A Perfect World By: Gabriel PotterMBA, AIFA® 2013.10.22

In an ideal world, this blog could focus on the growth of the global economy, and a reflection of that growth through solidifying investment markets and, ultimately, the betterment of the human condition.  Despite significant setbacks, like the 2008 financial crisis, global growth continues, albeit indirectly, to advance. 

In an ideal world, Westminster Consulting would continue to focus on its mission – to promote a culture of fiduciary responsibility – with positive examples and useful insights of prudent management.  There is significant room for improvement here, but the fiduciary standard is growing in importance and application across the spectrum, from individuals to institutions.

Investment consulting and fiduciary consulting deserve the bulk of our attention, but we live in a world where our political dysfunction has the power to directly damage economic stability (i.e. the shutdown) and, potentially, unleash absolute chaos (i.e. failing to raise the debt ceiling).  We should not have to spend our time focusing on Congress’s efforts to undermine the real economy, but there is no denying that the mood of Washington DC has been the single greatest factor determining the market’s direction for weeks. 

Interested readers may select from hundreds of political blogs across spectrum to reinforce, or challenge, their existing political opinion, but this blog is actively maintaining neutrality.  Let us suggest a non-controversial opinion that is well supported by the dismal polls which have come out over the past 2 weeks:  Congress has a branding problem.  A vast majority of the country is utterly frustrated with intransigent politics and gamesmanship that drives us closer to the brink of default without any potential of gain.

Let’s ignore the areas of obvious disagreement – like the Affordable Care Act.  There are tremendous opportunities for progress that enjoy large bipartisan support which still cannot get through our system, including immigration reform, entitlement reform for long-term debt reduction, and tax reform.  Let’s look at an example which hasn’t been over-politicized lately:  corporate tax reform.  The United States has some of the highest corporate tax rates in the world.  High corporate tax rates are, at very least, hindering corporate strength and repelling potential commerce and investment offshore.  To compensate for the high rates, some companies have effectively lobbied for exceptions.  Thus, some companies pay no taxes and now benefit from an unlevel playing field while smaller firms without lobbyists bear the tax burden alone.  Both sides of the political divide – left and right – have agreed our corporate tax system is unfair and due for reform.  Both sides have had time to address the issue – I watched the 2012 Presidential debates and both candidates were clearly in favor of lowering the corporate tax rate and removing exceptions, so why hasn’t it happened already? 

There are lots of reasons deals are hard to come by.  The framers purposefully designed a system which required broad consensus, with plenty of checks and balances, to achieve change.  Polarized factions within a larger political party can easily stonewall a process which requires compromise.  Basic politics often reverts to tribalism and key dealmakers, or their surrogates, highlight only one half of an issue at a time to score political points at the expense of accuracy and good policy.  There is nothing new about this, but – perhaps unrealistically – I continue to wish for a wise and persuasive leaders who could propose fact-driven policies to lead the country forward.

In my November 2012 Blog post “The Fine Print” I argued that it was time for details and policy transparency after the election.  I know policy transparency is difficult to sell politically; simple, short messages are easier to advance, even if they are misleading and, therefore, potentially harmful to policy outcomes.  Since we aren’t getting accurate disclosures in an organic way, here is a novel approach:  do you think politics would look different if Congress and White House claims were subject to the same enforcement mechanisms which require the fine-print disclosures on consumer goods?  Many industries, like finance and healthcare, labor under enormous scrutiny and regulation.  If the FTC finds an inaccuracy on a tube of toothpaste, someone is going to get sued or, at least, penalized.  What if misleading claims in the political arena were subject to consequences beyond the hapless squawking of fact-checkers?  What if pundits were required to submit to fact-checkers?  Would a level playing field of details allow both sides to discuss the nuances, acknowledge potential flaws, and generate the credibility necessary to make smart policy?  Would we finally get to read the fine print?

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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