Home » Featured, Investing, Politics, Real Estate

Calling All 20-Somethings To Unite In Outrage Over The Economic Leadership (Or Lack Thereof)

8 October 2008 8 Comments

I’m pretty fed up with the way our country is being led. Maybe it is the result of a perfect storm of an economic crisis combined with the typical empty political rhetoric that comes with an election. Or maybe it’s business as usual for our country. I’ll let you decide for yourself.

So, what am I so fed up with? Well, today, I’ll focus on three areas and the leadership correlated to each of them: housing, taxes and the stock market.

Housing: A Natural Correction We Refuse To Accept

First things first… in a free market economy, when you get a bubble, it typically will bust at some point. The bust is typically pretty ugly. We are in the bust phase of a housing bubble. Instead of allowing the correction down to natural levels, we are doing everything possible to stop it simply because it is painful.

Now, I’m not denying the pain. I am, however, against changing our policy due to pain. I heard it explained very simply today. Our country is all for capitalism on the way up, and socialism on the way down.

Even the “conservative” candidate for President last night revealed his plan for government to buy up bad loans to help stabilize housing. You will hear no rebuttal from the opposing side over this because this falls in line with the basics of his platform.

Do you understand what this means? It means government wants to step in to ensure home values stay high. Forget letting market principles determine true values of homes, government is going to now determine the value of homes.

If you are in your 20s and have not yet bought your first home, why are you not screaming from the rooftops? Do you understand that this action is simply going to cause home values to drop naturally to lower levels (and more affordable for you)? While you are diligently putting money away for a down payment, you are going to have to wait longer because home prices will be more expensive due to government intervention.

Full disclosure: I already own a home and I will benefit personally by my home’s value holding up due to government intervention. Despite gaining personally, I think that this is bullcrap economic policy.

Taxes: Ignore The Rhetoric And Realize The Implications

I’m tired of the fact that politicians continue to use taxation for political gain. I’m sick of the rhetoric from both sides claiming they are going to lower taxes for the American people and the other side has a record of voting to raise taxes X number of times.

Here’s the reality as I see it: Barack Obama is going to get elected. He claims that I will benefit since I make less than $250k a year from his tax plan. Somehow, I don’t believe him, and I think I will end up with higher taxes. Forget that though, even if my taxes stay the same, there are very real implications in the economy with raising taxes, even just the highest echelon.

Let me explain. Seventy percent (70%) of Americans work for small businesses. Small businesses are going to take the brunt of these tax increases, no matter what Obama or other candidates will tell you. Even if the increases are confined to those making $250k and up, realize that many small businesses are structured to where the owners are taxed based on the earnings of their small business. Therefore, if the small business earns over $250k, their taxes are going up.

So, here is my recommendation for you if you plan on voting for Obama and work for a small business: make yourself more valuable at your company. Why? Because we have an economic slowdown which will likely cause lower revenues and potentially higher taxes. Do you think your company is immune to lay offs? Make yourself more valuable so that if and when the owner of your company decides to make a cut, you’re at the bottom of the list.

My point here isn’t to persuade you to vote for either presidential candidate. My point is for you to realize implications of actions such as tax increases. Most Americans don’t bother to learn basic economics nor the effects of various actions. Again, if you want higher taxes for the people who own your company, in this economic slowdown, find a way to make yourself more valuable to the company.

Stock Market: Driving Policy In Washington?

The stock market is ugly. We’re down over 30% year to date. What is even more troubling is that it seems that stock market fluctuations seem to be driving policy decisions. For example, let’s look at the bailout that recently passed.

On first pass, the bailout was voted down in the House of Representatives mainly because House Republicans decided to stand by their conservative stances and because many of their constituents were calling their offices in opposition to the bailout proposal. Those Representatives listened to their constituents and voted the bill down. What happened next was a very large downturn in stocks; I believe the Dow went down almost 700 points.

Apparently freaked out by the drop in the stock market, many of the constituents called their Representatives again, but this time, they were in support of the bill because they didn’t want the stock market to go down anymore (nevermind the market bounced almost 500 points the next day). Well, some adjustments were made to the bill which may have swung some votes, but also some Representatives made it clear their constituents had changed their minds so they decided to now vote in favor of the bailout.

The bailout has been passed. The stock market has since plummeted way lower than it hit the day the first pass of the bailout failed. Discussing whether the bailout was the right or wrong move isn’t my intention. I am concerned that our government is simply trying to keep the stock market high instead of pursuing the right long term economic course for our country.

I know people are freaked out because their retirement accounts have taken a hit, and their only outlet is to complain to their government officials. Attention everyone who is investing in the stock market (or the housing market for that matter), please google the definition of risk. To the officials running our country, please ignore the temporary fluctuations in the stock market and the cries of your constituents for higher stock prices. Please ignore this noise for the sake of our future and our economy down the road.

Conclusion: Re-Defining Risk

To conclude, it seems that we need a new definition for risk, especially when it comes to home values or stock prices. Previously, risk was the chance that you could lose money when you invest money in a home or a stock.

Now, it seems that risk is the change that you could lose money when you invest in a home or stock, unless we are in the midst of a recession, because then the government will help keep asset values artificially high; thus, decreasing your losses.

8 Comments »

  • Daniel said:

    After reading all of that, all I can say is…

    +1, Glad I found out about your blog

  • Natasha said:

    Man, are you right on.

    …Since when do conservative politicians feel the need to pussyfoot around discussing sound conservative economic policy and cater to a socialist worldview? Looking at policy, McCain is clearly the candidiate to improve the economy–but he sure isn’t going to communicate this to voters by pandering to liberals using their own cliche rhetoric that appeals to those with no sense of personal responsibility. Enraging.

  • Dan said:

    good article, glad you stayed away from your personal political opinions and kept the article purely about the facts, it makes it much easier to read it and believe it.

  • Chris said:

    I am really looking forward to congress bailing out my IRA. I have bought these equities that have decreased in value, can the government buy my stocks at the price I paid but let me buy back at the current value? How is this any different than the plan McCain presented at the debate?

    In all seriousness, I am mad as hell, and unfortunately no amount of screaming from the rooftops will matter since both parties have lost integrity.

    I am glad that I will now pay taxes to support others homes and keep the price high so I will not have the ability to buy in. (does sarcasm come through in a posting?)

    Any ideas how to fight these policies besides writing to your congressman?

  • kevin duffey said:

    Chris, I share your frustration. I definitely do. In addition to wanting to help educate others with regards to finances, investing, etc., this frustration is one of the biggest reasons I started this blog.

    In terms of fighting these policies, definitely make your voice heard when it comes to your representatives. More so, I think we need more people like us to come together and demand change. If we can gather a large enough people together, they will have no choice but to listen.

    Send your friends to this blog post, send them to others like it, encourage them to make their voice heard. Tell your friends, tell your family, tell everyone.

    I would love for this blog to take the direction to gather other 20-somethings (or any age) to fight for these principles!

    Thanks for your feedback!

  • Tim said:

    You make valid points, but don’t lie and say you’re not trying to persuade our votes. John Mccain whole-heartedly supports the bailout plan just as Obama does. How do you think his taxing your employer-earned health care coverage will impact those same small businesses? My guess is it will do the same damage, if not more than Obama’s 250k tax hikes.

    The only real risk we run here is to continue to think there’s a real difference between Democrats and Republicans.

  • kevin duffey said:

    Tim, I understand your points. I’m not trying to persuade anybody’s vote; I assure you it’s not my purpose. While I typically vote Republican, it’s because I believe in mostly Conservative principles.

    Right now, I believe the Republicans have gotten away from those principles and as such, a big part of me is ok with the Republicans getting beat down come this election. Maybe after getting beat badly, they will regroup according to the conservative principles that I believe in. If not, then I’ll have to find another party to vote for.

    I think there is a difference between Dems and Repubs, but i agree with you that it is getting slimmer.

    Thanks for your comment.

  • Max Bottaro said:

    “Our country is all for capitalism on the way up, and socialism on the way down” — I love this line.

    In my biology class, we learned about what we call a “chasing curve”. A chasing curve is present in nature, which is probably the most honest, pure, capital market ever conceivable. Basically, if some resource becomes too lucrative (let’s say rabbits overpopulate an area) something will give. This is like the bubble busting. For example, as the rabbits population grows, coyotes in the area will have more food, and reproduce more. As the rabbit population declines due to predation, the coyote population will rise- that is, until the rabbit population is put back into check. Now it is the coyotes’ turn to starve: their population will now decline as they starve, while the rabbits population will slowly recover from the crippling effects of over predation.

    This is just like the sub-prime mortgage bubble popping: we got fat off of handing out mortgages like tic-tacs; now it’s time to starve. The weaker companies (Lehman Brothers) who heavily relied on this source of income will die off. The capital market endures natural selection, too. We need to stop playing God and simply let the stronger companies trudge on. Interfering with this process is a fundamentally flawed idea- it’s like trying to feed the starving coyotes.