It’s post Labor Day and I’m still feeling a nice languor. I happily fiddled around and attempted to organize some old files Monday—nothing too strenuous.

You always hope that past thoughts don’t look too flimsy years later, but I came across one that seems to hold up and look downright timely. With John McCain taking up the Republican banner as the party’s presidential candidate this week, I thought reflections on the last western-state Republican president would be useful today.

We’re just beginning to discover what Ronald Reagan really brought to us as history untangles biography from fandom. Now what might the newest westerner, John McCain, do? This as it turns out, does have a link to our investment world because the outcome of the next election may well affect issues having to do with government oversight as well as taxes, budgets, dollar strength and the economy. 

So let me repeat observations from June 2004 following the death of President Ronald Reagan: 

Something About President Reagan I Haven’t Heard Anyone Say

By now, everyone else has said so much about President Ronald Reagan, some quite eloquent, that I have little to add to his resume. You know what it is. Reagan’s impact on the U.S. and the world was huge. But eventually, I think history books will put it in perspective, and the message probably won’t match a lot of what was said last week.

Frankly, Communism was an unsustainable model and Russia was on a course to inevitable self-destruction anyway. The problems dated back to the Brezhnev years of the 1970s when Russia was already unable to feed itself without massive foreign aid. Its lunar missions were failures. It was losing its grasp on its satellite countries. Its scientific advances were stalling as it kept aloof from sharing insights with the rest of the world. Its leaders were already corrupt and hoarding the country’s wealth and privileges for themselves. It had to scale back its five-year economic plans from earlier more ambitious models, and then failed to meet those lower goals. Fewer high school students were going on to college in the 1970s and early 1980s than in the 1960s.

This is not to take anything out of President Reagan’s cabinet of trophies, dear reader. I think the much-talked-about defeat of communism will prove to be far from Reagan’s greatest accomplishment. The real change that Reagan wrought will last much longer and is much greater. He changed how we think about government and more important about responsibility.

Reagan’s greatest imprint, I believe, will be in bringing the Western attitude into public life. I speak not of Western meaning “Europe and America as opposed to Asia.” I mean Western as in the place where the wagon trains went and they made cowboy movies.

Malcontents Breed Independence

There’s a theory of U.S. history called the Turner Thesis (not to be confused with the Turner Diaries!) that applies here. In a nutshell, in 1893, Frederick Jackson Turner theorized that the United States developed as it did because its misfits, malcontents, dreamers, nuts and independents continually escaped the bounds of convention by moving westward. Their children became civilized and conventional, then the next group pushed farther west to find space to be free again. This huge frontier we once enjoyed continually replenished the idea of democracy and freedom in U.S. history.

Anyone who has traveled or lived in both the East and the West can tell you that Easterners and Westerners are different.

On the surface, Westerners seem more easygoing, friendlier and less stuffy than we Easterners do. I am sure, for instance, that I wore proper white gloves to church and dances 10 years after my California cousins had thrown theirs away. My mother, a transplanted Californian, complains that after living in Maryland for 50-some years, she’s still an outsider, the “girl Jimmy married.”

And it’s true. I’m a Marylander; so are my brothers. And though everybody loves her, Mom’s not.

Below the surface, beneath that refreshing casualness, though, Westerners are much less apt to put up with anyone interfering in their business… and their business is whatever they want to do. And they expect you to take care of your business, too. Responsibility and freedom are personal.

When Reagan came to office, the top marginal tax rate in the United States was 70%. Today, that’s unthinkable. His greatest accomplishment wasn’t that he reduced taxes. It was that he permanently changed what taxes we find acceptable. He literally shook us until our heads rattled.

When Reagan came to Washington, having already made his imprint in California, he was a rebel. Apart from a few overtaxed rich, you didn’t find a groundswell of Eastern umbrage railing against those rates. Just a few “crazies.” The revolution in taxes, and what government was entitled to take, came from the West. So did a new outlook on what government was supposed to do.

Let me give you an idea of how much the ideas Reagan brought with him changed national politics forever. Think of the president that fervent Reagan admirers most dislike.  The one who is the most diametrically opposite you could imagine. Yep, that one…

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Now ponder this. Bill Clinton could never have signed off on the welfare reform bill known as the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 if Ronald Reagan hadn’t been president long before him.

Isn’t that a shocker? Bill Clinton as Reagan’s spiritual heir!

I’m not sure either man would be proud to claim the relationship. But it is true that Reagan paved the way for the welfare reform and fiscal tightening that occurred on Clinton’s watch. No way, no how the idea that welfare could be cut back to near abolishment could ever have reared its head without the Reagan influence paving the way. No way a Democratic president could ever have touched it without Reagan’s “Westernization” of national politics.

The name of the Welfare Reform bill—The Personal Responsibility, etc. Act—was an attempt to make a shocking idea sound better to those who balked. But it turns out to be the appropriate name, because personal responsibility is a very Western, very Reagan idea.

The Turner Thesis has been around for 111 years. It’s big guns in the field, something akin to Newton posing gravity. Every history student knows it. It’s been in and out of fashion, and I believe it’s mostly in these days. 

But isn’t this something? Now that the U.S. has no more West for people to escape to for more personal freedom, the thesis is still relevant—the West has spread East.

Requiescat in pace Ronald Reagan. Rest in peace.

***Back to the present. This is the most “Westerners versus Easterners” presidential race we’ve ever had. Illinois and Delaware against Arizona and Alaska.

You can see clear differences on several issues.

For instance, the League of Conservation Voters gives the Dem team high scorecard numbers on environmental issues. McCain’s scores are extremely low.

Labor, as represented by the AFL-CIO gave Obama an A+. McCain was the only congressman to get the grade of “incomplete” because he missed too many votes on the issues in the scorecard.

On guns, McCain might seem to break with the John Wayne mystique of the West. The National Rifle Assoc. gave him a C+ rating. Then again, NRA gave Barack Obama an F.

On taxes and government spending, the Cato Institute clearly rates McCain as a stronger advocate for low taxes, while Obama seems more interested in shifting who pays how much.

I’m not sure whether you like any of the candidates. But this time if you skip the glib speeches candidates are forced to make to offend the fewest and sidle up to the most people… and if you look at their records, you should be able to spot clear differences.

How does this affect investing? I am only going to give you some broad and suggestive outlines because anything further might inadvertently come off as being pro one candidate or the other. That’s not my purpose here. So…

Spending priorities: that’s one place to look for what the candidates will mean to your investments. It is possible that military contractors (and the stocks of those companies) would be much happier to see McCain coming. Obama claims to be more interested in domestic infrastructure spending and is clearly more interested in environmental spending, so those sectors and companies could fare better if he won.

International trade: Obama is already on record as thinking NAFTA went too far and eliminating tax breaks for American companies that move jobs offshore. McCain appears to be promoting even freer trade at this point. Such sentiments could affect dollar strength, with Obama’s protectionist tendencies more likely to continue the weakness—then again, that would benefit many companies’ earnings as they sell products into strong currency markets.

Some effects are indirect and subtle. Obama, to my surprise, continues to have an energizing effect on crowds, which frankly I thought would evaporate by now. That could lead to greater confidence, which is not a bad thing in an economy dominated by consumer spending. But McCain is a known fiscal conservative and his intent to manage the economy more conservatively could be good for the dollar. McCain is also believed to be more pro-business than Obama.

We are a ways from hearing complete outlines of the two candidates on identical issues. This will unfold as they move closer to Election day, but the issues are certainly worth our attention this time.
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