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Rebuilding Good Roads While Cars Still in the Ditch By: Charles Payne

There is much excitement about the stock market taking off after the November elections should the Republican Party take control of the House and Senate. It is a compelling premise, and one I have been thinking about all year long. While there were unique factors that played a role in the march from Dow 3,800 to Dow 10,400 after Newt Gingrich and the GOP won control, and forced President Clinton to move to the middle, there is no doubt the atmosphere from Washington played a critical role. The internet/telecom bubbles may not be played out to the same extent over the next six or seven years but it feels like technology is ready to enter into a more exciting and productive time, led by cloud computing and energy needs.

But, for this nation to pick up the innovation baton that only turns ideas into actions under favorable business conditions, there has to be a message sent to those in charge by the shareholders with everything on the line. The American people must stand up and speak up. There have been numerous times in our history when we've toyed with the idea of abandoning that which has made us great. In 2008, once again, a green light was given to tweak the system, to make changes, to turn the nation around. What most people are learning is there is no better system than capitalism, and while it was running off the rails, bald-faced attempts to dismantle it have made things worse. The fact is part of capitalism is destruction, and that should have been allowed despite the fact there would have been more short-term pain.

So, the stage is set. In 1994, the Republicans won control of the House and Senate, and the market took off on one of the best runs in history. Even apolitical market watchers might be rooting for a major upheaval this November. The thing is history really is on the side of those looking for a GOP takeover of Congress, and I'm not referring to just 1994.

"The Business of America...Is Business"

In November of 1920, Warren Harding was elected 29th President of the United States, and Republicans win 300 seats in the House of Representatives (Democrats won 132 seats). School books mostly highlight the "Teapot Dome" scandal that occurred under Harding, which is a shame because he was a no non-sense conservative whose pro-business approach triggered the "Roaring 20s", a period of prosperity, pride, and a lot of fun. Harding believed in "America First", rejected participation in a League of Nations, and started the first child welfare program in the United States. During the elections for the 67th U.S. Congress, the Dow Jones Industrial Average was trading around 80; by the time the market crashed on September 3, 1929, it had peaked at 381.17.

That is a move of 376% over nine years. Is there anyone that doesn't hope for that kind of run for the stock market?
Harding died in office, and was succeeded by Calvin Coolidge, a small-government conservative who coined the term: "The business of America is business." The economy flourished, and the stock market flourished. Herbert Hoover was President when the stock market crashed, and the country was so disgusted it was willing to try anything differently. I find it interesting how people can erase a decade of prosperity when the you-know-what hits the fan. Of course, getting hammered and having to start over is painful, and when someone promises to take away that pain we listen. I'm not going to get into the details of what was wrong with the so-called "New Deal" but I will say it didn't rescue the economy or bring back prosperity. Moreover, the New Deal did nothing for the stock market, which limped along for more than a couple of decades.

Time for another GOP Sweep

The Dow Jones Industrial Average didn't get back to its 1929 high until 1954! Why then? How did it happen? There was another Republican revolution in Washington that once again ushered in an era of prosperity and strong stock market gains. Dwight Eisenhower was elected President of the United States, and the 83th Congress saw Republicans win 221 seats in the House and 48 in the Senate (Democrats won 213 and 46, respectively). During the election in 1952, the Dow Jones Industrial Average peaked at 284.0, and by November 1954 the Dow was at 387.0. Eisenhower wasn't the same kind of conservative that Harding and Coolidge were; in fact he expanded social security and backed other spending programs. He was smart enough, however, to get business people in key positions.

One reporter dubbed the Eisenhower cabinet "Eight millionaires and a plumber" because it had big-time industrialists on board and just a single labor union person. Many people believed the 1950s were the golden era for the nation. 1954 was the fifth best year for stocks, with the Dow climbing 43.96% and finishing at 404.39. The Korean War was over in 1953, but the war against Communism was just getting heated up. The Small Business Administration (SBA) was born in 1953, and there was the introduction of federal unemployment tax. In 1954, a progressive tax scheme was created, establishing 24 income brackets. The stock market rallied to 675 by July 1959 from 284 in November 1952, an increase of 138% over six years. This is truly amazing, and has to be on the minds of investors, both casual and professional.

This should be on the minds of all Americans looking for prosperity. There is a time when the nation cries out for pro-prosperity policies. There is a time when we shake the natural feeling of fear after the economy has gone off the rails and get back to a mindset of rebuilding rather than dismantling. The stock market has responded to this in the past, and could be poised to do so again. That is because the stock market is nothing more than a proxy for the country and the pulse of its citizens. When we stop believing then the stock market falters.
When we invest time and resources into schemes that distribute money but don't generate it, we waste time and dig deeper holes. Right now, so many Americans have their head in the sand or have completely tuned out our future.

As November gets closer, I think more people will look up and decide widespread prosperity lifts all boats. You don't have to redistribute wealth when it's flooding the system.

If We Party Like the 1950s then Let's Tax Like It Too

On the topic of the 1950s, many will say "hey, taxes were high back then, why don't we try that again?" It is true, the highest marginal tax rate was 91% for heads of households earning $300,000 a year, and 90% for those earning $200,000. In reality, the progressive tax brackets meant low taxes for most people. The average income in 1954 was $2,300, with men on average earning $3,250 and women $1,200. Wages for men were 75% higher since the end of WWII, but only 30% higher for women. In 1955, there was also a major spread between men working full-time, $3,900, and those working only part-time, $700. Businessmen earned $4,500 from $3,900 year over year in 1955.

The fact is you could probably count on your fingers how many people paid the highest marginal tax rate of 91%. The 1950s were tax-friendly for most Americans, although onerous as one moved past the 30% bracket. But, the impact was on a small percentage of Americans and not small businesses.

If You Build it They Will Come

President Obama has unveiled his new economic game plan. It sounds familiar, isn't innovative, and will only create temporary jobs. Speaking in Milwaukee, the President said he is ready to rebuild 150,000 miles of roads and 150 miles of runways. Makes you wonder how he got to Milwaukee from Washington, DC in the first place. This plan would be Stimulus II, subtitled "This Time It's really Shovel-Ready", and cost only $50.0 billion. There was much talk about the middle class and guarantees we should all have, like healthcare, education, and money for retirement. Then there was bragging about pulling the economy out of the ditch, which I found very odd considering more people are unemployed than the day the President was sworn in, more people have filed for bankruptcy and lost their homes, and pessimism readings are testing low points.

The President said he will be focused on the economy every single minute of every single day, and I'm wondering if that includes between tee times and vacations, or does that time get a special asterisk?

Here's the real deal. Once again, the White House had a chance to make nice with job creators and bring people together, but he simply ripped them to shreds in order to forward a victimization ideology. As for the newest redistribution scheme, it's bound to fail beyond the real intent to buy votes, which I hope fails because the real victims would be those with temporary jobs and a false sense of security. It is true President Eisenhower pushed through the interstate highway bill under the guise of the Defense Highway Act of 1956. It was an expensive proposition, but at the time it was an investment. Initially it would cost $25.0 billion and take 12 years to complete. It took 35 years and cost an inflation-adjusted $459.6 billion. I think it was a smart deal either way because it was an investment.

Highways linked the nation and enabled the economy to blossom. (Interstate highways played a key role in civil rights as the government enforced interstate commerce laws to make racial discrimination unprofitable. The Southern Manifesto opposing racial integration in public places was signed in 1956 by 99 Democrats and 2 Republicans, so the linking of America was so important to enabling the nation to live up to its promise.) But, the impact on unemployment wasn't a big deal and in fact, the unemployment rate exploded after the passage of the highways bill. The unemployment rate didn't decrease below the 1956 level until 1966.

I'm a big critic of roads in New Jersey and New York, especially after the winter, but the focus should be on generating economic demand that would need roads already in place and ready to be used.

There are more stimulus ideas coming including 100% tax breaks for research and development, which is mostly a way to pay off Silicon Valley and damp their ire over the war on multinationals and continued difficulties bringing in skilled workers from abroad.

Disclosure: None