Posted on September 15, 2008
According to Investopedia, an encyclopedia geared towards business, the fundamentals are: “ In the broadest terms, fundamental analysis involves looking at any data, besides the trading patterns of the stock itself, that can be expected to impact the price or perceived value of a stock. As the name implies, it means getting down to basics. Unlike its cousin technical analysis, which focuses only on the trading and price history of a stock, fundamental analysis focuses on creating a portrait of a company, identifying the intrinsic or fundamental value of its shares and buying or selling the stock based on that information.”
When John McCain says that the fundamentals are strong, what exactly is he talking about?
After all, the economy seems to be in very big trouble. The stock market is sinking. Wall Street is imploding. Foreclosures are rising. Energy prices were skyrocketing, then sinking again (and then rising again thanks to Hurricane Ike). Food is getting more expensive. What exactly are the fundamentals of an economy?
Getting an agreed-upon definition is hard. Fundamental analysis strips away all the hype and focuses on the overall health of the company. Will this company make money?
A fundamental look at the American economy should do the same thing. Strip away all the hype, and focus on those things that make up a strong economy. What are those things? Here are a few.
Do we have abundant natural resources?
Do we have a strong legal system that protects private property?
Do we promote trade and allow people from other countries trade with us?
Do we have a reasonable taxation system, one that doesn’t unfairly punish entrepreneurship?
Does the government try to pick winners and losers in the economy or does it allow competition to work?
Is the political system honest or does it promote and protect corruption?
Do we have strong laws that protect innovators and inventors?
Barack Obama and John McCain have a fundamentally different view of the fundamentals.
For Obama, the government should be activist. It should aggressively act to redistribute wealth from one class to another. It should increase tariffs to protect American industries. It should work aggressively to pick winners and losers. Obama’s allies on the left have attacked the very concept of intellectual property, proposing a communitarian approach to copyrights and patents (for the greater good , of course).
McCain is no Milton Friedman. He believes that government should activist. But he believes that government should serve as a referee, much like his hero Teddy Roosevelt, who fancied himself a trust-buster. McCain does not believe that it is the government’s central role to redistribute wealth from one class to another. Where Obama believes the government should pick winners and losers, McCain believes in competition. Where Obama believes in taxing investment and capital, McCain does not. Where Obama’s first instinct is to increase the size, scope and influence of the government, McCain’s first instinct is to cut government’s size and power. Where Obama distrusts trade, McCain embraces it as the best way to create American jobs.
McCain believes that the fundamentals of the American economy are strong, not because he believes that the economy is doing great at the moment. He knows that right now, the economy has hit a rough patch and that some people are hurting. But he also understands that the economy can be poised for a great comeback as long the fundamentals remain strong. That means protecting private property, promoting trade, keeping taxes low, improving regulations and generally promoting pro-growth policies.
For Obama, the fundamentals are all wrong. The free-market system is broken and needs to be fundamentally changed. Trade agreements should be scrapped. Taxes on investment should be increased. Government should do more on the regulatory front. Private property shouldn’t be valued. Intellectual property shouldn’t be protected.
This is a fight McCain can win because most Americans believe in the free-market system. Obama is not one of those Americans.