If Someone is Drowning, Throw a Life Ring, Not an Anchor

Reading an essay this morning on the demographic challenge currently facing several South American nations (aging populations), I came across one of those obvious, but often ignored assertions (like the one, “Wear clean underwear, you never know when you’re going to be in an accident”; the ignoring part is not about wearing clean underwear, but believing that you don’t even have to think about it because everyone practices it). The author notes that “… the need for additional capital in South America could see the continent’s countries enhance their economic prospects by liberalizing their economies to attract private domestic and foreign investment. This process could see Bolivia, Venezuela and Argentina change their current policy of nationalizing foreign-owned companies.”

The writer is from a respected, non-partisan enterprise (Stratfor) that sells its research to users like Sigma Investment Counselors. Hence, they have no conservative/liberal ideological “axe to grind.”

It has never been challenged in my mind that capital formation is indeed a necessary ingredient for economic growth which carries with it job growth. This economic “truth” also impacts countries that do not have a singular, pressing challenge such as the demographic issues facing South America right now. Nonetheless, this seems to be lost on policy makers at times. Could that be the case in Europe and US right now? As noted above, “liberalizing their economies” often means reducing regulation and improving the investment return flowing to capital investment, including by lessening the tax burden on capital. Washington – take note please.

Comments and questions are welcomed.

Bob Bilkie, CFA