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FTSE 100: The Wrong Measurement

Many economic "experts" are fixating on FTSE 100 as the primary indicator of the UK's economy. When the FTSE 100 is down, they panic. When it rebounds, they rejoice.

The fact is: they are looking in the wrong place. The FTSE 100 measures the hundred wealthiest companies - not the 100 most innovative ones. The new, innovative, largely undiscovered small startups will be the drivers of growth in the UK's new, innovative economy. Those businesses are not part of the FTSE 100; most are not publicly traded at all. They are small startups that will be the next large job creators.

The majority of new jobs in America come from small businesses. The same is true in the UK, and will become increasingly true as the UK's economy moves away from large crony capitalists and towards entrepreneurial startups. New jobs in the UK will come from innovative small businesses, not from businesses that have the ability to get special favors from EU regulators.

Some economists have suggested that the FTSE 250, which looks at the 250 wealthiest companies, is a better measure. It might be, but not by much. The companies that will make the UK's new, independent economy great might show up in the FTSE 10,000 (if it existed). But in reality, most of those companies are not even publicly traded.

Some of the FTSE 100 companies are not even UK companies, and are headquartered elsewhere in Europe. Some of the fluctuations in their stock prices simply reflect the fact that without the UK, the lazier economies in Europe will lose one of their biggest crutches. In other words, if their stock prices fall, that doesn't necessarily show a lack of faith in the UK; they show a lack of faith the socialist economies in the rest of Europe. Investors realize that without the UK shouldering a huge portion of the burden (1/6th of the EU economy), the EU won't last.

A government bailout or similar "stimulus" will certainly help the FTSE 100 companies - at the expense of the innovative entrepreneurs who could actually build the economy. It amounts to replacing EU special privileges for large businesses with UK special privileges for large businesses. It creates unsustainable, bailout-based jobs, instead of meaningful, lasting, productive jobs. That's a lateral move at best.

Instead, the UK should reject crony capitalism, eliminate regulations on small entrepreneurs, and reduce the taxes that stifle innovative small businesses. That means more innovation, better products and services, and more real jobs.

If the UK can disentangle itself from the EU crony capitalism and UK crony capitalism, and move towards a capitalist and innovative economy, it will soon see a massive resurgence in jobs and economic growth. This will be true economic growth, without crony capitalist strings attached.

In Liberty

Arvin Vohra
Vice Chair
Libertarian National Committee

Brexit: New Investment Opportunities

Brexit's effects on stock markets don't mean what many think they do. In fact, the short term stock market hit is just a sign that investors are figuring out which new, innovative companies to invest in.

The price of a stock is based on two primary factors: risk and expected return. A highly volatile stock with an expected return of 10 percent will be in lower demand than a highly stable stock with an expected return of 10 percent. Thus, while many investors are pulling out, most of that is coming from uncertainty, not from a lack of expected growth.

Much of that uncertainty comes from this: investors don't know which companies to invest in. That's actually a good thing.

When Britain was part of the EU, it was easy for investors to know which companies to invest in. They just had to look at the big, politically influential companies. Those are the ones with growth opportunities, since those are the ones that can manipulate EU policy to get unfair advantages. Those companies are huge and easy to find.

Now everything is changed. The best companies are no longer the ones with the most EU influence. They are the ones who are the most innovative and productive. The problem: right now, investors have no idea who the hell those people are. Is it the small family owned business that no longer has to follow EU restrictions? Is it the teenager whose brilliant idea no longer requires EU approval? Is it the group of university students whose startup can go ahead without EU permission?

During the next four years, Britain has the opportunity to allow natural innovation cycles to take place. During this time, venture capitalists will be looking for the next great ideas from the nation that produced Adam Smith, Newton, and Dyson.

Stock markets will probably pick back up, as investors find the market entrepreneurs who innovate goods and services, and leave the political "entrepreneurs" who just find ways to get unfair government favors. Although, in frankness, the non-producers in the stock market matter far less than the productive individuals and businesses who generate products and services.

If Europeans are lucky, other nations will follow England's lead. Instead of a single, oppressive, overbearing, monolithic government, Europe could have 30 laboratories of innovation. And within each country, entrepreneurial innovation would be a lot easier.

In Liberty,

Arvin Vohra
Vice Chair
Libertarian National Committee