The Independent Investor: Separating the Forest From the Trees

Billed as a choice between two distinct and opposing futures for America, the November presidential election candidates are neck and neck. At the center of the battle are two issues: the economy and jobs. Rhetoric aside, how far apart are these men on the issues?

Up until Aug. 12, the media was hard pressed to find much difference between Barack Obama and Mitt Romney. The president was a democrat defending his track record of moderate economic growth while grappling with his unsuccessful efforts to whittle away at an extremely stubborn unemployment rate. Romney, on the other hand, promised change, towing the typically conservative line of less government, less regulation and more reliance on the private sector for job growth.

Cutting taxes and reducing spending were on both candidates' agendas, although the degree of cuts and increases differed. Both candidates were woefully short on detail on just when and how these changes would be implemented once elected. Enter the game changer, Congressman Paul Ryan.

From the moment Romney announced Ryan as his vice presidential selection, emphasis has shifted from Romney's "me too" economic plan to Ryan's "Roadmap for America." The Ryan plan has been touted as both the best and the worst program response to the nation's economic wounds ever created. The Magna Cartae it is not, nor is it anything like Ayn Rand's "Atlas Shrugged."

For those who have read all three (I have) , Ryan's plan presents a conservative point of view that has been largely espoused by the Republican tea party over the past few years. There is a lot of truth in what Ryan writes and believes, but many of his policy recommendations are in the wrong place at the wrong time, in my opinion. The best that can be said for the document is that it provides a solution to our fiscal issues, something the Democrats are sorely lacking in their own platform.

The problem for conservatives is that Ryan isn't running for president. In fact, if one looks back through history, vice presidents have had little impact on policy once their boss has captured the White House. So those who focus on Ryan's proposals are missing the point. Ryan's appointment to the ticket is meant to rally the hard-core conservatives, the tea party, if you will, to Romney's side. It does not mean that any of Ryan's suggestions will ever become part of a Romney economic plan.

In the meantime, the Democratic predictions of the end of Medicare and Medicaid as we know it if the Romney/Ryan "Comeback Team" is elected are not true. Ryan's plan to move Medicare from a defined-benefit fee-for-service system (where government is your insurance) to a defined-contribution system (where government writes you a check to help you pay someone else for insurance) is a long-term plan.

At the earliest, it won't take effect until sometime in the 2020s. Now, come on, do these politicians really expect us to believe that for the next 8-10 years every administration, regardless of party affiliation, is just going to sit by and agree to abide by Ryan's proposed Medicare changes in the 2020s?

There is no longevity in policy-making. Remember last year's deficit ceiling battle? The bi-partisan Super Committee failed to come up with a compromise in cutting the deficit in exchange for a higher national debt limit. So both parties agreed to automatic cuts in defense spending and entitlement programs. They are scheduled to be enacted on Jan. 1, 2013. Here it is less than a year later and both parties are already planning to change the agreement after the elections.

Nonetheless, the notion that Medicare and Medicaid will end "as we know it" if the Republicans are elected have the elderly up in arms. In a recent Pew Poll, over 55 percent of respondents, 65 years and older, were dead set against Ryan's plan. Over 51 percent of respondents said it was more important to leave Social Security and Medicare alone than it was to reduce the budget deficit.

In my next column, I will continue to separate the wheat from the chaff, as I see it, in the hope that readers will benefit from a little critical thinking as it applies to November’s elections.

A note to my readers in the Berkshires:
 
I have volunteered to teach a course this fall at Berkshire Community College at the Osher Lifelong Learning Institute (OLLI). The classes will be on Mondays from 2:45-4:15 p.m. throughout September and October. The course, "America's Future: Buy, Sell or Hold?" will teach students to think critically about such events as this year's presidential elections, wealth and women, our education system and much more. For more information or to sign up for the course call the OLLI office at 413-236-2190.

Bill Schmick is registered as an investment advisor representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.