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Socialist or Capitalist

Great little piece on the gains in markets under various economic philosophies. This is the most telling chart from the article.

You will note that we rank 17th out of 18 countries and the laissezfaire Yanks rank 15th. The orignal article from which this chart is drawn can be found here and it makes a few interesting conclusions –

The graph tells us several things:

  • Countries with typically high levels of Government involvement in the economy, such as Sweden, Denmark and Canada, do not appear to have experienced stifled economic growth relative to countries where Government involvement is more limited, like the US.
  • Australia ranks 17th out of the 18 countries listed.  Although Australia’s sharemarket performance has been amongst the strongest performers over the past 10 years, this graph shows the importance of global diversification over the longer term.
  • The power of compound interest and diversification.  One might be happy with the US return of 9.12% pa over 39 years – after all, $100 invested in 1970 would now be worth $3,008.  But $100 invested in Sweden would now be worth $11,119 – or 270% more.

Whilst 39 years seems like a reasonable sample period, it is still short. For every $1 spent by Government, it is $1 less spent by private enterprise.  In the long term, we believe in Adam Smith’s statement that, in general, markets should be free of Government influence.

My guess is that this conclusion is one that is anchored in a bias – the data is clear , over the ime frame indicated regulation doesnt seem to hinder market performance. If anything a lack of regulation is the impediment to performance which is very much counter intuitive. I would suggest that what holds non regulated markets back is actually the level of corporate freeloading that goes on. This sponging off the tax payer whilst giving lip service to free enterprise is the ultimate must create profound cognitive bias in those that do it. Either that or they just dont give a shit.

I have shown the graphic below before and if you are looking for a reason for the poor performance of US markets it might be wise to consider the actual ability of people running the businesses that make up the market.

PS As a quick addendum consider this piece on entrpreneurs in Norway

Rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States, according to the latest report by the Global Entrepreneurship Monitor, a Boston-based research consortium.


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