Moneybeat: Crisis mode doesn’t produce great legislation

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Alright, time now to talk business, markets, and the economy with financial analyst and advisor David Bahnsen. David, of course, is head of the wealth management firm of the Bahnson group. And he joins us now. David, good morning.

DAVID BAHNSEN: Well, good morning, Nick, good to be with you.

EICHER: Well, I don't want to get into all of the internal details around averting the government shutdown over the weekend. But David, I would like to address a few of the core concerns that got us to this point. Number one, the issue of regular order versus continuing resolutions, because this concerns significant sums of money and how it's allocated. Then number two, that generalized complaint of those who have brought us to this point that we spend too much money, and we're taking on too much debt. But let's begin with point one. Congress under regular order would debate and approve over the course of the legislative year 12 tranches of federal discretionary spending that we know as appropriations bills. But in more recent times, none of that has gotten done. And as the deadline comes all 12 are bundled up into a thing called a continuing resolution that no single person has read, ever could read. And that leads to the idea that we need to pass it to find out what's in it, as a former House Speaker once said, in a completely different context. But with that very kind of simplified setup, David, is a return to the so-called "regular order" worth all of this Washington drama that we had to endure.

BAHNSEN: But the Washington drama is not going to bring us back to this order. It will in no way, shape or form, result in improving the processes that are used. And both parties have used the resolution over and over and over again. And so it is a complete matter of partisan convenience, people become opposed to certain mechanisms when the other party is in charge. And that isn't principled governance - it's convenience, and it's politics. Ultimately, I'm a big fan of the right process of how a bill becomes a law. And I'm a big fan of having a budget that you stick to and going through the appropriations process. The second point you bring up is the far more important one, and I'm excited to address it. But ultimately, the answer to the first step, is it worth it? Is that we don't even have to answer it because we're not going to get it. It's gamesmanship, it's performative, but it is most certainly not going to be effective.

EICHER: Right, because even if they do end up passing all of the appropriations bills, they didn't go through the appropriations process, which is committee and all of the rest. So there's a whole lot more to it.

BAHNSEN: Oh, they're also not going to get approved at the Senate. Yeah. So it's a weird thing. When we on the right (I consider myself a movement conservative, I identify as a member of the political right, it's a very easy thing for me to do), but the thing that I get very confused by is when people on the right all of a sudden act like they don't remember how separation of powers works, and that there is a political reality of a President having to sign a bill into law, of the two chambers of the Congress, including both the House and the Senate. So these things make for nice sound bites and tweets. But the sausage making of legislation was intended by the Founders to be hard.

EICHER: So let's do get to that second point, though, about spending too much, because I would like to revisit that one big truth that no one is really talking about. And we've talked about it before, many times, but it's worth doing again, because all of the drama here concerns discretionary spending and not entitlement programs that live on with nary a discussion.

BAHNSEN: Well, I would even add, by the way, Nick, that the discussion about discretionary spending, I was screaming this a few years ago, that there would be absolutely no way for there to be any moral authority, any credibility, any legitimacy with voters, any upper hand or leverage in the process for people who, when they have political power spend like drunken sailors, to all of a sudden become against discretionary spending increases when they don't have political power, or the same degree of political power. And this is what the process will be to eventual fiscal discipline: a party in charge will have to exercise it and then be able to ask the other party in charge to exercise it when the political winds blow. But as long as we continue to go back and forth of only believing in fiscal discipline when the other party is in charge, it is absolutely not going to happen. And I can't think of a reason why it should because I don't take any of it seriously. And I certainly don't think the rest of America takes it seriously. Your point about if we were to take fiscal discipline seriously, we would be focused on entitlement spending and not discretionary spending is, of course, a mathematical statement of fact, it's a confusing time. 

And again, I don't want to get into the specific candidates and people. But you know, it isn't a big secret that there's real, real, real prominent Republicans saying that we shouldn't be touching entitlements. I don't want to talk about entitlements, let's not go there. So there isn't a unified message. Politics generally follows ideas. Someone has to be a leader here in ideas. I don't know anyone, even a fiscal hawk like me, who is a really a big believer in balanced budgets, and thrift and spending within our means. I don't know anybody who wants to take away entitlement benefits from those who they have been promised to. But some grownup dealing with the future commitments that are made, and how knobs can be turned in a way that represents some path to solvency for the entitlement commitments, I'm, of course, primarily talking here about Social Security and Medicare, on the periphery, we might want to, at some point, address, other transfer payment programs and Medicaid and other funding to states and whatnot. But even at the social and Medicare level, if you're going to address entitlement spending, there has to be a serious idea, serious commitment. And my big fear is that we really have no precedent of doing that. We wait for a crisis, we wait for an emergency, and then we do our worst legislating. We do our worst problem solving. And so I wish that there was some moral authority and some true leadership here. It hasn't come yet. But I think that's the need of the hour, Nick, if we're if we're to take fiscal discipline seriously.

EICHER: Well, I'd like to return to the topic of overheated, dangerous possibly, rhetoric. And that takes us to the UAW strike - The United Auto Workers. The president of the UAW is using the language of class warfare. He said that auto workers played a role in the American and Allied effort to defeat the Nazis in World War Two. And he added that while the enemy was a foreign power in the 1940s, well, we're in a similar war today. Let's listen to UAW president Shawn Fain.

SHAWN FAIN: It's different this time. The enemy is not a foreign power you know across an ocean. The enemy is right here among us. It's corporate greed you know, and the, and how we fight the enemy isn't isn't a liberator bomber, is the true liberators, which is a working class people in the workers of the world.

So David, I set this up as talking about possibly dangerous rhetoric. Do you dismiss this as just rhetoric to fire up the troops? Or are you concerned by this? Is there any danger?

BAHNSEN: I think the country has to make a decision as to whether or not we believe that this type of reckless rhetoric is wrong all the time, or only when our political opponents use it. So my view is very consistent. I strongly suspect, Nick, that the listeners to WORLD agree, it's either wrong all the time, or it isn't wrong all the time. And this is to me, absolutely unacceptable rhetoric. 

First of all, apart from militarizing it, and that hyper inappropriate historical analogies, just the general class warfare rhetoric that pits labor against capital in this type of adversarial fashion is ideologically Marxian. It is ideologically Marxian. And so I think it isn't new, that part. Unfortunately, this is the way that a lot of organized labor has evolved over the years, is to act as if they're in an eternal death match against capital, against management, and that type of division as opposed to mutual cooperation, earnest negotiation, hard negotiation, there's some elbows as people fight for what they believe makes the most sense for their respective stakeholders. I get all that, but that Marxian class warfare is reckless. 

And then when you go to this level, where we're constantly being told by many on the left, that some of the rhetoric that can often be uttered by others on the right, that appeals to this imagery and comparisons to physical warfare. I think it's wrong all the time. I don't want to be guilty of doing it. And I want to condemn it when people that are often my political and ideological allies do it. But in this case, what Shawn Fain has done is totally over the line and ought to be condemned by people on right and left alike.

EICHER: David, so what else anything in the markets or the economy that we ought to, that ought to come to our attention this week?

BAHNSEN: Yeah, the last week of September was the worst week in the stock market for the year. And so we closed out the third quarter with a pretty negative September. August had been negative as well, but July had been up quite a bit. So it wasn't a terrible quarter. But it ended up being, you know, not a great one, that's for sure. And most of it's really been led by the bond market. And it's something that is a big theme of mine right now, as to the various factors that have pushed the long end of the yield curve, meaning more like 10 year treasury bond rates higher, I think the quantitative tightening the Fed is doing is really starting to have an impact. I think, lower Chinese exports, which results in less dollars being converted into treasuries, I think that's a big factor. And then also, by the way, something I wrote about at WORLD by the way, a year and a half ago, we didn't get the recession many people said (was) coming, or at least we haven't got it yet. And recessions put a downward pressure on bond yields. And the lack of the recession has had to cause those expectations to reverse. And that puts upward pressure on bond yields. And so that's, of course, rattled financial markets. So we'll see as we go into Q4, where things go, what the Fed's posture will be as we get ready to go into this big election year. This is an exciting time to work in finance, I promise you.

EICHER: Alright, David Bahnsen is Founder, Managing Partner and Chief Investment Officer of the Bahnsen Group. You can keep up with David at his personal website, which is bahnsen.com and you can read his very good Dividend Cafe at dividendcafe.com. David, thank you so much, and we'll see you next time.

BAHNSEN: Thanks so much, Nick.

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