Economist Brock: ‘Liberal Capitalism vs. Statist Capitalism,’ That Is the Question

At Strategic Investment Conference, H. Woody Brock explains ‘how to get out of the economic mess we’re in’

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There’s smart, and then there’s “super smart.” With five degrees (a B.A., M.B.A., and M.S. from Harvard and an M.A. and Ph.D. from Princeton), Dr. H. Woody Brock is clearly the latter. In a stark speech heavy on humor and academic theorems at the 2012 Strategic Investment Conference jointly hosted by alternative investment firm Altegris and Millennium Wave Investments in Carlsbad, Cailf., Brock set out Thursday morning to tell attendees “how to get out of the economic mess we’re in.”

H. Woody BrockThe session, tilted “Wither Capitalism, and Liberal Democracy,” posited the question of whether or not Americans would prefer to live in a government-controlled, centrally planned version of capitalism, or a true liberal democracy.

“It’s no longer about capitalism versus communism, it’s about liberal capitalism versus statist capitalism,” Brock (left) said of the current debate in Washington.

Citing everything from Game Theory to his teacher and mentor John Nash, subject of the 2001 biopic “A Beautiful Mind,” Brock, who is founder of Strategic Economic Decisions, explained the underpinnings of the current debt debate, which he said “is becoming boring.”

“The deficit justifies austerity and gets bonds involved,” he explained. “Everyone is now worried about the rise of inflation, and not by hundreds of basis points, but by thousands, which is now common in some countries.”

He added that the question of whether debt and deficits matter is moot; it’s whether or not it is “good debt or bad debt.”

“If you want good debt, it wise to use it at the intersection of Keynesian indicators and those of economist Kenneth Arrow,” he continued. “Keynesian indicators involve low private sector growth, which is then stimulated with public debt, but it’s critical not to abuse it. Arrow’s equation about rates of return demands that we improve public sector infrastructure. Unlike the Japanese, who constantly update their infrastructure, we will experience a high rate of return on such projects because we have not done so for 50 years.”

That, he said, is an example of good debt, but unfortunately he claimed 97% of our current spending is “unproductive.”

“We have the available labor for an infrastructure ‘Marshall Plan,’ and we must do it. For anyone who thinks this is a left-wing argument, capitalists first and foremost want the highest rate of return. In a world where many ‘McMansions’ have a negative rate of return, this is a no-brainer. Einstein, Nash and Arrow; the theroms they developed are not questioned.”

In the biggest laugh line of the presentation, Brock joked that “mathematics and sex induce performance anxiety in many men, because the outcome of both cannot be faked.”

Moving on to the subject of health care reform, Brock criticized President Barack Obama for focusing on “cost reduction rather than expenditure reduction.”

“Obamacare is all about increasing demand, but does nothing about increasing supply,” he said. “It will cause people in the medical profession to get out. When you focus on cost-control, you can actually shift the demand curve backwards.”

He concluded by tackling three controversial issues: politics, education and taxes.

“The problem with politics is the incentive structure; it encourages people to mortgage our children’s future in order to get re-elected. With education, I want a constitutional amendment that requires the system to increase, not decrease productivity, which we have not had for 60 years. If there is no increase, then I want the amendment to require all teachers unions to be fired. With taxes, believe it or not, we must have a progressive rate. If you advocate for a flat tax I will make a fool of you, because the incentives are all wrong.”

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See complete coverage of the 2012 Strategic Investment Conference on AdvisorOne.

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