What do Hillary Clinton and the communist government of China have in common? They both think they can and should use the power of government to force investors to buy and hold stocks longer. China is just a little more direct about it.
As the Dallas Morning News's Will Deener points out, the government of China was stunned and embarrassed by the nearly 30 percent decline in its stock market.
So the government intervened in a number of ways, such as increasing liquidity and pumping money into the market to shore up prices. There are also reports that the government is trying to keep people from selling their stocks, with brokerages refusing to take sell orders.
Deener adds, "The Chinese Ministry of Public Security, which is basically the secret police, has announced that it will investigate not just short sellers but anyone who sells stocks. I suppose the threat of jail is one way to encourage long-term investing."
How do Chinese government efforts relate to Hillary Clinton? She too is trying to find a "way to encourage long-term investing," only Clinton plans to do it with higher taxes.
Hillary wants to reform what she calls "quarterly capitalism" by trying to get investors to hold their investments longer, which she thinks would encourage companies to think longer-term.
She reportedly will introduce three new capital gains tax rates that will change depending on how long an investment is held.
What both China and Hillary have in common is the arrogance to think politicians and bureaucrats know how long investors should hold an asset.
If an investor buys stock in a company that subsequently makes a terrible business decision, that investor should be free to sell that stock without being penalized for the company's foolishness.
Those stock sell-offs convey information to the company and other investors. If government roadblocks are imposed, such as facing higher taxes, they distort investors' decisions and make the economy less efficient.
And if an investor's personal financial situation has changed and they simply need access to their capital, they should be free to sell the stock without being penalized for their own change in circumstances.
China and Hillary both want to use the power of government to micromanage the stock market to make it work like they think it should.
The better policy would be to eliminate the capital gains tax, with a very low rate being the next best option. That would create the most efficient use of capital with the least possible distortion, and it would be one of the most pro-economic growth steps we could take.
July 21, 2015