The Scott Heard Around the World

You heard it. Scott Brown’s victory in Massachusetts’s special election for the U.S. Senate on Tuesday was the shot heard around the world. It was more proof that Americans have had enough government intrusion in their lives. They’re fed up with the arrogance of the out-of-touch Obama administration. The wave of change that Obama rode into office has crashed on the rocks like a ship lost in a storm. And even with the ship in distress, it’s clear the president still doesn’t get it.

Obama didn’t learn from his party’s losses in Virginia and New Jersey. He forged ahead with health-care reform through special deals such as the Louisiana Purchase for Mary Landrieu, the Cornhusker Kickback to Nebraska’s Ben Nelson, and the payoffs to union heads Andy Stern of SEIU and Richard Trumka of the AFL-CIO. Obama’s beliefs on health-care reform are not shared by the average American. His strategy, I suspect, is straight out of Alinsky’s book Rules for Radicals, where more aggression is the play when your chips are down. And his long-term strategy seems aligned with that of the Cloward-Piven model, where breaking the system is the goal. To say this is worrisome is an understatement.

Brown’s win is of historic proportions. Consider for a moment that in the 2008 U.S. presidential, Senate, and House elections the people of Massachusetts voted 62% for Obama, 66% for John Kerry, and 68% for Barney Frank. Just under two-thirds of the votes in the combined races went to Democrats. Populist Brown is the first Republican since 1972 to win a U.S. Senate race in Massachusetts. It’s a sign of what’s to come in the 2010 midterm elections and beyond. Independents will decide who will win. Democrats and Republicans had better pay attention. Of voters in Massachusetts, 54% are independent, 33% Democrat, and 13% Republican, more proof that Brown’s victory is a canary in the coal mine for just how drastically voters’ minds have changed. And there are plenty of reasons why.

Even in defeat, Washington seems to have little regard for the message Massachusetts is sending them. The first three words of the United States Constitution are “We the People.” Here’s what White House press secretary Robert Gibbs had to say in his briefing following Tuesday’s loss: “Despite the loss of Democrats’ 60-seat majority in the U.S. Senate this week, we are working through the best way forward as the president continues his commitment to get health care reform done. There are a number of different ways to do this. Again, those conversations are ongoing.” Are they ongoing with more special interest groups?

It’s clear the country doesn’t want health-care reform. With that said, can we get an idea of how the country will vote on health care by looking at Massachusetts? I think so, considering that it was the deciding issue for 48% of voters. Of course, what makes it a little difficult is that Massachusetts has had government health care since 2006. It’s worth noting that costs are up 42% since then. They’ve seen how bad it is, and know that a federal system would only make it worse. I studied the votes, and regardless of the obvious damage to Massachusetts that Obamacare would do, seven of the ten largest cities and towns measured by total votes chose Coakley over Brown.

I believe there are two similar stories here. The first one includes the big government and progressive voters in Boston, Worcester, Springfield, and Brockton, four of the seven largest cities won by Coakley. Most voters in this group, and I suspect many of those in other cities across America, want more government in any form. Simply looking at one economic factor in the casting of their votes, it’s easy to imagine why these four places voted for more government: their per capita income averages close to a third less than the rest of the state. It’s about gimme, gimme, gimme and more, more, more government. Will more of these voters cast their vote in future elections? I don’t think it’s likely. I looked at voter turnout in Boston, Worcester, Springfield, and Brockton, and it was less than 40% compared to the state average of 54%—a 14% difference. A similar margin of 11% existed in the 2008 elections when Obama mania was at its highest.

The second story includes Newton, Cambridge, and Somerville, the other three of the seven largest places that voted for Coakley. Even with government health care, the majority of these voters seem to want more government no matter what the cost is to the country. Again, if we look at just one economic measure, per capita income, theirs is around a third higher than the state average. The majority of voters in all seven places seem to have a mind-set that puts government and special interests ahead of a market system.

What about taxes and the stock market? It makes sense to look at how the places at the highest end of the Massachusetts income spectrum voted. Weston, Dover, Carlisle, and Sherborn, when taken together, voted about 60% for president Obama in ’08 while this week they averaged only 45% for Coakley. It seems the shine is off the Obama star. Of the votes in Massachusetts, 52% went to Brown, or to smaller government, lower taxes, a market economy, and tough national security against terrorism. I suspect the rest of the country would vote this way too.

What does this mean for investors? It’s important for retired investors to note that misguided government policies were responsible in large part for the stock market being essentially flat from 1965 through 1981. The Reagan years were defined by respect for a free market system which led to exponential growth in equity prices. It’s no coincidence that only 19% of U.S. households owned equities in 1983, expanding to 49.5% by 2002. This number is not guaranteed to trend higher. The Bush big-government policies led to the lost decade in equity prices, and it’s likely that a lower number of households are in equities today.

Free market growth is not guaranteed. It is not our right. It must be fought for and defended. And it’s a battle we’re currently losing. The Heritage Foundation’s 2010 Index of Economic Freedom came out this week, stating, “This year, of the world’s 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.” We are now ranked eighth, just behind Canada, North America’s freest economy. This is where the president’s ongoing conversations should be, not health-care reform. A market economy is where jobs are created—not saved.

E.J. Smith is Managing Director of Richard C. Young & Co., Ltd. an investment advisory firm managing portfolios for investors with over $1,000,000 in investable assets.

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E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.