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Moneybeat: The wisdom of incremental change


WORLD Radio - Moneybeat: The wisdom of incremental change

The economic change Argentinian President Javier Milei promised at Davos will take time to bring about

President of Argentina Javier Milei broadcasted while delivering his speech at the Annual Meeting of World Economic Forum in Davos, Switzerland, Wednesday, Jan. 17, 2024 Associated Press/Photo by Markus Schreiber

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 is head of the wealth management firm, the Bahnsen Group and he is here now. David, good morning.

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

EICHER: Well, David, lots of financial journalists in Davos, Switzerland this past week. And so where there are politicians and leaders, there are reporters, where there are reporters, there are lots of stories. And so lots of ink spilled on the World Economic Forum, in Davos, and not really a ton else. I wonder whether any of that you found notable and worth a comment or two?

BAHNSEN:Um, no, I mean, I think that the newly elected president of Argentina gave a speech that had a lot of wonderful things in it that grabbed a lot of attention. And of course, there's always a lot of press around Davos, generally from the left, because they view a lot of these ideas as potentially really impactful to their agenda on climate, and other things. But then lately, there's a lot of attention from the right, too, because they view Davos and the World Economic Forum as part of a, you know, kind of sinister, conspiratorial plot. And so for both of those reasons, I tend to ignore it, because I don't really hold to either view. I see it as an event where a lot of people sit around and talk and say things that I already know they believe.

EICHER: Well, David, you mentioned President Milei in Argentina, Javier Milei, who is an economist by trade. The speech he gave at Davos thrilled, I know, the Wall Street Journal, which took an excerpt of it and printed it as an opinion column. Now, I do know, it's too early in the Milei administration, too early to appraise his overall performance. But I wonder attitudinally whether you think he's on the right track? I know, you were somewhat concerned that maybe Milei pivot away from some of the bombastic rhetoric and toward a little more sober, serious position, given how much serious work needs to be done to try to repair an economy like Argentina's?


Well, I think that the rhetoric in his Davos speech was not bombastic. And I think it was more academic and more intelligent. And I enjoyed most of what he said. I think when I refer to the execution, you know, the one policy thing he's done thus far was devalue their dollar 56%. And I think that he is aware of the pragmatic issues that they have in front of them. And I think that there's a theory and a philosophy that, given enough time, is going to be successful.

But what a lot of people on the right do not understand and I plead with Americans who believe in free enterprise, and who desperately desire less government intervention, I plead with them to understand: getting to the point at which you have a more ideal policy from a policy that has gone astray almost never can happen without pain. There's going to be some sacrifice, there's going to be some difficulty. And that's almost always where the poor execution comes. Because then at the sort of onset of some of the pain that goes with the transition, the political pressure becomes intense to have to change.

And the implementation often lacks what I call incrementalism, which is an extremely biblical concept, something Jesus talked about a great deal in parables and in the gospels, the kingdom of God being like a mustard seed, okay? There are things that have to grow and change and happen at a certain pace. To want to snap our fingers when it comes to the economy, and make everything better, is a very revolutionary spirit, but it is not a reformed spirit. It is not, I think, rooted in wisdom. And so unfortunately, Argentina will face the same reality.

And I plead for Americans to understand: we have a lot to alter in our economic administration, whether it's entitlements, Social Security, Medicare, government spending, government debt, the health of our workforce, there's so many things that need to happen to make for a more responsible free and virtuous citizenry. And yet, there are very few things that are going to happen overnight. And that is the economic reality we have and that's where I plead for wisdom and execution.

EICHER: Well, David, I saw lots of reporting on the housing market this past week, both in the New York Times and the Wall Street Journal, and of course, that trickles down to other reporters. And it struck me maybe some other reporters are listening to you because it seems that they have finally caught up with you on the peculiarities of this housing market right now. I think you deserve a little bit of a victory lap, David.

BAHNSEN: Well, I thank you for noticing, because I had the same impression this week that some of the press seem to be into the same narrative that I've been in for some time, which is volumes, transactions, sales dropping even as prices are not. And this week, they actually put a number to it, perhaps just because it was the final December report, which meant it was the final 2023 report. And so you got year over year numbers, but year over year, sales dropped to a 28 year low. Okay? And we had a much smaller population 28 years ago, as well. A lot has changed in America since 1995. And the reason that we had such a absolutely miniscule amount of single family resident transactions happening and for all the things we've talked about here on WORLD many times, which is that both buyers and sellers are on strike, and that the interest rate policy froze buyers, because combined with high prices, housing is too unaffordable, and sellers froze because their rate on the house they're selling is so much lower than it will be on the house they're buying. So they have no incentive to hurry out of their house. And the only way to clear the market is first of all get on the other side of what the Fed is going to do with interest rates. But secondly, to build more supply. And I think that that's the theme you're going to be hearing now, the theme that we both picked up on in the dominant media this week. I think that's the theme you're going to be hearing throughout all of 2024. And there has already been, by the way, a movement in blue states that have done a lot to hamper new supply, there's already a real political pressure to change that, to relieve some of the regulatory burdens that are keeping new housing supply from coming online. But that is a huge need in our country, if you value affordability, and a healthy housing market, and we have a long way to go to get there.

EICHER: David, I'd like to start something new this week. It grows out of some of the really great feedback we receive from listeners and it boils down to this, it seems that it would be helpful to stop and make an effort to define terms to help the listener become more conversant with often-used economic and financial terms. And we have discussed this off the air, so I'm not throwing a curveball here. But get us started with our first installment of defining terms.

BAHNSEN: It occurs to me that terms I use a lot and a lot of people in economics and finance use a lot that we just take for granted. Everybody understands this idea of fiscal policy and monetary policy. And I think a lot of people out there think they're the same thing because the word fiscal and the word monetary both sound financial - because they both are financial. So it sounds like we're just talking about synonymous things. But when the word fiscal policy is used, it's a reference to governmental policy, whether it's cutting spending or cutting taxes or raising spending, raising taxes. It has to do with things that the government might do in the economy fiscally. Monetary policy has to do with what the central bank might do, interest rates, money supply. So fiscal and monetary are cousins, but they are two separate things, one being governmental spending and taxes, one being a reference to interest rates and the supply of money.

EICHER: Alright, defining terms. I think that's going to be very helpful. David Bahnsen is founder managing partner and chief investment officer of the Bahnsen Group. David's personal website is His Dividend Cafe each week you can find at David, always great to talk with you. Thank you. See you next time.

BAHNSEN: Thanks so much, Nick.

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