James Paulsen: Investment Outlook (October 8, 2013)

James Paulsen: Investment Outlook (October 8, 2013)

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While Washington Argues … Adam Smith Solves Problems!

The current fiscal drama highlights the cultural obsession this country has with its government. The 24- 7 media blitz covering the pending debt ceiling deadline feeds an American mindset which impatiently looks to our government with disdain and fearful hope to solve what are perceived as the biggest challenges faced by our country. Since the results are seldom satisfactory, both sides of the political aisle are often in a perpetual state of chronic disappointment and utter astonishment at the seeming dysfunction exhibited by “leaders” which are supposed to guide us into the future. Moreover, in the wake of watching how the sausage is actually made in a democracy is a great deal of trepidation. Unfortunately, based on a mistaken belief all hope is lost if our leaders are lost, this often depresses economic animal spirits and directs investors toward inappropriate portfolio decisions.

Certainly, the U.S. government and its leaders play a critical role in American life, economic and otherwise. However, the widespread impression the precise actions or inaction of the U.S. government is pivotal in whether and how well economic problems facing this country are solved is exaggerated. Although government decisions are not irrelevant, their impact on the overall economy are typically soundly overshadowed by actions of the “invisible hand.”

Indeed, four major economic problems faced by the U.S. economy are in the process of being mostly solved by laissez-faire. These include restoring financial health to the U.S. government, developing a long-term plan for addressing the economic impact of aging developed world demographics, promoting a course for U.S. energy independence, and finally, reformatting the U.S. health care insurance system. We offer these illustrations to suggest most worry too much about the drama which is our government. For more than 200 years, the cumulative actions of millions of independent economic agents have been able to find solutions to seemingly overwhelming economic problems often made worse by government missteps. Relax a little. For while Washington argues and begins the new fall season with yet another fiscal cliffhanger, Adam Smith is busy solving many of the big economic problems of our day.

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Problem #1—U.S. federal deficits are out of control?

Since the government deficit ballooned in the wake of the 2008 recession, intense public and political discussion has been devoted to what should be done to fix this country’s fiscal woes. The country has looked anxiously to Washington for a “grand bargain!” Although the government has been hopelessly frozen by gridlock and nonsense, fortunately, Adam Smith has been slowly but steadily addressing and improving federal budgetary problems.

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