The Dividend Cafe - Independence, Economics, and Markets

Episode Date: July 1, 2022

Happy Independence Day weekend to you and yours. Or for those without much historical interest, Happy Fourth of July. Today’s Dividend Cafe is not going to dive into the state of the market, though I can promise you that Tuesday’s DC Today will have plenty to say about the first half of 2022 and our expectations for the second half. But for today, I want to look at this Independence Day holiday that we celebrate in our country, and analyze what the Fourth of July has to do with markets and economics. I make no bones out of the fact that I love my country, and much have that has to do with understanding what this country is – an idea, and an exceptional idea, at that. How the exceptional idea of America ties into markets, economics, and investing, is where we are going in today’s Dividend Cafe. Jump on in – there will be time enough for BBQ and sun this weekend. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello and welcome to another Dividend Cafe going into 4th of July weekend. We are officially at the halfway point of the year. Today is Friday, July the 1st. And markets open today, but it will now go into that three-day weekend. And we'll actually celebrate the 4th of July holiday on the actual 4th of July on Monday. So markets will be back open Tuesday and we'll do plenty next week in the DC today on Tuesday to really recap where we are at this halfway point of the year, the highly volatile and tumultuous

market environment that we're in. But today we will not be discussing such current events. Instead, we will be focused on the actual events of this weekend. That is the 4th of July, which what I would prefer we refer to as Independence Day. And what I've done in the Dividend Cafe today is actually try my best to connect the thing we celebrate on Independence Day, the kind of key ideals and principles of our nation's founding to markets, to the very thing that investors are engaged in day by day, what the very nature of investment opportunity is and how that connects to the pretty radical experiment that is and was America. I believe that most of you know that the reason we call July 4th the birthday of the country is it was the day the Declaration of Independence was signed and delivered, declaring the independence from Britain and what our founding fathers laid out

in sort of enumerated form in the Declaration as a case for a freer nation and one disconnected from the various hindrances that had become unbearable in their relationship to Britain. And it is my belief that many of these hindrances and many of these impediments, many of these complaints are explicitly economic. That there is all at once a declaration of the paramount need for political and civic and yet also economic freedom that is embedded in our founding documents. And while the Declaration of Independence was signed on July 4th, 1776, and the Constitution not ratified until years later, including years after this revolutionary war that had to be fought. But what you see in the Bill of Rights is a sort of codification of basic understandings of human liberty that translated into not only what would be the unique aspects of American society, but had a profoundly economic dimension to them.

And so most certainly we acknowledge and take joy in the priority of religious liberty, of the various ways in which they sought to codify such principles of human liberty with the First Amendment, Second Amendment, the various due process amendments that we see. All of these things presupposed an understanding of the human person and of human nature that the Founding Fathers had. But the reason I bring it up in the Dividend Cafe today is to make clear what is sort of played out throughout economic evolution, throughout development of civilization, tied to these key words in the Declaration of Independence, the pursuit of happiness. I do believe that the inalienable rights they talk about with life and liberty are paramount, cannot be ignored. I view a high regard for sanctity of life as a sin qua non in a civilized society.

I'm unaware of any society that has optimally pursued economic prosperity when they hold human life in low regard. So I don't mean to skip over the big things. Life and liberty are kind of what we're talking about here, what we're celebrating. But when we bridge this into economics, when we bridge this into how investors gain the opportunity to invest in the pursuit of happiness. It is important to understand how unique this was in world history. The idea of work and productivity and labor being utilized and put, I guess the right verb would be, we would demonstrate efforts and work for the purpose of pursuing happiness, not merely because we had to. But see, that would have been impossible apart from certain discoveries of a market economy.

Ideas like the division of labor, ideas like specialization, that one was not forced to work in a particular encampment, forced to work in a particular domain. Now granted, this idea of specialization did not come to its ninth inning on July 5th, 1776. In fact, I think we're still very much expanding upon the beauty and majesty of what this represents. But the idea that one has in their very unique, God-given, specialized sense of appetite, taste, preference, skill, passion, learning. We are able to go pursue economic life, highly specialized to the mindset of a pre-modern, pre-market economy. What we have today, and indeed what was so fundamental in the foundation of the birth of America, is a miracle. It is an absolute miracle that we can be free to go pursue happiness.

Those things that most animate us, those things that charge us, things that might pay us a significant amount of money if done right with taking risk, with properly tuning into the meeting of human needs, with properly tuning into the meeting of human needs, or may not pay as much based on what market appetite for such endeavor may be, but may truly fulfill us, may really bring us a certain degree of flourishing in our own lives and dreams and whatnot. This specialization is a byproduct of a market economy and was conscientious for the minds of the founders. This notion that among our inalienable rights included life and liberty and that special pursuit of happiness in our daily endeavors. define it in the economic dimension, but they did not exclude, in fact, consciously included the economic dimension to what we mean by the pursuit of happiness. I list out today in Dividend Cafe, many of the particular grievances you see the colonists bringing up in declaring their need to separate from the king. The ways in which King George was denying the colonists their rights, their needed pursuits, rule of law, private property, excessive burden of regulation,

all things with a very specifically economic context. So I loved and was raised, by the way, to celebrate the 4th of July as a holiday rooted in political, religious, and civic freedom. I believe all of those things. But I think that when we talk about financial markets and when we talk about what we talk about in D.C. today, this coming next week or in our weekly portfolio holdings report, when we look at the ways that we will allocate equity and debt capital for the betterment of mankind, for the purpose of generating a return on such equity, those things fundamentally do not exist and cannot happen apart from being tied to the endeavor of a human being. The human person in their pursuit to self-interest, in their pursuit of happiness, this inalienable right that caused us to give birth to the American experiment, this idea that is America. When we invest, that is what we are investing in. Capturing value, creating value, capital and other resources being added to ideas and endeavors for the purpose of a wealthier, more prosperous, and indeed happier society. Of course, so many other things must play in to the holistic definition of a flourishing

society, not to mention a flourishing human soul. But that economic dimension is too often ignored, and there's no reason for investors to believe that they operate in a sphere separate from all these categories. The history of this is important. The political philosophy is important. But ultimately, when we understand economics, we have to understand there is a cause and effect. When Adam Smith wrote The Wealth of Nations, have to understand there is a cause and effect. When Adam Smith wrote The Wealth of Nations, when the Scottish Enlightenment principles and a certain moral philosophy that was rooted in self-interest, properly understood, was seeking to apply to the liberal order, to a free society, this notion of economic activity, of mutually beneficial free exchange, of acknowledging

the role of incentives in a market economy, of dealing with the reality of scarcity and trade-offs. All of these principles that we now take for granted, law of supply and demand, law of comparative advantage, these principles, these laws became fundamental in our understanding of classical economics and gave birth in the American experiment to this incredibly free, prosperous, and radical society that had a huge influence on the rest of the world. And yet all of these things are not merely accidents of nature, but were rooted in the belief system of this great country. And now today, when people like myself and my team, when we seek to allocate capital, when we look for investment opportunity, when we look to be in relationship with our

clients and give proper advice, when we think about this concept of stewardship of capital and we think about tying it to the goals, dreams, hopes, aspirations, and lives of people, we birth, giving full wings to the capability of the human spirit, this human action that I will never stop talking about the rest of my life. So I do believe 4th of July is a market holiday, not only in the very obvious sense that banks and markets are closed. It is, as they say, a government holiday. But it's a holiday that markets ought to celebrate because where economic liberty is greater, market opportunity will continue to be greater. I hope these principles, this reminder and this reaffirmation gives you a couple days to add to your celebration and maybe even a couple days of reprieve from the kind of current tensions and whatnot that are in the market. We'll come back to all that next week. But in the meantime, happy Fourth of July and more importantly, happy Independence Day to you and yours.

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