The Long Term Investor

WELL......lets CELEBRATE the continuing DOW records being set weekly.

Finally, on the Brink of Dow 36,000

https://www.kiplinger.com/investing...8JqozzxFuSOP16VeySV8Yj_6WTVOq2yaOACBz_1TqvvGs

(BOLD is my opinion OR what I consider important content)

"In early 1998, my American Enterprise Institute colleague Kevin Hassett, a well-credentialed academic who would later become chairman of the Council of Economic Advisers during the Trump administration, came to me with an idea. Over the previous three-fourths of a century, stocks had returned an annual average of about 11% and government bonds 5.5%. Yet over the long run, stocks were no more risky than bonds—a phenomenon that economist Jeremy Siegel had demonstrated in his 1994 classic, Stocks for the Long Run. “It is very significant,” Siegel wrote, “that stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more.”

In other words, stocks carried a big premium compared with bonds to compensate investors for the extra risk they were taking, but there was no extra risk!

This paradox is called the equity premium puzzle, and Kevin and I believed that people were solving the conundrum by bidding up the prices of stocks to their proper level. Higher prices today mean lower future returns, allowing the two asset classes to reach a logical equilibrium.

The road to 36,000. We went public with our insight in an op-ed that the Wall Street Journal published on March 3, 1998, with the headline, “Are Stocks Overvalued? Not a Chance.” At the time, the Dow Jones industrial average was 8782. We suggested, with many caveats, that the Dow ought to be 35,000. A year and a half later, with a few adjustments, our thesis became a book called Dow 36,000. As for the Dow itself, well, it has taken longer than we thought to reach the magic number, but arrival seems imminent with just 6.5% to go as of April 9.

The main thrust of our book was that buying and holding a diversified portfolio of stocks is by far the best investment strategy, and the second half of Dow 36,000 was devoted to advice on how to build strong portfolios—the simplest way being to purchase the 30 stocks of the Dow itself. Investors who did that, plowing the dividends back into the shares, would have achieved satisfying returns: 451% since the publication of our book or 576% since our Wall Street Journal article came out.

Although we were right about buy-and-hold investing, we were wrong about our theory that the gap in returns between stocks and bonds would quickly vanish. The equity risk premium has remained roughly the same over the past two decades. This is actually good news. It means that investors can expect the future to be like the past: sizable returns for stock investors with a long view and the courage to persist.

Nevertheless, our theory went wrong. Why? The best answer comes from the grandfather of buy-and-hold investing, Burton Malkiel. In 1974, the Princeton economist wrote one of the greatest investment books of all time, A Random Walk Down Wall Street. In it, he said that stocks move in a pattern “in which future steps or directions cannot be predicted on the basis of past actions.” The reason is that all information relevant to a company’s value at this moment is reflected in today’s stock price. Future information, as it appears, will move the price in a way that’s unknowable at present.

Malkiel reviewed Dow 36,000 in the Wall Street Journal in September 1999. He understood our thesis and presented it more succinctly than we did: “The extra 5.5 percentage points from owning stocks over bonds…is unjustified.” He dismissed the mathematical carping of some critics as “beside the point.”

Malkiel’s own criticism was that he found it “hard to accept that even over the long run equities are no riskier than government bonds”—no matter what Professor Siegel’s data showed. Malkiel used this thought experiment: Suppose you want to retire in 20 years and could buy a 20-year zero-coupon U.S. Treasury bond that yields 6.65%. Alternatively, you could invest in a diversified portfolio of stocks with an expected total return of 6.65%. Who would possibly choose the stocks? Malkiel writes that it is, therefore, “illogical to assume” that the stock portfolio would be priced to achieve the same return as the bond.

In other words, investors set the price for stocks, and they demand a higher return from them, no matter what history shows. Investors are more frightened of what can happen to the prices of stocks than to the value of U.S. government bonds, which are seen as a safe haven even though their value can be depleted dramatically because of inflation. This fear is a fact. As Malkiel writes, despite the spread of free markets, “the world is still a very unstable place, and economic events are always surprising us.”

In the short term, stuff happens. Indeed, just a few months after he wrote his review, high-flying tech stocks crashed to earth. Solid companies such as Intel and Oracle lost 80% of their value. A year and a half later, the twin towers of the World Trade Center crashed to the ground. Seven years after that, the U.S. suffered its worst financial disaster since the Great Depression, and unemployment hit 10%. Eleven years later, a virus suddenly swept the world, killing 561,000 Americans and counting.

Financial risk is defined as the volatility of the value of an asset—the extremes of its ups and downs. Over 20-year periods or more, stocks have displayed remarkably consistent returns—and no losses after inflation. But investors have perceived overall risks to be higher because, in the short term, terrible things can happen. But despite many terrible things since the publication of Dow 36,000, your $10,000 investment in the Dow would still have become more than $50,000.

Years ago, I wrote a column for another publication that divided investors into two categories: “outsmarters,” who think that the way to make money in stocks is to beat the system by trying to time the market or putting large short-term bets on hot equities, and “partakers,” who try to find good businesses and become partners over the long haul or simply purchase the market as a whole, or large parts of it, via index funds with low expenses.

A few of those choices: SPDR Dow Jones Industrial Average (symbol DIA, $338), an exchange-traded fund nicknamed Diamonds, which mimics the Dow and charges 0.16% annually; Vanguard Total Stock Market Admiral (VTSAX), which attempts to replicate all listed U.S. stocks, with an expense ratio of just 0.04%; Schwab 1000 (SNXFX), a mutual fund that reflects the 1,000 largest U.S. stocks, charging 0.05%; and SPDR S&P 500 ETF Trust (SPY, $411), known as Spiders, which is linked to the popular large-cap benchmark and charges 0.095%.

With Dow 36,000, I tried to have it both ways. I advocated that investors adhere to a partaker approach, but I tried to be an outsmarter myself by predicting people would lose their fear of stocks and act rationally at last. What I was really saying was that I knew better than the mass of investors. My error provides an important lesson: Respect the market.

But there’s another lesson as well. Professor Malkiel concluded his review by saying that Dow 36,000 inspired “a degree of optimism and complacency that can be, for some, truly perilous.” If by “optimism and complacency” he meant investing in the Dow and forgetting about it, well, that has turned out just fine.


"

MY COMMENT

YES...over the short term "stuff" happens. HOWEVER this long term evaluation of the markets by the above writer shows that over the long term it is the steady investor.....the "partakers"....."who try to find good businesses and become partners over the long haul or simply purchase the market as a whole, or large parts of it, via index funds with low expenses"..........that win out. NOT the "outsmarters"........"who think that the way to make money in stocks is to beat the system by trying to time the market or putting large short-term bets on hot equities".

AND for Zukodany.........don't even get started on the CRYPTO TRADERS.

 

SO......here is an OBSCURE area of tax and financial planing. How to protect a BIG CHUNK of your assets in the event of FAILURE. As we have seen from the O.J. Simpson case and other celebrity cases....a good way to protect assets from a court judgement is by having the assets in a retirement account.

Here in Texas I have ALWAYS been amazed at the number of people that own a home or a ranch FREE and CLEAR. We are one of a handful of states that allows a person to declare bankruptcy....and protect the ENTIRE value of your homestead.

So if someone owns a $1MILLION value home.....or a $20 MILLION home.....or a $50MILLION ranch......free and clear..... and they declare bankruptcy.....they keep the entire homestead. There are four states that are similar....Texas, Kansas, Iowa, and Florida. It is kind of nice to know that.......even in the absolute worst financial nightmare.....bankruptcy......you keep the entire value of your house or your ranch up to 200 acres. There is good reason for the phrase.....dont bet the farm. Instead....keep it fully paid off....and....as a last resort it will be a fallback asset that can NEVER be taken by creditors even in the event of bankruptcy.

There is a 1,215 day residence requirement in the homestead.

The ULTIMATE secure way to protect a BIG CHUNK of money from creditors in these states......have it invested in your house, your mansion, or your ranch. NOT that I am at much risk...but it is nice to know that this is an added benefit of having a paid off house.

 

MANY smart companies are taking advantage of the SUPER CHEAP money now available. Smart business an smart management.....take advantage of cheap money.

Amazon Borrows $18.5 Billion It Doesn’t Need in New Debt Sale

https://finance.yahoo.com/news/amazon-tees-jumbo-eight-part-122127716.html

(BOLD is my opinion OR what I consider important content)

"Amazon.com Inc. sold bonds to refinance debt and buy back stock, as cheap borrowing costs prove too tempting to resist even for a company with tens of billions of dollars in cash.

The online retail giant issued $18.5 billion of debt in eight parts. The longest portion, a 40-year security, yields 95 basis points over Treasuries, after initial price talk at around 115 basis points, said the people, according to people with knowledge of the matter, who asked not to be identified because the details are private.

Companies have been taking advantage of wide-open bond markets and spreads at three-year lows to score cheap borrowing, even if they don’t need it. With the economy rebounding from the pandemic, U.S. investment-grade firms are increasingly tempted to spend their cash cushions on acquisitions and dividend hikes, or borrow even more.

At $18.5 billion, it’s Amazon’s biggest bond sale ever, and the second-largest this year behind Verizon Communication Inc.’s $25 billion offering in March. The company was said to originally be targeting $15 billion earlier Monday.

Amazon is coming off of a record earnings quarter and it provided a sales forecast for the current period that was stronger than analysts’ estimates. Cash, cash equivalents and marketable securities stood at $73 billion at the end of March, near an all-time high.

“They can grow into this leverage,” Matt Brill, head of North America investment grade at Invesco Ltd., said on Bloomberg TV Monday. “If you’re able to borrow for reasonably cheap, and then you’re able to get the operating leverage to go with it, it results in a lot of earnings.”

A representative for Amazon did not respond to requests for comment.

What Bloomberg Intelligence Says

“The size of Amazon.com’s balance sheet may grow meaningfully as its weighted-average-cost of debt capital hovers near zero. With abundant cash and growing free cash flow, borrowing may not be needed. Yet the ability to fund organic growth and potentially initiate a large shareholder-return program at historically low costs suggests additional debt over time.”

-- Robert Schiffman, senior credit analyst. Click here to read the research

Amazon has been a fairly infrequent issuer, but it comes in big on those rare occasions. It last tapped the bond market in June 2020, borrowing $10 billion for general corporate purposes. Prior to that, it sold $16 billion of bonds in 2017 to help finance its acquisition of Whole Foods Market Inc.

The proceeds of Monday’s offering will be for general corporate purposes, which may also include acquisitions and working capital. The two-year bond will be allocated for eligible green or social projects, which may include clean transportation, renewable energy and sustainable buildings, according to bond documents.

Moody’s Investors Service upgraded Amazon one notch to A1, its fifth-highest investment-grade rating, with a stable outlook. While the new debt sale temporarily increases leverage, proceeds are expected to be deployed over time for capital expenditures that fuel growth, which is a long-term positive for the credit, said Moody’s analyst Charles O’Shea.

Amazon has been on a spending spree since the pandemic began, building new warehouses and cloud-computing data centers across the world to meet surging demand from online shoppers and businesses turning to remote work. Purchases of property and equipment totaled $45 billion in the 12 months ended in March, up from $20 billion during the prior period.

The company’s board of directors authorized $5 billion in share buybacks in 2016, but it has never made purchases under that authority.

Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. managed the sale."

MY COMMENT

THIS is what I like to see as a shareholder. This is good management....taking advantage of cheap money to expand and grow. I ALSO like to see that $45BILLION of investment in capital assets in the past 12 months. Just like great earnings....money in the bank for shareholders.

 

Oldmanram and others have mentioned INTEL lately......I dont own the stock....but here is some info. An example of an ICONIC company that has fallen far.

Intel Stock Is Sliding Because Its Problems Are Big Problems and the Solutions Aren’t Easy

https://www.barrons.com/articles/in...olutions-arent-easy-51620664399?siteid=yhoof2

(BOLD is my opinion OR what I consider important content)

"Seeing troubles continuing at Intel for years to come, Atlantic Equities analyst Ianjit Bhatti on Monday cut his rating on the microprocessor giant to Underweight from Neutral, trimming his price target to $45, from $63.

Bhatti writes in a research note that he had upgraded Intel (ticker: INTC) to Neutral following the appointment of Pat Gelsinger as CEO, “given the opportunity for strategic change.” But he does not believe the company’s recently unveiled revised IDM 2.0 manufacturing strategy provided any answers to the company’s market share losses to Advanced Micro Devices (AMD). He adds that first-quarter results showed accelerating market share declines, “with cost competition from Intel not having been effective to date and its customer relationships no longer a barrier to adoption.”

Bhatti asserts that the IDM 2.0 strategy, which among other things includes the buildout of new fab capacity and the establishment of a foundry business, “may be the best long-term strategy,” but that it will be a drag on profitability until at least 2025, “and does nothing to address continuing market share losses to AMD.”

He adds that Intel is seeing accelerating revenue declines from cloud customers, while AMD’s first-quarter cloud revenue doubled. “We believe that AMD is now the preferred [processor] supplier to most cloud customers for new workloads, with market share gains to accelerate in 2021,” he writes. And Bhatti adds that AMD’s market share in PC processors rose as well in the quarter, with Intel’s average selling price falling as it gives up the high-end of the market. He adds that Intel expects supply issues to impact its PC shipments in the 2021 second half, “while AMD has guided to improving supply.”

The analyst also says that Intel’s historic relationships to key customers are not going to protect the company from its ongoing issues. “Ultimately customers benefit from the erosion of Intel’s CPU hegemony, with a resurgent AMD giving buyers more negotiating power,” he writes. “Intel’s closest partners are adopting AMD’s CPUs, with Michael Dell having stated that while ‘Pat Gelsinger is a great friend … there are other microprocessors out there.’”

Meanwhile, Northland Securities analyst Gus Richard on Monday reiterated his Underperform rating and $42 target price on Intel shares. He thinks the company is fixable, but that it will take time—a lot of time.

“Intel is not dead, just severely wounded from self-inflicted injuries over the last couple of decades,” Richard writes. “It missed the mobile market, mis-executed getting into the foundry market, fallen behind in process technology, their design environment is a mess, and it damaged the balance sheet returning cash to shareholders,” he writes. “Rehab is going to take 3-to-5 years if they are lucky.” He says Intel can be fixed, but that “it is going to be painful for investors over the next few years.”"

MY COMMENT

What a disaster. It is a shame and a classic example of management SCREWING UP an industry leader that was an ICONIC name. Kind of reminds me of Boeing.

 

For those that are OBSESSIVE about inflation.....here is a good PRIMER on the topic with much discussion and material.

Investing With Inflation: 150 Years Of Data

https://seekingalpha.com/article/4426754-investing-with-inflation-150-years-data

 

I like this basic article on one of the most common types of HUMAN behavior.

Why You Shouldn’t Jump On Investing Bandwagons

https://finance.yahoo.com/news/why-shouldn-t-jump-investing-220037031.html

(BOLD is my opinion OR what I consider important content)

"Everyone wants to invest to make money, and investing truly is a great way to meet your long-term financial goals. However, the financial press — and your friends and neighbors — can make it seem as if everyone in the world is getting rich while you are plodding away, barely earning anything.

This type of “fear of missing out” can lead some investors to hop on every investing bandwagon in the hopes of making a quick buck. While this desire is very human, it can also be very destructive to your long-term financial health. Here’s a look at just a few reasons why you shouldn’t jump on investing bandwagons.

You Won't Know When To Get Out
One of the biggest problems with jumping on a hot stock or other investing trend is that it’s hard to know when to get out. Hot stocks can often rise rapidly and offer dramatic profits, but they can just as easily turn on a dime and trade sharply lower. Imagine a stock that runs up 100% before you decide to pile in and buy it. When the stock sells off 10%, what will you do? What about if the decline reaches 20% or 30%? Many investors will be inclined to buy more of a stock they like if it sells off a little, but what if the stock continues to drop? Would a 50% decline be a huge buying opportunity or an indication that a stock will go down even more? It’s unlikely that the stock message boards or your friends who got you into a stock will have any answers, and that is one of the big risks of jumping on an investing bandwagon.

You Won't Know When To Get In
The flip side of not knowing when to get out of a stock is not knowing when to get in. Usually, hot stocks or other popular investment trends only attract the general public after big gains have already been achieved. Take the example of GameStop. In early 2021, no one in the financial press was talking about GameStop, as the stock traded at about $18 per share. It was only when the stock began skyrocketing by as much as 400% in a single week that the financial press couldn’t stop talking about it. Once the news of the hot stock reached the masses, it exploded upwards to $483 in a matter of days — but if you decided that was the time to buy in, you made a huge mistake, as the stock now sits at just $160 per share. Trying to time a hot stock is usually a fool’s errand.

Short-Term Wins Come at a Big Cost
One of the rarely discussed flaws of trading in and out of hot stocks is the hidden cost you’ll have to pay, in the form of taxes. Any short-term profits you take on hot stocks can trigger a massive tax bill, as positions held for one year or less are taxed at ordinary income tax rates. This means that depending on your income, you might owe as much as 37% in federal taxes alone on your short-term gains. In high-tax states like California, your combined tax rate could reach about 50%. If you could instead hold your positions for longer than one year, you’d likely pay just 15% on those gains, and you might owe as little as 0% if your taxable income is less than $80,000.

Investment Trends Change
One of the main reasons to avoid investing bandwagons is that investment trends change. Even if you’ve done the research and confirmed that there are sound investment principles behind the current hot trend, you shouldn’t expect it to last forever. And, as with any hot stock, it can be hard to know exactly when the winds of change will come. The closest thing to “a sure thing” on Wall Street is that the overall market will rise over the long run, a principle that no less than billionaire investor Warren Buffet subscribes to. But if you’re investing according to the latest hot trend, you can never be sure when the party will be over.

You're Gambling, Not Investing
Let’s call a spade a spade — the bottom line is that if you are jumping on hot investing bandwagons, you are gambling with your money, not investing. And that is OK if you understand what you are doing. There’s no doubt that investing speculatively can be exciting, and sometimes it can result in tremendous profits. However, just like gambling in a casino, these types of risks can just as often result in losing a significant amount of your money. If you want to speculate with a small portion of your portfolio — say, 5% — most financial advisors will say that is fine. However, if you’re looking to reach your long-term investment goals, gambling with money you can’t lose — just as in a casino — is foolhardy.

It's Time-Consuming
Trying to keep on top of all of the latest investment trends can take up a lot more of your time than you might imagine. Hot investment trends tend to come and go rapidly, so if you aren’t paying constant attention, you might miss out when the trend turns. In fact, if you aren’t willing to keep up with how your investments are going, you’re better off just holding a long-term, “buy-and-hold” investment portfolio to begin with.

It's Stressful
Jumping in and out of hot stocks or investment trends can be immensely stressful. If you’re buying and selling stocks like GameStop that can literally move 100% in a single day, your stress level could skyrocket as much as the stock. Especially if you are playing with money you can’t afford to lose — like your retirement or college savings funds — trying to ride the hot trend can put you in a constant state of tension and stress. As stress can create long-term health problems, at some point you’ll have to ask yourself, is chasing the hot trend really worth it?

It's Unsustainable
Riding hot investment trends is ultimately unsustainable. If you’re just looking for short-term speculation, sure, it can be fun to hop on to the latest trend. However, if following the crowd is your long-term investment strategy, it’s simply unsustainable. While you might get lucky and succeed once, twice or even three times, over the long run, it’s inevitable that you will get whipsawed and time the trend incorrectly. And if you’re dealing with hot stocks, just one miss can be enough to wipe out your whole bankroll. Imagine you buy a stock and you take a 100% profit, then reinvest that in the next hot stock and earn 200%. You’re doing great, right? Well, if your third investment loses 90%, your entire bankroll is essentially gone. It’s hard to reach long-term financial goals with that type of volatility.

It Can Be Expensive
It goes without saying that if you’re planning to day trade with a traditional brokerage firm, all of the commissions you pay from trading in and out of stocks can easily eat up all of your profits. But even at the zero-commission brokers, costs can add up. In addition to the taxes you’ll pay, as mentioned above, zero-commission brokers carry another risk — down service time. Brokers such as Robinhood may charge no commissions, but they’ve also had notable service outages, right when customers needed to buy or sell a stock the most. In fact, in 2020, Robinhood was actually under SEC and FINRA investigation for a day-long outage in the midst of the March market turmoil. If you need to get out of a stock that’s plunging and you can’t access your broker’s website, your losses can add up to a lot more than the commissions you are saving.

Slow and Steady Wins the Race
If you’re not yet convinced that “slow and steady wins the race” when it comes to investing, just take a look at the history of the S&P 500 index. Although the market can certainly be volatile at times, hanging on for the long haul has proved immensely profitable for patient investors. Not only is the long-term average return of the S&P 500 index about 10% per year, but there has also actually been no 20-year rolling period in history where the S&P 500 index has lost money. Considering the market has a reputation as being “too risky” for some investors, that’s an amazing statistic. If you told the average investor that there was an investment where they could earn about 10% per year while having no historical risk of losing money over any 20-year period, a lot more might get excited about putting more money into the stock market.""

MY COMMENT

This little article reads like a compilation of the best of this thread. HUMAN NATURE.....is reflected throughout history in the fables and stories that......USED TO BE USED....to teach children about greed, work, and laziness. Stories like...... "The Little Red Hen".........and......."The Grasshopper And The Ant"..........and......."The Hare And The Tortoise".....etc, etc, etc.

Probably many young people......now......have no idea what I am talking about in the above list of stories. BUT.....human behavior DOES NOT CHANGE. Just as.....BAD INVESTOR BEHAVIOR....that is responsible for the vast majority of investors FAILING to come anywhere close to the unmanaged averages......never changes.

What you dont know....and appreciate....can definately come back and BITE YOU as an investor.

 

WELL....I am feeling good today....I had a couple of private messages from two hot Chinese babes today when I logged in. According to the titles they wanted to "research stocks" together with me. Yeah.....I will definitely "research" with either or both of them.

The only problem......I dont read Chinese......I could not make out a single word of their posts. DAMN! BUT....It did get me started thinking that I might have to take a Chinese language course at the local community college

 

After those two messages....who cares about the markets today.

But....as to the markets.....BUMMER......and....who cares. The inflation FEAR MONGERS......read: professional short sellers.....are out in force right now with their media allies.

I guess the good news is.....all the market timers, and traders.....anticipated this drop and are making a fortune today. Funny, I dont recall any of them posting anything about this.......SPECIFIC....... drop today, in advance.

 

I STRONGLY believe the economic arguments in this little article. BUT........warning.....I have EDITED OUT any SPECIFIC comment on the current government.......I dont want this topic to be political.....it is too important to ignore.

It’s Time For A Supply-Side Resurgence

https://www.forbes.com/sites/waynew...for-a-supply-side-resurgence/?sh=44ba48a759e6

(BOLD is my opinion OR what I consider important content)

"(xxxxx) Multi-trillion-dollar stimulus and spending policies are exclusively demand-side measures aimed at supporting the consumer. (There is a) mounting economic crises that are resulting from this anti-growth agenda.

Instead, the federal government desperately needs to implement a comprehensive supply-side agenda – low-taxes, affordable government spending, sound money, free international trade, and low-cost regulations.

Starting with spending, Keynesian logic is driving (government) spending proposals that will, in total, expand the federal budget by nearly $6 trillion dollars. Pre-Covid, the entire federal budget was only $4.4 trillion.

The demand-centric economic models claim that this spending boosts demand, which then encourages greater production. The expanding production creates even more demand, which starts a virtuous cycle that ultimately promotes broad-based economic growth.

Even under the generous assumption that government spending is just as efficient as private sector spending, which is unlikely given the current size and expanded scope of the federal government, every dollar that the government spends means that the private sector has one less dollar to spend. And, this is true whether the government funds the spending through taxes or debt.

Consequently, there is no stimulus from government spending once the sources of the government funding are appropriately considered. Every positive impact that the government spending creates is completely offset by an equal and opposite negative impact from the reduced spending in the private sector.

But, this is not the end of the story. Government taxation and borrowing creates disincentives and distortions that disincentivize economic growth. These are the supply-side considerations that the demand-side models (xxxxxx) ignore.

(Government) proposes funding (the) $6 trillion spending bonanza by increasing corporate income and capital gains taxes. Corporate income tax rates would go from around the global average to one of the highest corporate income tax rates among the developed economies. Capital gains taxes would increase to its highest rate in over a century.

These tax increases will disincentivize the investment that is necessary to incent the innovations necessary to promote broad-based prosperity and robust economic growth. Due to these effects, the (xxxxxx) stimulus plan will ultimately de-stimulate the economy.

The (xxxxx) plan also fails in its distributional intent. While ( it is) promised not to raise taxes on anyone making less than $400,000 annually, (we) cannot promise that the economic consequences will not harm people of all income levels. Empirical studies have found that workers bear a disproportionate share of the tax increases’ costs through more unemployment and sluggish wage growth.

And it will not simply be big companies and the rich who will directly pay more in taxes. According to the U.S. Chamber of Commerce, there are over 1.4 million small business organized as corporations. These smaller “Mom and Pop” businesses will be hit directly with the corporate tax hikes in the (xxxxx) plan.

As the Chamber notes, many of these small businesses suffered some of the worst consequences during the pandemic but “would also see their tax bills increase significantly. In turn, this would have a negative impact on small businesses’ investment and growth plans and, most critically, hiring and job creation.” Put differently, the (xxxxx) tax increases are counterproductive because they will create the very problems that their proposed spending increases are supposed to resolve.

Monetary policy, which is a much more complicated and esoteric policy area, suffers from a similar problem.

Over-simplifying, the Federal Reserve uses a demand-centric framework to actively manage the economy. Their actions are unintentionally creating an unstable pricing environment that causes wild swings in commodity prices, persistent asset bubbles and crashes, and a volatile dollar-euro exchange rate. These instabilities impose many adverse consequences on families and businesses (particularly small businesses) including suppressing returns for savers in safe assets, encouraging people to take on greater financial risks than they should, and distorting the economy’s capital structure.

Another important plank of the supply-side policy mix is a sound regulatory structure that ensures important social issues are addressed while imposing as low a cost as possible. Unfortunately, the (current) policies here would also take us in the wrong direction through regulations that would be economically costly, yet achieve few results.

For instance, (the) target of reducing GHG emissions between 50% and 52% below 2005 levels by 2030 is unachievable, yet will be incredibly costly for lower- and middle-income families who cannot afford significant increases in the price of energy.

Similarly, when (it was) indicated (that we) would support “temporarily” waiving biopharmaceutical patent rights for Covid-19 vaccines, (we) undermined one of the U.S. economy’s key comparative advantages – a regulatory system that protects intellectual property (IP) rights.

Thanks to an environment that respects intellectual property, the U.S. has become a global leader in cutting edge industries such as the biopharmaceutical sector. Waiving these rights is political theater because the IP protections are not causing vaccine shortages in many developing countries. Worse, undermining property rights will discourage investment in U.S. high-tech sector over the long-term, threatening the creation of good paying U.S. jobs of the future.

Taken altogether, the (current) economic agenda is dis-incentivizing economic growth. Once the initial surge out of the shutdowns peters out, we will see a stagnant economy that exacerbates income inequality, reduces prosperity, and weakens long-term growth. Ultimately, the financial stability for millions of families will be threatened.

A principled supply-side economic agenda would rectify these problems. From a fiscal perspective, a supply-side agenda would replace the current complex anti-growth tax system with a streamlined system that has smaller compliance costs and imposes fewer distortions on the economy. As the evidence amassed by the U.S. Chamber of Commerce demonstrates, the real-world benefits from streamlining the tax system includes a more vibrant environment for businesses, large and small, that expands employment and leads to broad-based growth in incomes.

The flip side of taxes is spending. As I have argued previously, government spending is just like any other good. As more and more government services are provided, the value of that spending declines. Eventually, should the government budget continue to grow, its value will become less than the value of those resources in the private sector.

Judged against the goal of maximizing economic growth, the amount of government spending should be around 16% of the economy. Instead of this growth maximizing rate, federal outlays are now around 31% of the economy, which is all-time highs for the U.S. during peacetime. The unprecedented spending is why the total debt of the federal government is now larger than the entire economy (129% of GDP).

Reforming this clearly unaffordable amount of spending is an essential plank of a supply-side policy mix. This should be achieved by imposing strict controls over the growth of spending. Within this tight budget constraint, spending should be reprioritized to reflect pressing public needs (such as infrastructure) as opposed to the many wasteful and lower-valued projects.

While space limitations restrict a detailed discussion of the other policy areas, the basic logic is that the government should promote a rules-based environment that enhances the ability of private individuals to work and thrive.

The focus of monetary policy should be establishing a stable price level that does not punish savers nor distort the capital structure. This requires replacing the discretionary authority of the Federal Reserve with a rules-based system. There are many sound proposals, and most would be a large improvement over the current volatile system.

The current regulatory morass should be streamlined to minimize its costs on private businesses and individuals. Similarly, trade with other countries should be expanded to foster greater opportunity for all Americans.

In contrast to the current government-centric approach (xxxxx) a supply-side economic policy mix recognizes that market driven growth, freer international trade, and a stable price system are the sine qua non for creating broad-based and sustainable economic prosperity."

MY COMMENT

I have made the political content of this article NEUTRAL...for purposes of PURE discussion....instead of political BICKERING.

I have seen TWO TIMES in my lifetime when a supply side agenda was pushed in the government. The first time was in the 1980's when BOTH parties came together and passed various tax bills to cut taxes and put in place a supply side agenda. This kicked off a BOOM that lasted all the way to the Dot Come era under Clinton.

The second time we have seen this sort of policy was from 2016 to 2020. Once again it created one of....perhaps the greatest.....economic BOOM in history.

BUT.....ALAS.....no one cares.....or....everyone just pushes what they want for their own self interest. SO.....we WILL pay the price once again for IGNORING the ACTUAL lessons that history provides. We are headed right back to the same old STAGNANT economy that we saw from 2009 to 2016....and.....under various eras in the past. The coming impact of the current economic policies are already appearing and becoming obvious. Higher unemployment, a stagnant economy, money moving from the private sector to government, the inevitable INCREASED inequality, business moving out of the country, jobs moving out of the country, etc, etc, etc.

The greatest....POTENTIAL....danger for the country.....a repeat of the STAGFLATION era.......and/or.......a continuation of the DEFLATIONARY environment that we have been in.....along with the rest of the world....for the past 12 years. There is a reason that the EU is NOT the world economic leader. An economic model that emulates FRANCE is where we seem to be headed.....and....the result will be the same.

BUT......the good news for investors.....as I often say.....there is likely NO relationship between the general economy and the stock markets.