Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Congress's Role in Wealth Destruction

In William Bernstein's magnificent book The Birth of Plenty (McGraw-Hill, 2004), he summarizes what he thinks are the four conditions for a civilization to build true prosperity: property rights, rationality, efficient capital markets, and a good communications and transportation infrastructure. The material progress we have had since the Industrial Revolution has flowed from America's having these four attributes in abundance. But with the accelerating growth of government, particularly during the past 10 years, property rights, rationality, and efficient capital markets have all been sharply eroded in America.

Our progress since the Industrial Revolution has been reflected in our wealth growing at a rate of 2 percent in real returns per capita, per year, since about 1800. That may not sound like a lot, but this seemingly small but relentless improvement was enough to change us from an agrarian society to the modern economy of the twenty-first century. You can think of it this way: Living 2 percent better each year is like getting an extra week of vacation for each year you are working. It is this small but steady rate of improvement that is at the heart of the American Dream: that the next generation will live better than this one.

But lately, government has impoverished all of us compared to what we would have today if it were smaller. For example, deficit spending of nearly 10 percent of our economy on mostly wasteful and inefficient projects ...