Investor Politics
Details and Description
Description
The most explosive economic and political force of the last decade of the twentieth century has been the growth of personal investment. About half of all Americans now own stocks and bonds through IRAs, 401(k)s, and other financial devices.
Polls show that personal investment in corporations changes one's view of the economy, world events, and public policy toward taxes, government spending, regulation, and protectionism. Much of the growth of personal investing has been facilitated by innovations in the financial services and information technology arena—such as mutual funds and online trading—as well as accidental public policies creating tax-deferred employee benefits and personal investment vehicles.
This book represents an attempt to sketch out, across a host of public policy topics, a realistic strategy for shrinking the welfare state. To gain a clear understanding of the investor politics of the twenty-first century, the book looks backward to human history and even to prehistory to examine the origins of capital formation. As the facts demonstrate, politics has always been intimately linked with investment, understood in the broadest sense of the word.
“Over the next few decades, Americans must stop looking to Washington as a source of the money they need to take care of themselves—there is no alternative. They will need instead to look to investment and wealth creation on Wall Street and Main Street as the guarantors of their retirement security, their health security, their job security, and their children's futures.” —from the introduction
Table of Contents
Introduction / 1
1. A Short History of Saving and Investment / 10
2. American Political Realignment and the Origins of Welfare / 35
3. Wall Street and the Second Economic Revolution / 54
4. Depression and the New Deal / 86
5. The Great Social Security Debate / 110
6. The New Health-Care Imperative / 142
7. Houses, Highways, and Physical Capital
8. Education, Training, and Human Capital / 217
9. The Savings Strategy for Shrinking the Welfare State / 258
Conclusion / 277
Notes / 285
Index / 303
Endorsements and Reviews
Reviews
Regulation—The Cato Institute
,p>Hood has delivered a thoughtful and very engaging text that will help move the debate from the last century’s entitlement-dependent view of society to the country’s Jeffersonian roots of self-reliance. In this century, as the author notes, growing financial sophistication converging with an impending demographic crisis caused by retirement of the baby boomers is offering us a way to avoid the looming train wreck of Social Security. We should look at that convergence as an opportunity to create Social Security private accounts and continue expanding the investor class by further reductions in the tax penalty on saving.
Conservative Bookclub
Politics has always been intimately linked with investment, and Hood presents a lengthy and in-depth history of the relationship between government and investing, from ancient times to the present, with thoughtful insights on modern application of Jeffersonian philosophy. His examination of the past and future of Social Security is alone worth the price of the book, and he offers intriguing musings about the types of reforms that might be someday be possible.
Book Review Digest
As Hood makes abundantly clear in his insightful new book, the consequences of the Social Security debate are immense
What will the Left and the Right argue about if taxes and Social Security have been fixed once and for all? It is here that Investor Politics makes its strongest contribution. Having carefully constructed a framework for interpreting political conflicts and the policies that have resulted from them, Hood goes on to muse about the types of reforms that might be possible once everyone has an ownership stake in society. In so doing, he provides an interesting road map to the likely policy debates of the 21st century. . . While it is definitely not good beach reading, Investor Politics is chock-full of interesting historical anecdotes, clever policy analysis, and surprising musings.
Business Horizons
The author calls for a broad strategy of reform that will shrink the size and scope of the welfare state and replace entitlement programs.
Insider, The
The most explosive economic and political force of the last decade of the twentieth century has been the growth of personal investment. About half of all Americans now own stocks and bonds through IRAs, 401(k)s, and other financial devices. Polls show that personal investment in corporations changes one’s view of the economy, world events, and public policy toward taxes, government spending, regulation, and protectionism. Much of the growth of personal investing has been facilitated by innovations in the financial services and information technology arena - such as mutual funds and on-line trading - as well as accidental public policies creating tax-deferred employee benefits and personal investment vehicles. This book represents an attempt to sketch out, across a host of public policy topics, a realistic strategy for shrinking the welfare state. To gain a clear understanding of the investor politics of the twenty-first century, the book looks backward to human history and even to prehistory to examine the origins of capital formation. As the facts demonstrate, politics has always been intimately linked with investment, understood in the broadest sense of the word.
National Review
In the post-Reagan era, conservatives have aggressively pursued two major economic-policy objectives: lower marginal tax rates an the privatization of Social Security. On taxes, the struggle is ongoing, but Republicans have won more battles than they have lost; marginal tax rates are now about half as high as they were when Reagan took office. The Social Security skirmishes, however, are another story. Every election year, conservatives roll out plans for privatization; Democrats respond with highly effective efforts to induce hysteria, by suggesting that the GOP is preparing to float America’s senior citizens away on an iceberg.
One could, therefore, forgive rightwing politicians if they felt a vague yearning to talk about something else. But the fact is, we have to talk about Social Security. As John Hood makes abundantly clear in his insightful new book, the consequences of the Social Security debate are immense. Indeed, its outcome will profoundly shape the political history of the 21st century. And this says Hood, is good news.
His book provides ample cause for optimism. It begins with a carefully researched, albeit lengthy, history of the welfare stat: Much of American political history involves pitched battles between those with property and those without, with the latter seeking to use the confiscatory power of government to finance generous entitlements. This issue was, Hood reminds us, a central concern for our Founding Fathers. The reason Thomas Jefferson supported an agrarian rather than a commercial republic was that he foresaw that industrial prosperity would cause farmers to migrate to cities. When that happened, the farmers would lose their vested property interests, and democracy’s ideal citizenry would be lost. Ordinary laborers would become dependent on their employers, and, in Jefferson’s words, "dependence begets subservience and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition." He viewed this situation as the antithesis of farming, which - because farmers own their capital and develop a protective sense of community - is conductive to public virtue.
Hood is an able policy analyst, and carefully documents how well founded were Jefferson’s fears. Over time, conflicts between those with property and those without dramatically reshaped our economic landscape. Most important, big, intrusive government programs sprang up that have had the self sustaining effect of encouraging citizens not to acquire wealth. The most significant of these is Social Security, which collects 15.3 percent of a worker’s salary (half from the worker and half from the employer) and promises to pay benefits upon retirement. Since 15.3 percent is well above the desired saving rate of most people, the policy virtually guarantees that a large share of the populace will have nothing in the bank. This, in turn, creates a moat around our bloated government, and a barrier between our society and the idea proposed by Jefferson.
But the moat has grown shallow. Investments have a funny property that has worked a quiet magic over the years: Their returns compound. Many Americans have regularly put small amounts of money into private investments, and these stakes are now impressive. Armed with newfound wealth, many are again pursing Jefferson’s property-based society, and aggressively supporting limits on large and intrusive government. Their voices have been added to those of traditional property owners, and this new coalition has acquired significant political might. Today, as a result, it is far less politically risky to advocate Social Security privatization and other free-market policies.
Since the case for privatization is so strong, we can expect to see it broadcast to this ready audience with increasing urgency. Republicans will quietly renew their efforts later this year, when President Bush’s Social Security Commission issues its report. Other - surprising voices may soon join them. Indeed, one can always ascertain how strongly the facts support a conservative policy by inspecting Democratic rhetoric. When the evidence becomes overwhelming - welfare reform comes to mind - then the policy often turns out to have been a Democratic idea all along. Already there are rumblings. At some point soon, then, it is likely that Democrats will embrace partial privatization of Social Security. After that, the rest of the Social Security program will likely change. With investors a large and growing voting bloc, it will be easy to enlarge the private accounts.
What happens after that? What will the Left and the Right argue about if taxes and Social Security have been fixed once and for all? It is here that Investor Politics makes its strongest contribution. Having carefully constructed a framework for interpreting political conflicts and the policies that have resulted from them, Hood goes on to muse about the types of reforms that might be possible once everyone has an ownership stake in society. In so doing, he provides an interesting road map to the likely policy debates of the 21st century. After privatization, just about everyone will recognize the tremendous possibilities associated with private ownership. New Policies, once unthinkable, may become possible. Hood lays out a description of many of these, and - for an inside the Beltway wonk, at least - it is entertainment of the highest order. Who needs government unemployment insurance? Why not let individuals invest their own money in private policies, or provide "unemployment savings accounts"? Other areas - including education, welfare, and health policy - are just as ripe for similar reforms. After having a taste of freedom and control, American voters might never turn back.
Such a rosy scenario is no sure thing, but its probability will undoubtedly be highly positively correlated with the sales of this book. While it is definitely not good beach reading, Investor Politics is chock-full of interesting historical anecdotes, clever policy analysis, and surprising musings. I highly recommend it to any reader interested in understanding how our government turned into an entitlement trough, and how much it might change if Republicans are able to win just one more battle.
News & Record - Greensboro, NC
The president of the Raleigh-based John Locke Foundation provides a strategy for shrinking the welfare state through personal investment.