GOP Debate Reviewed, and what this Election Actually Means to the Economy

I believe this was debate #4 in the Republican primary but I confess I am getting to that point where I will soon start to lose count. It was not as exciting of a debate, but I am not sure “excitement” is supposed to be the objective. By far this debate featured the most actual policy discussion, and while it was low on fireworks it was a revealing debate for those wanting to dig deeper into who has the policy depth to be President. The moderators did a good job keeping the debate on subject, and that subject was the economy. At the end of this review I have a link to a white paper I have written on that very subeject – the policy implications in the economy of this election – but let’s take a look at the festivities in Milwaukee first.

The debate started with a question on the minimum wage, one that can easily lend itself to class angst and populist rage if there is not a proper explanation and education to accompany the answer. I expected this to be something above Ben Carson’s head, but frankly his response was simply fantastic. A $15/hourt federally required minimum wage law is a DISASTER, but not because it will hurt business; because it will decimate the people the law pretends to help. Carson hit the needed points here and I was impressed. Carson would have his chance to flub on something rather substantial later. Responding to a few answers on the minimum wage law, John Kasich responded with this gem: “Economic theory is fine, but people need help”. I’m not sure why Kasich doesn’t recognize that this logic can be used to rationalize any full-blown epic redistributionism. He can be forgiven for merely trying to play to a sort of populist denominator, but I think Kasich’s problem in these debates has NOT been that he wants to reconcile high level policy with street level problems (we all should want that); it is that he swings and misses in attempting to do so. This flaw would hit an apex later in the debate with Kasich.

I never say anything nice about Rand Paul, but frankly his answer about income inequality was one of the highlights of the night. If people don’t realize that income inequality is greatest in the bluest of cities and bluest of states, well, they should. Rand did a fine job last night, but in true Paul family fashion he took the one or two important things he had to contribute in matters of free markets and flushed them down the toilet by voluntarily choosing to instead focus on his radical isolationism. The idea that the great enemy of freedom right now is, um, Marco Rubio’s view of national defense, is absurd, and it fell on deaf ears with the audience.

The immigration issue is still the one I see most likely to cost the Republicans the election, and it won’t be the candidates fault if it happens. Trump doubled down on his preposterous lie that he will deport over 11 million illegal immigrants. He also threw in a garbled and historically confused reference to Dwight Eisenhower’s Operation Wetback (I hope it will be a theme in my writing for decades to come that HISTORY MATTERS). Kasich had the courage to say the truth about the prospects for deporting 11 million people. We’re smarter than that. We’re better than that. I don’t know how the guys who have this policy right can message it to a fuming group in the supposed base of the party. Rubio’s prescription remains the most compelling and most palatable, and he stayed out of that fray last night. Cruz took the cheap route – saying everyone believes in amnesty. Trump was consistent, authentic, and idiotic. A low point of the night all the way around.

One of the more revealing parts of the night came when the moderators turned to the financial crisis of 2008, how they would have handled things, what would be different next time, etc. I say it is “revealing” because, being an obsessive about this very topic, I believe it provides incredible encapsulation of one’s view of history, worldview in economics and finance, and so much of how one foresees policy prescription going forward. Jeb Bush said one of the stranger things of the night, and I am sure only a few people would have cared or caught it. Jeb said in clear English that the capital requirements of banks were not high enough now under Dodd-Frank. He certainly has it right that the small banks are being unfairly hammered by Dodd-Frank with newfound compliance costs, but of all the massive problems Dodd-Frank has, this is the first time I’ve heard anyone say inadequate capital requirements for the big banks is one. Tier One Capital is up 98% since the crisis (no typo). He either has a wildly off-center view of what capital requirements ought to be (I doubt that, but maybe), or he is totally ignorant over what Dodd-Frank did and did not do (something which would be shocking from the “policy wonk” on stage. Let me be clear – I think Dodd-Frank is the second worst law passed in this country in 25 years, if not longer. But alleging that the banks are under-capitalized now because of it is simply untrue. Ted Cruz’s grandstanding on the gold standard and overt refusal to answer Neil Cavuto’s question about bank bailouts was sad for a man of Cruz’s debate ability. But nobody fluffed on this worse than Ben Carson. Ben Carson said that when corporations buy back their own stock we let them “artificially prop it up”. Perhaps he could explain this to someone with an 8th grade understanding of markets. How are stock buybacks artificial? Real money being used to buy real stock at actual market levels. And what in the world does that have to do with the financial crisis (the subject at the time?). I want to assume he misspoke but I know he didn’t; he simply grabbed onto a bunch of rhetoric of which he has no idea what it means whatsoever. THIS is the kind of thing that serves as my foundation for seeing him lacking the depth to be President. Now Kasich’s foot-in-mouth moment of the night was saying that if a bank was going to fail he would figure out “which depositors could afford it” and pick which depositors were saved around those lines. Dear Lord. His lack of an actual economic ideology has totally overpowered the strengths he has as a candidate.

Cruz really whiffed tonight. His attempt at generating applause fell flat the first couple times he tried, particularly on the preposterous amnesty claim. And by the way, for an educated man, he reiterated the economic absurdity that immigrants were driving down wages – something I actually thought even he wouldn’t stoop to. He certainly had strong moments as someone of his debate skill is bound to have, but I am more and more seeing a TV evangelist every time he speaks, and I can’t even imagine what someone not in my political worldview sees. How come Ted Cruz doesn’t get Rick Perry’d over the agencies he said he’d cut??? Perry couldn’t remember one; Cruz said he had five to cut but repeated one of those twice (the Dept of Commerce). What’s the difference? Was I the only one who caught that?

Rubio was strong as always, and I keep waiting for him to have a disappointing night. Jeb Bush very wisely chose not to make Marco Rubio the target of his attacks. Rubio does well because the things you need to do well in this setting are not things you can develop, coach, train, or learn: You have to have a true command of the issues, and you have to have a God-given ability to articulate that command. Each candidate I criticize in these settings either lacks that command (Carson at times, Trump nearly always, etc.), or lacks any semblance of eloquence and conviction when it comes to portraying their point of view (Bush would be the worst in this case). In other words, I do not commend Rubio because he is a good debater (as Cruz is); I point out that Rubio is a good debater BECAUSE he is a good candidate (which Cruz is not).

Last night each candidate had highlights, but overall I would say it helped Rubio, helped Rand Paul, and at least didn’t hurt Jeb Bush (which isn’t enough at this point). Carson really can’t hurt himself with his own base, but he has definitely reached a ceiling in my humble opinion. I have given up commenting on how Trump does, but I guess he did better last night than he has in the previous debates, but what does that matter for his core fan base. I am saddened by the way Kasich has played this campaign; he is a good Governor and needs a voice, but he is not getting through and much of his problems are self-induced.

If I were a betting man right now I would say that if ANY candidate we are not talking about has a chance to get into contention in the next sixty days it is Chris Christie. He had a great week and is a better orator and has a more natural voice than just about anyone running. He can’t win; he won’t win; but he just seems to me (intuition only) to be one I can see coming up the ranks. I suspect Jeb stays in long enough to finish 5th place in New Hampshire and totally humiliate himself, but there are talks that at Thanksgiving dinner the family will be, um, having a frank talk. Carson and Trump have peaked, and as long as they both stay in, neither is likely to break through (in terms of where delegate counts would actually be needed).

So it is still fluid, and I still think we are heading to a Rubio-Cruz run-off for the primary in the end. And if I am right (I may not be), how the GOP resolves that nomination question will determine whether or not Hillary Clinton becomes the next President of the United States.

Now, for those interested, I have posted to my company website a 13-page white paper on the investor and market implications of the 2016 Presidential election.