Andrew C. McCarthy has joined the crowd. He usually writes
about legal matters, and did so again. But this time, when he sensed that his
legal arguments were as ineffective as a Netanyahu speech delivered at the UN,
he added a paragraph and stuffed it with an economic argument that, unknown to
him, was demolished long ago.
I discussed that sort of economic matters once before, and
some people understood my arguments. Apparently others did not understand them
or most likely missed them entirely – one soul being Andrew McCarthy. And so,
I'll explain my point again for the benefit of these people, but I'll take a
different approach this time. What I'll do is start by telling a true story
that will help me illustrate my argument. Here is the story:
I was a young man a little over fifty years ago when I
received a phone call from someone I didn't know. He said he was from a
brokerage firm that's promoting the stock of a new mining company, and he
recommended that I buy some shares. Not knowing what to think on the spot, I
said I'll call him back. I then remembered my father mentioning once that he
tried his hand at trading commodities when he was just about my age at the
time, and so I decided to ask him for advice.
What made the discussion with my father more nuanced was the
fact that the name IBM was everywhere. The era represented the age of innocence
where small boons filled people with enormous psychological satisfaction. Thus,
to pronounce the three letters of the bluest of the blue chips on the stock
market, instantly bumped you to an upscale category that made you feel like a
tycoon. To own shares in IBM made you feel like a royal. And so I asked my
father if it would not be better that I buy IBM shares instead of those from an
upstart company the promoter was suggesting.
We had a long discussion about the pros and cons of trading
in different kinds of stocks. The lesson I came out with in the end was that
IBM will be good for my ego and safe on my bank account but nothing too
spectacular. As to the upstart company, it represented a risk if it failed or a
possible spectacular reward if it succeeded.
For these reasons, I was convinced I should maintain a
varied and balanced portfolio with a small amount placed on risky stocks that
could someday become the new IBM. This would be good for my wallet and my ego.
And so I followed that advice more or less as I learned it, during the periods when I
traded on the market. I can say that I had a good time because I was never surprised
of what happened in all these years.
What follows is the economic argument that Andrew McCarthy
borrowed from others and repeated in his article; argument that I analyze
through the prism of my lifelong experience:
“What the Iran-deal apologists never mention is that the United States
still has enormous leverage in the form of the American economy. As former
Senate staffer Richard Goldberg recounts, this kind of pressure works. If the
Trump administration were serious, the calculating players would understand in
short order that, if they want access to the $19 trillion U.S. economy, they must shun Iran . They
would shun Iran ”.
No, they would not. Richard Goldberg and Andrew McCarthy are
wrong. Their approach might have worked at one time, but it began to lose its
allure when the globalized economy started to entrench itself. What investors
look for today is not the size of an economy but the rate of growth that it is
poised to produce.
In fact, if they can make seven percent annual return on
their investment in a company that's drilling for natural gas in Mozambique,
they'll sell their stock in a fracking company that's burdened with debt and
producing a growth rate of one percent or less in America. If they can make a
higher return producing textile in Bangladesh
than producing it in America ,
they'll close the plant in America
and move it to Bangladesh .
By that same logic, European, Asian and American investors
will prefer to invest in Iran that is opening to them and promising a high
return, than invest in America that is closing to them and promising a low
return. They will build a refinery in Iran
cheaper than they would in America ,
and then collect higher dividends year after year.
If America
tries to pressure them, they'll bend a little but not change course. If America pressures them a lot, they'll break with
America
and pledge their allegiance to someone else.
This is why even American companies keep money to the tune
of trillions of dollars parked abroad. Their executives know that's where the
opportunities exist.