Your inner optimist is crucial because it serves as a counterweight to human nature, which tells us to run at the first sign of danger. It’s worth repeating: your success as an investor in the stock market is mostly determined by your ability to override your basic instinct to run from perceived danger (i.e., sell your stocks during short-term periods of "bad" news), and chase after glory (i.e., buy stocks only after long periods of advances over fear of lost profits). Fortunately, to be optimistic about the growth of the U.S. economy overall (along with other economies that follow basic free enterprise principles), you just have to take a look at the alternatives.
Over the past couple of weeks we have been watching French students riot in the streets over the "disastrous and radical" new economic policy proposal that would allow employers to have two years to decide whether young, new workers should be given a lifetime of security and never have to compete for a job again.
Ah, Springtime in Paris — I can almost smell the tear gas wafting along the Seine! When I look at the French and what they call an economy, the process cannot help but feed a healthy, gourmet meal to my inner optimist. For you see, free market capitalism, with all its flaws and potholes, doesn't guarantee a life free of risk — and that's a blessing. It's the utter hypocrisy of the French economic system and its goal to make the world fair and equitable that makes their system so very unfair and inequitable.
The genius of free market capitalism is that it recognizes and embraces the inevitable nature of competition and economic Darwinism. The failure of French-style capitalism is that, in the name of equality and fairness to all, it creates nothing remotely approaching equality and fairness, nor does it create jobs.
In its well-intentioned pursuit of the modern French birthright — a shield from the vagaries and vicissitudes of economic risk — they created an system that adds economic risk. Having 35-hour maximum workweeks, six to eight weeks of paid vacation, state-mandated profit sharing, and pensions that pay 75 percent of salary beginning at age 60 sounds too good to be true, non? Yes, it is too good to be true, for everyone except the rapidly shrinking and aging middle-class. They have been given an incentive-killing, innovation-stifling and unrealistic set of economic circumstances, in the name of egalitarianism and justice for all.
For those "fortunate" enough to have jobs in the public workspace (56 percent of the economy) or in the dwindling private sector, and be within a decade of retirement, this system must appear tres magnifique! However, the economic reality is quite different for "Les Miserables" who find France the most economically stagnant and least opportunity-filled country in the modern world. The only thing this risk reduction does is suck the innovation and vitality out of their economy.
Any Free-Thinkers Left in France?
When asked to respond to this question in a recent International Policy Attitudes poll by the University of Maryland, "Is the free enterprise and free market economy the best system," only 36 percent of French respondents said "oui." That's the lowest rate of the 22 countries participating in the poll. Even the Italians, with their zero percent growth economy, said yes 59 percent of the time. (Their problem is a little different and stems from the competition for lower-skilled work from Asia, and the oldest population/lowest birthrate in the modern world.) Brits agreed 66 percent, Germans 65 percent and U.S. citizens said yes 71 percent of the time.
It is perhaps the cruelest irony in economics, that in the noble pursuit of making life less risky, you actually make one's economic life more risky. Man can no more remove the natural laws of risk in our economies than he can legislate a reduction in the amount of rain or snow that falls from the sky. When you watch the news coverage of the French strikes during the last week of March, view it as a vast gourmet meal of optimism for the future of true free market capitalism. Thank the founding fathers, Adam Smith, Joseph Schumpeter and all the other broad shoulders we stand upon today for not shielding us from the risk of failure! It is only from the movement of capital from the weak to the strong, and the opportunity to fail and fail again, that the seeds of economic success and better standards of living for all are sown and grown.
When I was in France recently, I asked a bunch of students at the Sorbonne if they had ever heard of Bill Gates, or Warren Buffet or Michael Dell. What I got in return were blank looks — and I asked the question in perfect French. Not only did they not know them, they did not understand why they should know them. The sad part is — if they don't know why these people matter, they also don't know why their ignorance of capitalist superheroes has everything to do with how hard it is for them to find a good job.
Tune in this weekend to our Business Block, Saturday beginning at 10am ET, for more with Tobin Smith and the entire FNC business team.
Tobin Smith is a ChangeWave research editor and regular FNC business contributor.