I see a growing narrative in some wings of the Democratic party arguing that Capitalism is the cause of all the world’s current ills. This is wrong in a very fundamental way and one which has the potential to hurt the Democratic party’s chances to take back the White House.
In a recent article I described how the economy is essentially a bunch of private businesses that create a capital base that we then leverage into a government. Think of the government like a Homeowners Association. The bigger the wealth base of an HOA the more services that HOA can provide to its various homeowners. This is basically how any government works. And Capitalism helps to create that wealth base that allows us to leverage public policy. If government is a general form of “Socialism” then Capitalism helps to make that Socialist piece of our economy even stronger.
This is important when constructing a political narrative around a campaign because the world is not this black and white place where Socialism or Capitalism rules the day. The economy is very much a blend of both Socialism and Capitalism (though the right blend is up for debate).
One thing we’ve learned about the Presidency of Donald Trump is that narratives matter even if they’re vague. The current narrative of the Democratic party is being perceived as anti-capitalist and anti-wealth. This might be a little unfair, but make no mistake – that is the narrative that Donald Trump will run for re-election on. He will peg his opponent as a “Socialist” and since 95% of Americans have no idea what that term actually means they will believe him because the current Democratic narrative sounds relatively Socialist even if it isn’t proper Socialism. The Democrats are walking a slippery slope with the way this narrative is being perceived.
The thing is, Democrats can have their cake and eat it too. They want a bigger HOA with better services and one of the best ways to do that is not just through better public policy, but through the embracing of wealth creation. In other words, the Democrats can embrace Capitalism and tell the public that they want to create policies that will help give everyone the opportunity to become filthy rich while also selling the narrative that the more wealth they create the more they can leverage that into more government policies designed to help everyone. It isn’t an either/or situation. And the Democratic candidate who embraces Capitalism will essentially destroy the most powerful narrative Donald Trump can use.
But this isn’t just about narratives. It is about reality. The Democrats might want policy that taxes the wealthy and corporations, but they don’t need those taxes to operate a larger government. The government is operationally capable of running larger deficits when inflation is low with or without taxes from corporations and rich people. So while these policies might be part of a broader agenda they don’t have to be the focal point of a narrative about how to make the government work better for everyone.
In the world of a Donald Trump Presidency you have to fight fire with fire. And in this case that means using Capitalism to counteract the one powerful narrative Donald Trump has on his side – Capitalism.
NB – People will argue that Capitalism causes inequality and that inequality is the cause of many problems. But this is a misunderstanding. Capitalism is naturally designed to cause inequality just like a Ferrari is designed to drive fast. But those things only happen if we allow them to happen. The current inequality isn’t a failure of Capitalism. It is a failure of policymakers to put the proper rules in place to keep Capitalism from driving 130 mph.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.