Market Insights – April 19, 2012

“I’ve learned, that to ignore the facts, doesn’t change the facts” — Andy Rooney

Dear Clients and Friends,

Tuesday was the day that income taxes were due to be paid to the U.S. Treasury. Like many Americans, I wrote the check, attached it to my return and mailed it off to Washington (by way of San Francisco first). This also is an election year and we will continue to hear ad nauseam about how some need to pay more in taxes while others should pay less. Some believe that the government is efficient in the way it allocates collected taxes while others do not. Some feel that free markets are scary and government can eliminate risk while others feel that private relationships – family, friends, business and charity – will do a better job over time. The fact is that there is no economic system (capitalism or socialism) in existence today that eliminates all of the risks in life. Brian Westbury, Chief Economist for First Trust has written an excellent article that illustrates what happens when the government and private sector of the economy collide with one another. It is written in clear and simple terms and I want my children (ages 25 and 21) to read it before the 2012 election season kicks into high gear. So, with a hearty thank you to Mr. Westbury for allowing me to re-distribute his piece, here is what he has to say:

“On Your Own” Economics

A new baby girl was born in the United Kingdom last week. The mother checked into the hospital at 8:30 pm, had the baby at 10:30 pm, and was discharged at 3:00 am….270 minutes later. This gives new meaning to the term “drive-through delivery.” No one there thought it was unusual even though maternity stays in the hospital of less than 2 days are considered aggressive in the US.

For centuries – millennia really – women gave birth without hospitals at all.  There was no going home because the mother never left home in the first place.

The 20th Century brought major change.  One of those changes was to provide a safer environment for giving birth. Mothers are watched longer and newborns are run through a battery of tests.  The result has been fewer deaths in childbirth and healthier children. It’s one of the reasons that in the past 100 years or so, life expectancy for women has increased more than for men.

But, when medicine is socialized and budgets become constrained, costs are cut anywhere and everywhere.  As a result, mothers and babies are sent home quickly to save money for the state. By doing so, hospitals in the UK are taking health risks.  To put it bluntly, these hospitals are very quick to tell moms and their newborns that they are “on their own.”

In truth, no matter what anyone tells you, in the end we are all on our own, whether we are expectant mothers or not. There are limited resources and deep down we all realize this. We all make choices about how to deal with it: how to find help. It’s why we join with larger groups – for defense, for support, or so that we can accomplish larger more complicated things.

The choice we ultimately have is where we get the major part of this help. Do we turn to government? Or, do we turn to private relationships; family, friends, private business, and charity.

The trouble with the government as helper is that the assistance must be taken (taxed) from someone else, who then has an incentive to object. Moreover, people end up competing (and advertising) to see who has the greatest “need” or is the worst “victim.” And with limited resources, there are fights about who gets them and before you know it, government provides “drive through delivery” services so that it can use more resources elsewhere. And when government tries to do too much, it “crowds out” private assistance, weakening those other institutions through taxation and regulation.

That’s why we find it so remarkable to see free market capitalism derided as a system that supposedly tells people you are “on your own.”

The genius of capitalism is that it harnesses self-interest to get people to cooperate in incredible ways. Most observers, including us, describe capitalism as a system of competition.

But on a day-in, day-out basis, this competition is not direct hand-to-hand combat to find a victor; it’s a race to see who can provide the best products at the best price. It’s about service to others, not finding ways to force others to bow to our will. More importantly, we work in cooperative effort with others (our co-workers, family members, and friends) to accomplish these tasks.

Government has a role, but economic growth is always strongest where it governs least.

Given a choice, people have always flocked to those countries where they could take care of each other with less government help, not more. Not because they don’t think of themselves as their brothers’ keepers, but because they do.

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

Brian Wesbury is Chief Economist at First Trust Advisors L.P., a financial services firm based in Wheaton, Illinois. The Wall Street Journal ranked Mr. Wesbury the nation’s #1 U.S. economic forecaster in 2001, and USA Today ranked him as one of the nation’s top 10 forecasters in 2004. Mr. Wesbury received the University of Montana’s Distinguished Alumni Award. This award honors outstanding alumni who have “brought honor to the University, the state or the nation.” There have been 267 recipients of this award out of a potential pool of 91,000 graduates.

Mr. Wesbury is a member of the Academic Advisory Council of the Federal Reserve Bank of Chicago. He is also a frequent guest on Fox, Bloomberg, CNBC TV and BNN Canada TV. Mr. Wesbury began his career in 1982 at the Harris Bank in Chicago. Former positions include Vice President and Economist for the Chicago Corporation and Senior Vice President and Chief Economist for Griffin, Kubik, Stephens, & Thompson. In 1995 and 1996, he served as Chief Economist for the Joint Economic Committee of the U.S. Congress. Mr. Wesbury received an M.B.A. from Northwestern University’s Kellogg Graduate School of Management, and a B.A. in Economics from the University of Montana. McGraw-Hill published his first book, The New Era of Wealth, in October 1999. His most recent book, It’s Not As Bad As You Think, was published in November 2009 by John Wiley & Sons.

Thank you again to Brian Westbury for his permission to share this article with all of you.

Sincerely,

Ken Beach

Source: Brian Westbury and First Trust.

Ken Beach, President of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.