I think it would be an absolute cheap shot to blame the falling stock market on Wall Street's sudden realization that Barack Obama will very likely be the 44th president of the United States. But is fear of a potential Obama presidency playing any role at all in the weakness? How many investors, I wonder, buy into the theory of economist Peter Morici, hardly a conservative mouthpiece, who says, "Obama's tax and redistribute policies will not resurrect jobs, wages, or the price of stocks in American retirement accounts. Ordinary Americans who have to earn their livings outside the cosseted confines of Wall Street will be not much better off two years from now. In fact, Obama's policies may make economic conditions worse."
Now, it is an interesting economic experiment that we may be about to undertake: Do exactly the opposite of what we did as a nation the last time America was in deep economic trouble, coming out of the 1970s. It's like we are going to replay the 1980s, but with Ted Kennedy as president.
Let's compare and contrast for a moment. When Ronald Reagan was elected in 1980, he faced the following problems:
1) Confiscatory tax rates. Not only was the top rate 70 percent, but the brackets were not indexed for inflation.
2) Sky-high energy prices. Gas prices moved to $1.25 a gallon, twice what they were in 1976.
3) Credit market turmoil. Interest rates were about 20 percent, and housing was in the tank.
And look what our next president will have to face:
1) Confiscatory tax rates. The United States has the second-highest corporate tax rate in the world, with 70 percent of the burden falling on workers.
2) Sky-high energy prices. Anything lower than $100-a-barrel oil and $4-a-gallon gas looks like a bargain.
3) Credit market turmoil. As bad as anything we have seen since the Great Depression.
But in 1980, we chose to unleash the free market through lower taxes and less regulation. And the stock market boomed, as did the economy. In 2008, we may as a nation choose the opposite path by raising taxes on business, big and small, and on the financial markets through higher capital gains taxes. Also, regulation seems to be the new black. It's like that Seinfeld episode in which George decides to do everything the opposite. Should be an interesting experiment, America.