Investors are worried about a lot of things right now: volatile energy prices, a polarized political climate, the snowballing federal debt, a potential collapse in China and a stock market that seems to have run out of steam.

But these concerns pale in comparison to the biggest threat facing investors today: Angry voters.

[ad#Google Adsense 336×280-IA]Americans are in an ugly mood.

Polls show the majority of us are dissatisfied with the economy, unhappy with Washington and less than enthused about this year’s presidential contenders.

I sympathize entirely.

Seven years after the financial crisis, the economy is still limping.

Washington remains a dysfunctional mess.

As for Hillary, Bernie and the Donald… I can’t really express my feelings and maintain our PG-13 rating.

Seven years of economic stagnation is tough for people to stomach, of course.

But many are not thinking clearly about the true causes of the weak economy. They are demonizing international trade – and even capitalism itself.

For example, an American Action Network poll finds that 40% of Democrats say socialism is the best form of government. Another 10% say it is equal to democratic capitalism.

Republicans, on the other hand, are even more hostile to free trade than Democrats. In Pennsylvania, for example, 53% of GOP voters say trade with other nations “takes away U.S. jobs.” Only 42% of Democratic voters feel that way.

Both groups are dead wrong, of course.

Foreign trade benefits us far more than it costs us. For starters, we are the world’s third-largest exporter. Total U.S. exports hit an all-time record $2.35 trillion in 2014.

We are also the world’s single biggest importer. Americans love Japanese electronics, European cars, French wines, Italian shoes, Swiss watches, Dutch chocolates and inexpensive clothes made in Bangladesh.

Our morning coffee comes from Colombia or Brazil. Our smartphones are assembled in Vietnam or China. Produce in the grocery store – especially in winter – comes from the Southern Hemisphere.

Yet it’s an election year and politicians on both sides of the aisle are blaming today’s economic woes on “unfair competition,” “currency manipulation” and “lousy trade deals.”

There is some of that, to be sure. But international trade is an enormous net plus for the economy – and for investors.

Tariffs aren’t the solution. Who is excited about the prospect of paying a lot more for their Toyota truck, Samsung TV or Grey Goose vodka?

More importantly, more than 11.7 million people in the U.S. work in export-related industries. These are higher-paying jobs.

What will happen to these folks when foreign nations retaliate against our protectionist policies?

Politicians tried this in the 1930s, and it rapidly worsened a global depression. The end result was a world economy that contracted 25%.

Yet, sensing the populist mood, both Republican and Democratic candidates are promising to increase trade barriers and torpedo trade deals.

That would not be good for the economy… or for the market.

The hostility against capitalism, the greatest anti-poverty program ever devised, is particularly misguided.

True, the financial crisis of 2008-2009 did a lot to tarnish capitalism’s image. But we don’t live in a free market system. We have a mixed economy with a lot of heavy-handed government interference.

While Wall Street shares part of the blame for the meltdown, Uncle Sam played a far larger role:

  • The Fed took interest rates too low for too long, making mortgage loans dirt-cheap and priming the real estate bubble.
  • Legislators in both parties passed laws that encouraged banks to lend to subprime borrowers.
  • The federal government sponsored Fannie and Freddie – or (as I prefer) Phony and Fraudie – to warehouse these crummy home loans and then put taxpayers on the hook to clean up the mess.
  • The $615 trillion market for credit default swaps accelerated the financial collapse. These should have been traded through central clearinghouses, on exchanges that provide transparency. Who decided against this? The U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission, two federal agencies.
  • And who is responsible for the regulation of banks, savings and loans, mortgage companies and rating agencies to make sure the mortgage market is fair and transparent? Why, the federal government, of course.

Many of the very same politicians who oversaw this malfeasance are now blaming it all on Wall Street greed. (Notice that you never hear a word about the “greed” of ordinary folks who snapped up properties they couldn’t afford with the idea of flipping them for a quick profit.)

Capitalism is not a perfect system. But socialism has been an utter disaster everywhere it has been tried.

It leads to massive deprivation, chronic shortages and a greatly diminished standard of living. Look south to Cuba and Venezuela to see a couple of real-time examples.

In short, the biggest threat facing us today is not gyrating oil, Washington gridlock or market volatility.

It’s the possibility of Democratic Socialists and Republican Protectionists electing someone dumb enough to sign economic ignorance into law.

Now that should keep you awake at night.

Good investing,

Alex

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Source: Investment U