of the $100 capital gain.
Now suppose those 15% rates are raised to 20%. Then our hypothetical investor would keep only $80 of the dividends and $80 of the capital gain. The stock becomes less valuable to investors in terms of its after-tax return, so it would sell at a lower price.
Finally, I think it's reasonable to guess that investors anticipating such tax rate increases would offer less for the stock right now.
Posted by: David | October 15, 2008 at 02:47 AM
Two points:
First, Glenn Beck has been predicting this economic crisis for quite a long time. He has been right on and before the crisis hit some people were writing him off as an idiot for predicting the things he did. Well, bottom line is he was right.
Second, Glenn Beck makes great points in the portion you quoted. Most of all, investors experience UNCERTAINTY. Uncertainty creates market environments in which investors are cautious about laying down hard money if they are uncertain how the government's role will play into that investment. That is one of the major points that string throughout his comments. Obama's rhetoric about his confusing and magical tax plans on individual and corporations (and capital gains, etc. etc.) leaves one wondering what in the world this big government politician is really going to do. He is also calling for regulation anywhere and everywhere. These send signals that the markets have to try and ingest and figure out in order to properly make investment decisions. So yes it can have effects on the market.
Posted by: Darren | October 15, 2008 at 04:34 AM
Glenn Beck, ugh....THAT ONE. Seems to me the market's discomfort with uncertainty will be eased somewhat just by getting the election overwith. It also seems to me that investors are hungry for regulation, and if they see evidence of it, their confidence in the market will increase, at least for THIS investor.
Posted by: Raleighite | October 15, 2008 at 09:10 AM
I cannot believe people would seriously attribute a 28% decline in the market to uncertainty over a 5% bump in the capital gains rate. It's just... they must lack all perspective. "Uncertainty" covers things like "will terrorists nuke Washington" and "will the federal government nationalize all the banks." Not "will the government make a tiny tweak to a tax rate in a tax code that has thousands of pages of changes every year."
People are wondering if we're on the verge of another Great Depression, and people are talking about the uncertainty from marginal tax rates? Lose the swami, Brendan. Get this guy for your mascot.
Posted by: Noumenon | October 15, 2008 at 11:04 AM
Noumenon - THANKS for the laugh. And for a great post.
Posted by: Raleighite | October 15, 2008 at 03:14 PM