Wednesday, 21 November 2012

'Can We Have Some (More) Obama Please?'

The US election is history. The dust has settled and life reverts to the dreariness of the usual. It is an appropriate time to pause awhile and look at some intriguing outcomes of the election.

Voting is perceived as an activity centred around individual voter self-interest. Well-balanced, informed voter base is an assumption that is considered unworthy of a re-examination. While the self-interest angle is quite palpable, the gamut of reasons put forth by voters on picking a certain candidate are often mired in vagueness

The following is an edited excerpt of an recent email exchange with a friend. HaLin wasn't eligible for voting, but under the garb of a market participant, had much practical interest in the outcome. This post is a summary of events as they happened.

Does individual rational behaviour lead to collective rational outcome? It is time to dive in to the world of individual definitions, nomenclature and qualitative perceptions.

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Quote: 


...turning to the economy. 

Since Obama came to power in 2008, the running money spigots added about $2.6 trillion to the system through multiple Quantitative Easing (QE) programs. From the end of 2008 to end 2011, US GDP increased by $800 billion. c.$3.3 of fresh money printing corresponded to $1 increase in GDP. Some may argue, as indeed they do, that absent this QE, the danger of economic contraction was real, considering how much credit markets and confidence had frozen up. With the latest QE (Sep 13, 2012) the Fed is empowered to print money in unlimited amounts, dressed up in novel nomenclature, and they stand ready to do whatever it takes to revive the economy and until the labour market 'improves substantially'. This is essentially euphemism for more digging into the bottomless money pit to create new forms of debt. However, viewed against the grave counterfactual, one may put forward a case for Obama, supporting the money printing exercise. Benefit of doubt.

Employment picture  
Considering government numbers, the unemployment rate was essentially unchanged over Obama's term. It went up, then went down, quite coincidentally close to the election. Depending on how one looks at the numbers and who one peruses, figures vary but overall, it may be summed up that Obama's first stint wasn't a job-fuelling term. Again, one may argue that in the absence of QE, unemployment might have been worse. Benefit of doubt.
 
Debt situation, and the inertia of acceleration
All newly created money is essentially debt, which has balooned over Obama's term.

Household Debt as a % of disposable income peaked at 130% of income in 07/8, has reduced somewhat since; and now runs at 110-115% of income. Deleveraging? A chunk of this reduction has come thanks to bad debt written off by banks, many of whom were receipients of Obama's QE handouts. Never mind the circle. Benefit of doubt. 

A tidbit about US debt is insightful. It took the US 193 years to ratchet up the first $1 trillion to its sovereign debt. It then took 20 years to add the next $5 trillion, then just 10 years to add $10 trillion. Building inertia of acceleration. 

Obama administration opened the bottomless money pit in an attempt at reviving the economy/creating jobs, put money in the hands of those already sinking in debt, grappling with restructuring...so they could spend more. On the first two counts one may extend the benefit of doubt (Obama inherited a busted economy at the onset of the crisis), on the last, benefit of doubt may be sought under the refuge of 'time will tell'. Ask Japan.

New debt is being created (an expenditure), in order to kick start spending (another expenditure), while increases in revenue is mired in a haze. Piling on debt when overall debt is a fraction of GDP is different from piling on debt while sitting atop a debt mountain. 

Obama re-election, by voter group


Hispanics and African-Americans strongly preferred Obama. This followed a repeat in 2008.

Source: http://www.census.gov/people/wealth/

Low net worth + home repossession concerns + uncertain job scenario + pro-common man's presence + assumed familiarity + easy money policies, is a strong premise pointing to where this vote was most likely headed.
 
Financial market performance, under Obama I

Source: FT, Kitco, et al

This kind of extreme performance in financial markets in the backdrop of a flaccid economy may strike one as paradoxical. Much of it is thanks to the near costless, easy money programs that Obama administration championed.

If one turns next to the investor base that would benefit from this kind of performance, one would notice something interesting.

Source: http://www.census.gov/people/wealth/ 

The 1% figure prominently.

In summary, a Left-leaning President's pro-common man policies was the best thing to have happened to the pro-market, pro-wealthy 1% (Right leaners, mainly); while having a soft impact on reviving the economy/creating jobs. Even if Obama increased taxes, the 1% would breathe easy, thanks to the windfall gains they made in the financial market.

In the present world, the 'Left' is the new Right...
 
Much of the developed world's problems is thanks to spending more than their revenue and borrowing to fund the gap. The Republicans' plan, while vague (one cannot spell out everything), clunky, and with visible loose ends and gaps, would draw the curtains on QE, and easy money.

The 1% benefited under Obama (thanks to QE). Prospective Occupy Wall Street groups and haters of the wealthy might do well to pause awhile before re-training their guns on the 1%.
Romney would have been quite the party spoiler.

Unquote:
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The herd directs its ire on the 1%, while the strongest catalyst that helped the 1% (Obama) is loved and voted back in power. But it is fair to expect that the 1% will continue to be vilified, even as perceptions towards Obama rise concomitantly. 

The Right would rather sit well with the Left candidate. Kicking the can down the road is the in thing with no reversal in sight. 


Oddities are the order of the day.

Problem of the counterfactual
Would the Republican plan of deficit balancing work? Could a gaffe-ridden, politically gauche Romney have turned out a better candidate? Would Obama be able to translate oratorical elan and gallery-playing into addressing deep-rooted issues facing the economy? What of foreign policy? Climate change? Healthcare reform? 

Many have articulated views on some, or all, these topics without really knowing whose policies might really work. A mental anchor is sought and the first available anchor, howsoever a Chimaera, is embraced.

The Art of Voting, and Closing comments
Humans exhibit a ready tendency for optimism. The murkiness hierarchy typically runs from the present, past, to the future; in increasing order. When standing in the present, with a cursory picture of the past record, and little or no anchor to depend on for the future, humans innately lean towards a mix of preferring the status quo and optimism.

To expect an entire voter base to express an opinion considering all factors, and assigning appropriate weights to each, is a Holy Grail expectation. Individual self-interest frequently leads to sub-optimal collective outcomes.

The anti-Romney brigade tend to project their immediate self-interests and belief systems, frequently using these as a yardstick against which to judge the rest of the electorate. The anti-Obama camp reciprocate. 

Voting one's self-interest is an individually rational choice, aimed at leading to a workable outcome, even if far from ideal. However, the process of interaction of individual actions frequently leads to sub-optimal outcomes. As an ancillary consequence, the opposite emotions of ire and exuberance that follow, turn out to be frequently misplaced too. 

The prevalent dogma is feel-good, hear-good, and perennial can kicking. Voters get what they look for, not what is in the collective best interest. In a clash of propaganda, the camp with the strongest conviction prevails.

Long feel-good, short reality; continues to remain the flavour of the season.