Thursday, 20 September 2012

Graph (tables) of the week: Who's better for stocks, trade and economic freedom?

Still on the US Presidential election, Forbes asks which potential President is better for stocks? Usually one would infer that stock performance aligns more closely with a Republican, but the following table suggests otherwise:


Perhaps this graph isn't all that accurate in measuring Presidential performance as some good market performance had nothing to do with what a President did in office. They can however be a good indicator of who's better for business, or at least who's better for Wall Street. Btw, contrary to popular belief President Obama seems to be doing pretty good in terms of stock market performance (much better than Bush for example).

However, even with this in mind, I still fear the answer to the question of which of the two candidates is better for the economy, particularly when one looks at their opinions on international trade (see here for Obama's point of view and here for Romney's).

Don Boudreaux gives them both a run around. This is the message for Romney:
"Less forgivable is a campaign promise to break a campaign promise. Your wish to “label China a currency manipulator” means that you seek a pretext to impose (as your website says) “countervailing duties” on imports from China – which is to say, you seek a pretext for raising taxes on Americans who buy goods and services from China. Yet in other episodes of your campaign you promise (as you did here* last month) “I will not raise taxes on the American people. I will not raise taxes on middle-income Americans.”

If you keep your promise to impose countervailing duties on imports from China you will thereby break your promise to not raise taxes on the American people. (Americans who buy imports from China are, after all, American people.) But if you keep your promise to not raise taxes on the American people, you must – as I hope you will – break your promise to punitively tax those many Americans who buy imports from China."
And this is his message for Obama:
… is nearly twice as active as was that of your predecessor at raising Americans’ cost of living by badgering suppliers to hike the prices charged on products such as consumer electronics, furniture, and footwear;
… has doubled-down on the Bush administration’s efforts to raise production costs for the many American producers who buy inputs such as zinc and oil-field-drilling equipment from Chinese manufacturers;
… is two times as likely to pander to the economically ignorant in order to grant special privileges to the politically powerful, all in efforts to prevent Americans from spending their money as they see fit."

In different but related news, the Fraser Institute in association with the Institute of Economic Affairs has published the newest edition of the Economic Freedom Index. What is worrying is that the UK and the US are out of the top 10, while the US is close to being out of the top 20 on its lowest ever 18th place. For two countries that used to pave the way for economic freedom, this is a highly disappointing result. 

Here's the top 30 countries:

The "usual suspects", Hong Kong, Singapore, New Zealand, Switzerland, Australia and Canada are joined in by Bahrain, Mauritius and Chile. I am happy to see Estonia fighting its way to the top, and I'm equally excited for Arab countries such as UAE (11th), Qatar (17th), Kuwait (19th), Oman (20th) and Jordan (23rd). Hopefully other Arab Spring countries will follow these successful examples. I'm also happy for small countries like Malta (25th), Lithuania (28th) or Montenegro (28th) (Luxembourg is a case for itself). This only proves that size doesn't matter; what matters is willingness to achieve economic freedom. And why is freedom important? "Research shows that people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer life spans."

Now for the two disappointments, United States and United Kingdom. In the 1980s, US was ranked 3rd, while the UK was 6th. United States deteriorated in the last decade in regulation (17, down from 2), international trade freedom (42, down from 8) and surprisingly legal system and property rights (33, down from no.1 in the world in 1980). In the last category the crucial issues were judicial independence, impartial courts, protection of property rights, and military interference in the rule of law (?! from grade 10/10 to 6.67 - what's happening in this country?). Other worrying parameters were capital controls (international trade category), administrative requirements, hiring and firing regulations, bureaucracy costs and bribes. 

I don't live in the United States, but if this is true, than this is a serious problem for a country that used to be the panacea for property rights, the legal system, and most of all economic freedom. Has crony capitalism took its toll? 

So going back to the first graph, economic performance of Presidents after 1980s and Reagan, and in some parameters after Clinton and the 1990s doesn't seem to explain the deterioration of economic freedom in the US. If I were to evaluate presidential performance I would use economic freedom indices rather than the Dow. 

Whoever does become president will have to do a lot to address this important issue - how to restore economic freedom in the US. Going back to their positions on international trade, I somehow doubt this will be on their list of priorities. 

4 comments:

  1. pragmatic pessimist21 September 2012 at 11:35

    For the question you ask on crony capitalism, the answer is one big fat YES!

    Not just since this administration but quite some time ago all the problems you have recognized have been pilling up and have left this country more divided and more impoverished than ever before. They speak of inequality, lack of upward mobility and the end of meritocracy, and they're right. All this is caused by deep cronyism and misunderstanding of old constitutional values that once made this country into a world leader. All this is falling apart before our very eyes. And it has been falling apart for quite a while.

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    Replies
    1. I'm truly shocked by this.. What has happened to the land of the free?
      I though Britain was going rogue, but I never though things in America were even worse..

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    2. It all has one origin. The belief in Government. As government grows then both freedom and opportunity must of necessity shrink because beyond a certain basic level of government they are incompatible. Government power always brings with it corruption and rent seeking. Always. And no type of government or society is immune.

      Until the worlds free nations understand that big government is their enemy, they are doomed to a slow death by a thousand cuts.

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  2. This is really a nice blog in which you discuss about the stocks, trade and economic freedom with the help of graph. Thanks for sharing this and keep sharing.

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