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Originally Posted by pjorourke
But your biggest fallacy is the idea that foreign trade is a zero sum game.
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Sorry PJ, no fallacy adopted or required. My entire point is that foreign trade is
not a zero sum game. That's actually the problem with your argument about productivity - it ignores the foreign trade aspects of equity investment.
Take for instance:
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A well diversified investment account typically has about 10% invested overseas.
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10% invested overseas? Pretty much the only way to achieve that these days is to go 20% standard equities and 80% treasuries. Companies are global. That's just the bare hard fact of it. Just as it's almost impossible to avoid interstate commerce when you do business, these days it's also almost impossible to avoid international commerce as well.
The argument that unleashing the SS trust fund into the market will magically transform the US economy ignores the global aspect of equity investment today. Putting money into a "US company" almost invariably results in that money being spent overseas. The jobs, taxes, infrastructure, etc, etc, generated by that investment will contribute to "long-term productivity gains" all right. But those gains are going to be felt someplace where you don't live.
Wanna put $100M into Apple? China loves ya for it baby.
Fell like dropping $500M on Chevron? You are the new national hero of Kazahkstan.
Got the urge for 1M shares of Dell?
Gracias Senior! The people of Mexico thank you for your wonderful generosity and look forward to the numerous economic benefits that your investment will bring to our beautiful country!
You are correct that equities generally lead to across the board productivity gains. You're wrong to think that those gains are necessarily positive for the person making the investment. Putting money into the stock market in a global economy can be the equivalent of funding the economic development of your competitors. Some other country is going to get all the infrastructure, all the new wages, all the new taxes, and all the new experience and knowledge that investment is going to generate. While there are some good reasons to let loose the trust funds into the private sector, the supposed economic benefit to the US economy is grossly over-rated.
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But if people all over the world are pursuing similar rational investment strategies, its is a wash. they are investing as much in you as you are in them.
Besides, what differences does it make where the money is invested? If you carried that argument to its logical conclusion, people in Texas would only invest in Texas, and people in Dallas Texas would only invest in Dallas, and people in Highland Park Dallas, would only invest in Highland Park, and people on Mockingbird Lane would only invest on Mockingbird Lane. the bottom line is we don't need that many lemonade stands, which is about all you would have to invest in.
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It's not a wash if you consider the local impact the investment has on you outside of the simplistic bottom line of your portfolio.
If you invest in a local company - say a regional hospital chain or a regional bank - you get to double dip on the benefit of your investment. You not only get the potential return from owning the equity, you also get the added boost from improving your local economy. That means more jobs, better infrastructure, and a lower tax burden for
you. Helping a company expand its local facilities offers you benefits beyond the net profit/loss on the bottom of your statement.
Nobody ever considers that when they invest. All they care about is "what's my rate of return?" Well, if you live next to a Ford plant and you're investing in Toyota then you get what you deserve when Ford shuts down that factory and your property value drops in half.
There's more to responsible, logical investing than the year-end percentage gain. We need to recognize that fact before letting loose the trust funds for people to do with what they wish. I would have no problem putting part of the trust into investments that directly benefited the US. I'm just not ready to see that SS money start flowing into new factories, power plants, and highways in China.
There are market sectors where you can invest for the benefit of the local economy: health care delivery, raw materials, insurance and financials, etc. But you need to take the time and effort to do it right. Few people do - and very few people will do it with there SS money if they are given power over it.
Actually, now that I think about it, guys like you may actually want to invest in Dell. If enough people do so the Mexican economy will boom and all of the illegals will actually start heading
south looking for jobs. I guess that's one way to cure the immigration problem.
Cheers,
Mazo.
