One of my missions at "A Dash" is to find unpopular themes that have investment significance and value. Often this means challenging the accuracy of the most recent "Wall Street Truthiness."
There is a dangerous idea making the rounds, the notion that delay is inherently bad. Adherents of this viewpoint are winning the sound bite war with "extend and pretend" and "kick the can down the road." (The latter has been barred in our household by Mrs. OldProf because of flagrantly excessive overuse. Since she proofreads this work, you will know what happened if text is replaced with a series of xxxx's). Using these phrases seems to have the effect of trying to end discussion.
To me it seems more like an impatient toddler insisting, "I want this! I want it right now!"
Let me try to explain why delay can be a good thing. I wish that I had a sexier or more alliterative term than the pedantic "constructive postponement," but that is the best I can do right now. Nominations welcome.
Meanwhile, try to focus on the concept and the merits rather than the slogans and terminology.
Delay Can Work for Advocates
A long-established principle in the public policy literature is how to behave when you are losing. Decades ago E.E. Schattschneider endorsed the strategy of expanding the scope of conflict. If you are losing in the current arena, change it! Move to a higher court, involve a higher level of government, or attract more partisans to your side.
There are hundreds of examples of this strategy. Since this is mostly unknown to current market participants, they see this as something unfair or illegitimate. Wrong! It is how groups compete in a pluralistic society. The misunderstanding distorts how people view the policymaking process and it leads to investment mistakes.
Here are two recent examples. I have no allegiance to the advocates in either case. They are just good illustrations of effective advocacy.
ObamaCare. The GOP was about to lose a key vote in the Senate. They engaged in every possible delay and filibuster, hoping against hope that something good would happen to change the odds. The Massachusetts Senate election for Ted Kennedy's seat was the answer. While a version of national health care was still passed, the one-vote shift in the partisan alignment had an important influence on the resulting policy, perhaps dooming the public option.
Wisconsin Senate. The Democrats in Wisconsin were about to lose. The loss would not relate merely to the current budget, but a crippling -- and perhaps permanent -- loss of collective bargaining power for public employee unions. Taking advantage of the quorum rule in the Senate, Democrats have left the state. They basically have nothing to lose. They hope to marshal support for their side and to negotiate a better deal. We are waiting to see the outcome of this one.
Delay Can be Wise for All
Here are some easy examples of when delay is (or might have been) wise.
- The surgeon recommends shrinking the tumor before operating.
- You decide to make sure of your current job situation before buying a new house.
- President Bush delays attacking Iraq to get a little more evidence about weapons of mass destruction.
- You negotiate a new repayment schedule of loans to reflect your changed employment status.
- You decide to do some graduate study instead of taking a job that you do not really like.
- You decide to travel abroad for a year, delaying your college studies.
- You delay an investment in a local business, waiting for more clarity about conditions.
- You postpone your plan to quit smoking until you are through a period of stress.
In most of these cases an aggressive adovcate for the "other side" could invoke slogans.
Once again, there are many current policy questions where delay is an issue. I'll stick to two cases.
- Addressing the federal budget deficit. The consensus is to worry about this more when the economy is stronger. President Obama is compromising on this viewpoint in a reaction to political necessity. Despite this, the real heavy lifting on the deficit issue will be delayed.
- Fed interest rate policy and QE II. The Fed is on record concerning the weight of their concerns (the economy), the expectation for inflation (not much), and the plan for future policy (low rates for an extended period). Investors are free to disagree with this viewpoint -- at their peril.
There is nothing wrong with delaying tough medicine until the time is right. There are many pundits who loudly proclaim what THEY would do if in office. In practice, these people, if actually elected, are soon referred to as the "former" Congressman.
Actually representing people and making important decisions has a galvanizing effect that you do not feel until you are there. I never got around to a review of Hank Paulson's book, On the Brink. I really enjoyed this book and learned several important things. It is now added to our recommended reading, especially for those who want to learn details about policy making during the crisis.
The most important, by far, is that Paulson and Bush were both willing to take actions completely at odds with their ideology when they thought the economic stakes were high enough.
Secondary points include the following:
- Paulson scrapped the plan to price toxic assets long before it was revealed to the public. This was important to many of us.
- President Bush granted a wide range of authority to Paulson. Even a charitable reading suggests that he made seat-of-the pants decisions about valuing Bear Stearns and the government role on Lehman that vastly exceeded what might be expected for an appointed official.
- What is not there -- a discussion of currency values when visiting China.
- And some little stuff about interactions with Gov. Palin, Sen. McCain, and the future President.
I recommend reading this book regardless of your political persuasion. It is the perfect counterpoint for today's article. It shows when delay is not feasible.