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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
  • Why a Tyranny of Minorities (Probably) Won't Work 0 comments
    Sep 1, 2009 11:34 AM
    Communist governments operate through a tyranny of a minority. That is, they concentrate power using the barrel of a gun, and dare others to challenge them.

    Merely Socialist governments (like the one currently running the United States) can't use such force. Instead, they have to rule through the majority. And the normal socialist way of doing so is to stitch together a coalition of groups, each a minority, that together make up a majority. That is how many Democratic leaders have operated, going back to Franklin Delano Roosevelt and beyond.

    This plan works best when there is a clear group that is disliked by most other groups in society, but nevertheless controls a disproportionate amount of power.

    Suppose a consensus formed that most of the ills of American society could be blamed on the (mostly) white, middle-aged and male members of "banking" institutions such as Goldman Sachs. (This is not a hypothetical; Goldman Sachs' recent machinations create a small, but very real, possibility that such a consensus could, in fact, form). Then you could create a countervailing coalition of females, plus old and young males, plus non-white middle-aged males, etc. from non "Goldman Sachs" people.

    Such a consensus might make it easy to make policy. Higher taxes on (mainly) on Goldman Sachs and its workers, lower taxes (and more spending) on everyone else.

    But there would be contradictions. The current health care proposal for instance, aims to help young, uninsured people at the expense of older, already covered people, and neither group would be part of the "Goldman Sachs" crowd. Such groups would likely square off against each other, unless they were somehow held together by their common hatred of "Goldman Sachs." In the latter case, you could have a tyranny of the minorities, in the former case, you wouldn't.

    Or take women. Some would support an Administration that wants "my daughters to have the same opportunities as your sons." But others would be the wives and daughters of "Goldman Sachs" workers (or aspire to be), and therefore support "Goldman Sachs".

    All in all, the current Democratic Administration has a risky coalition strategy. But we can't dismiss it altogether, because Franklin Delano Roosevelt did form an improbable coalition of Midwestern and western farmers, urban laborers, minorities, and Southern landed gentry against Northeastern business elites.
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