Recent government capital infusions have led to uncommon agreement that the U.S. is moving towards socialism. It's hard to argue with this conclusion. Just look at the automobile industry, AIG, trillions of dollars of TARP money and pending health care reform.
It's a feeding frenzy for the media, politicians and especially financial pundits. Socialism must be terrible for investors. After all, it's the end of the of the "free market system." Should you hunker down and prepare for limited growth and dismal returns?
Not if you take a look at historical data.
That's exactly what Weston J. Wellington, Vice President of Dimensional Fund Advisors, did in a thoughtful presentation entitled "What Should Investors Do Now?".
Wellington used data from the Heritage Foundation to rank countries based on the amount of economic freedom in that country. The results were very interesting. Socialist leaning countries (like Sweden, Norway, Denmark, Spain and France) all outperformed the U.S. for the thirty-eight year period from January 1, 1970 to December 31, 2008.
France represents an economy much reviled by politicians and pundits alike. Not only is it Socialist leaning, but it has a comprehensive, government run health care system. That's the pariah the health care industry is spending hundreds of millions of dollars to avoid in the U.S.
Equity returns in France during this period were 10.35% vs. 9.12% in the U.S.
I'm not advocating socialism. All I'm saying is that those who raise the socialism boogeyman as a way to frighten investors either don't know the data or are intentionally misleading them.
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