Reagan’s power was that he was confident that whatever the problem – the economy, the Soviets, the million others – he could meet it, the American people could meet it, and our system could meet it. The people saw his confidence, it allowed them to be optimistic
– Peggy Noonan
In last month’s article, we discussed investing in the information age. This month, in honor of Independence Day, we are publishing an updated version of our article from last July on how lucky we are to be Americans.
“Optimism” Stems from Confidence
Peggy Noonan is a wonderful writer and author, whose many accomplishments include the fact that she wrote some of Ronald Reagan’s most moving speeches. In an interview in 2015, she reflected on how often people expressed an admiration for Reagan’s unflappable optimism. To many people, Reagan’s greatest strength and power was his optimism.
Noonan responded that it was not Reagan’s optimism that gave him power; it was his supreme sense of confidence in the American people, and, more importantly, in the American system, that allowed him to exude this infectious sense of optimism. Reagan believed so firmly in the foundational principles of the American system, and that those principles would allow us to thrive in the face of any adversity, that he was able to remain calmly optimistic regardless of the challenges of the day.
The Power of Economic Freedom
Among all of the freedoms that we Americans celebrate this month, it is the freedom to strive for economic security and prosperity that is the greatest aim of independence. The greatness of the American system lies in the individual freedom to pursue happiness – we are free to be, to do, to own, and to rise as far as personal initiative, hard work, and thrift will carry us.
I read a fascinating article recently, which I would strongly recommend for a thoughtful take on what “liberty” really means, and the critical importance of economic liberty.
This author articulates the belief that economic choice is the most reliable source of freedom, power, equality, and justice for the greatest number of people. If we wish to promote social justice, the best way to do so is through our ability to provide economic freedom and power to the greatest number of people, regardless of their gender, age, race, color, religion, or sexual orientation.
As the author articulates, the massive increase in per capita income in the last 250 years has in turn:
Made masses of people bold – first the free and wealthy men, then poor men, then former slaves, then women, then gays, then handicapped, then, then, then. Make everyone free, it turned out (the experiment had never been tried before on such a scale), and you get masses and masses of people inspired and enabled to have a go. “I contain multitudes,” sang the poet of the new liberty. And he did. He and his friends had a go at steam engines and research universities and railways and public schools and electric lights and corporations and open source engineering and containerization and the internet. We became rich by giving ordinary people their economic liberty.
Indeed, although the world is far from 100 percent “socially just” today, America’s system of democratic capitalism continues to lift people out of poverty at an impressive pace, creating more economic power, equality, and freedom for more people every single day.
History’s Greatest Prosperity Machine
As investors, we should take a moment each year on July 4th to give great thanks for the opportunity to benefit from investing in the American system of economic freedom. This system, which has given us “steam engines and research universities and railways and public schools and electric lights and corporations and open source engineering and containerization and the internet,” has also yielded incredible rewards for those who have invested in the American economy.
Our nation was founded on the idea that individual economic freedom, and the right to strive and thrive, are the most powerful forces of productivity in the world. As a result, the American economy has become the greatest machine for the production of widespread prosperity that the world has ever seen.
For the latest evidence of how our economy is blessing more and more people every single day, we are happy to report that the May 2019 unemployment report showed that the unemployment rate stood fast at 3.6 percent, the lowest in half a century. The median duration of unemployment fell to 9.1 weeks, and the percentage of the unemployed who had voluntarily quit their jobs rose to 13.5 percent. Finally, total wages (people working plus hours worked plus increased pay) have risen 4.6 percent in the 12 months through May. And in an economy that’s still almost 68 percent driven by the consumer, that’s an unalloyed good.
Meanwhile, in a development that made pretty much zero headlines, the Federal Reserve recently reported that household net worth in the first quarter soared by 4.5 percent – the biggest quarterly jump in 14 years – to $108.6 trillion. But at the same time, J. P. Morgan Asset Management estimates that the household debt service ratio – debt payments as a percentage of disposable personal income – dropped again, to 9.9 percent. That’s as low as it’s been since well before 1980.
Bottom line: the consumer is working, and for higher wages; he is more confident in his job than he’s been in a very long time; and he is more liquid than he’s been in more than 40 years.
Let us be thankful for our share of that economic bounty.