Talking right, while looking left

Originally written — 12/3/15

Apropos to our conversation via text earlier today, and given that I am stuck on a cross-country flight, I thought I would take this time to lay out what I believe to be a radical, but necessary, agenda and policy argument for the liberal agenda through the lens of income inequality in the coming years. As individuals with a vested interest, both intellectually and financially, in the ongoing structure and behavior of capital markets, I believe this ideology to be critical to our future success. Finally, I will propose how such an ideology could form the philosophical underpinning for a long-term asset management and advisory firm.

Simply put — liberals must put aside income inequality as a matter of fairness, and instead reframe around a stronger rationale that emphasizes 1) capitalism, 2) security and 3) American exceptionalism, all topics largely associated with neoconservatives. To do so can both broaden the political tent for liberals, while helping to direct the conversation towards the core tenets of liberalism (as I see it).

First, the move in this election cycle to associate liberalism with socialism, as articulated by Bernie Sanders, but increasingly adopted by millennials, is a grave mistake. Socialism remains a misunderstood and ill-defined ideology, and is not necessary to embody the ideals that most liberals believe in. The most prominent issue addressed by the socialism argument is income inequality, which may actually be the greatest threat facing capitalism. In an increasingly hollowed out economy with no middle class, there will be little structural support for the American service economy (not to mention the growing service economies in countries like China). Any investors who hope to create diversified portfolios should be terrified by the prospect of a country unable to afford its own goods and services, where only a few sectors can reliably deliver returns. Longer term, an unequal society is likely to follow the trend established over generations when a small group accrues the vast majority of wealth — violent overthrow of the elites. Instead of decrying inequality as a outcome of capitalism, and thus necessitating a shift to socialism, liberals should tackle inequality in defense of capitalism.

Secondly, the societal costs of a conservative society are rapidly becoming apparent from a security standpoint. the hawkish nature of conservative foreign policy has thrust the US into fiscally unsustainable wars, handicapping our ability to negotiate with other countries and intervene in scenarios that legitimately threaten global security. As a result, the US is less able to maintain a security presence that can prevent against global political risk events. These costs are also now being visited at home. The development of an unequal society, where rabid nationalism and anti-immigrant sentiment is a legitimate policy stance, has created an untenable security situation within the US. Like any disenfranchised people, less-educated and underemployed white men continue to pose an increasing security risk to the US as evidenced by warnings from the FBI and the ongoing struggle with mass shootings. As long as white supremacist terror groups remain the leading terror threat at home, income inequality is no longer an economic issue, but also a pressing security concern.

Third, the idea of American exceptionalism remains a touchy subject amongst liberals, particularly given the long-needed reconsideration of American history prompted by Black Lives Matter etc. However, acknowledging past crimes does not invalidate the critical role that the US currently plays in global politics and economics. The US remains an attractive destination for much of the world’s intellectual leaders and capital, and the ongoing dominance of US technology firms has continued to keep the center of global innovation within our borders. Acknowledging these strengths, however, also necessitates making concerted efforts to protect this competitive position, whether through immigration reform or through refugee acceptance. Though this may be a crude calculation, Germany stands to benefit from the influx of Syrian refugees, who are largely well-educated, provide a needed boost of youth to an aging demographic, and are a population the country is eager to keep employed and well-integrated. (For these reasons, and the broader pessimism over Europe, I am bullish on Germany in the medium term). Liberals must emphasize that income and opportunity inequality, for both immigrants and Americans, erode the very foundations that have given America an exceptional role to play.

I believe these three pillars should form the foundation for a socially responsible investment firm whose investment philosophy is rooted in liberal ideals around capitalism, security and American exceptionalism. Companies that believe they can win in an increasingly liberal America are likely to do so, as the demographics shift in the long-term against the older, white, conservative base. Explicitly adopting such a stance can be an effective way to both draw assets and define the company’s value proposition and approach to ESG.

This email is now too long, so I will end it here.