As the health care debate managed to point up many of this president’s contradictions, his recent decision to also re-emphasize financial reform brings up still another fundamental contradiction. Though he says over and over that he favors long-term investors and producers, he is the speculators’ president. Either Obama is ignorant or hostile or he just does not care, but everything he does seems to hurt those who make and help those who play short-term swings.
His problem lies in his love of dramatic change. This style, whatever other virtues it may have, simply ignores the basic fact that to build anything worthwhile — a house, a farm, a factory, a company — people must make long-term commitments, and having done so, cannot easily adjust to Washington’s latest bright idea. More often than not, in fact, sudden changes in government policy hurt those who would build or produce for the long term and with them, all those who that they employ.
But speculators have no such vulnerabilities. They make no long-term commitments and measure their time horizons in days. They use options, futures, and other derivatives to bet on rising prices one day and then easily reposition themselves to bet on collapsing markets the next. They not only cope well with Washington’s changes, they see them as their bread and butter. And by responding to political instead of economic signals, they direct funds according to the president’s whims instead of to the needs of businesses and individuals.
Take, for example, the president’s strong preference for solar and wind power. The opportunity unavoidably passed all those long-term investors who had already sunk their time and assets into oil or gas or even renewables other than those favored by the White House. And although speculators could grasp the opportunity, they could do so only by ignoring other, perhaps more economically viable alternatives. The same sort of economic harm emerged with Washington’s auto, financial, and other initiatives. The speculators won, while the government actively, if unintentionally, discouraged everyone from making any long-term business commitments, in other words, engaging in legitimate business activity.
A recent communication from the Pacific Investment Management Company (PIMCO) shows clearly what the new climate has done. The firm has promoted a new approach that it calls, “shake hands with the government.” It effectively tells investors to spend less time trying to understand the fundamentals behind economic trends or company prospects and instead to watch Washington for signs of favor. When these develop, the approach recommends quick purchases to benefit from the initial flow of money before making a quick sale to reposition funds on the next sign from Washington. It may be good money-making advice, but it also shows how the administration’s behavior has turned even this well-established investor toward short-term, poltitically-based speculation.
There is, of course, nothing new in this. Even the founding fathers warned how an overly active government would favor speculators over legitimate business. James Madison actually wrote it into The Federalist (No 62), where he noted how, “[e]very new regulation concerning commerce and revenue […] represents a harvest for those who watch the change […] a harvest rendered not by themselves […]” and denied those whose attention is elsewhere, presumably on building and producing for the long run.
No one denies that change is often necessary. But because even the most welcome shift can also do much harm, the president owes the country a due consideration of all the consequences before he acts or even opens his mouth. Sadly, President Obama seems not to care. Neither is there much chance that he or his advisors will change their style. On the contrary, as Obama’s political fortunes ebb, he will no doubt flail around even more to the detriment of many, except, of course, the speculators.
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