Here’s a thought exercise I’d like you to try: Imagine that food prices double.
Odds are, you’d probably go through the same reactions to rising gas prices. You’d grumble about it, eat out less, and maybe start growing some veggies in the backyard.
But some would invariably go hungry. As a result, someone in Congress with no understanding of economics would put forward a law to simply outlaw hunger, by requiring people to buy some bureaucratically-set amount quantity and quality of food, whether they want it or not.
Think I’m crazy? Think again. This is exactly what’s been going on in our country with healthcare under the new Obamacare law.
The closest analogy is car insurance. Nobody mandates car insurance, but every state requires you to have it if you want to drive. You can always walk or take the bus. More importantly, there isn’t a fine for refusing to drive. That’s the big difference under Obamacare: Either you buy healthcare, or you pay massive fines.
As we approach Independence Day, this concept of forced purchases has been mulling in my mind. Any way you slice it, Obamacare (and laws like it) are a detriment to freedom. Even if you try to opt out, you have to pay one way or another.
This destroys far more than wealth; it destroys the incentive to innovate and create. With every new government program, law, and regulation that comes into being, our own personal sense of responsibility diminishes. The corollary of freedom is responsibility. And it’s moving out of vogue too.
Consider the recent housing crisis. You can’t lay 100% of the blame on any one single person, institution or policy. Rather, each participant was negligent and ducked their responsibilities.
Here’s how it went:
• Home-buyers took loans that they wouldn’t be able to pay at higher interest rates after the “teaser” rates expired. They were told they could refinance later and the home price was going up anyway, so it was no big deal.
• Loan officers marketed and approved loans to people they knew were a bad credit risk, because the mortgages would just be bundled off and sold to an investment banker.
• Investment bankers bundled mortgages they knew to be bad with good ones to hedge the risk.
• Rating Agencies rated AAA bonds full of toxic assets on the word of investment bankers without doing sufficient due diligence on their own.
• Funds bought AAA rated mortgage bundles from investment bankers without knowing that the ratings agencies shirked their responsibilities.
More investment demand for mortgages went back down this chain, where underwriting standards, mortgage products, and the credit-worthiness of homebuyers diminished substantially.
As investors, we’re responsible for our own performance. There’s no way around it, although it’s always easy to curse markets for not going the way you want. (It’s no wonder the stock market is referred to as “The Great Humiliator.”)
Independence ultimately means we’re free to make mistakes, and even starve as a result. That’s the motivation we have as investors to think beyond the crowd, develop new investment strategies, and think through the myriad risks of investing.
Great investors know this. That’s why we respect, admire, and emulate them.
Don’t look to the government for examples on what independence and freedom truly mean. Look towards the markets.
Have a great holiday weekend.
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