www.globeandmail.com

The Globe and Mail
leaftheglobeandmail

  Short-term economic thinking,
unintended long-term consequences

BENJ GALLANDER and BEN STADELMANN

Monday, September 15, 2003

The essence of our stock market methodology is to seek home runs, to spot what appears to be the obvious while others are distracted in other directions. Last year when we bought into airlines, Japan and technology, our detractors were legion. However, to this point, our positioning is standing at least the short test of time.

Helping to create or hinder the environment in which we cherry-pick stocks are the politicians who set the table. Some compose it delightfully, placing the finest silver beside meaty lobster and organic berries. Others cover the deck with fatty fries smothered in gravy and then, rather than reproach their own policies, they blame the public when obesity sets in and arteries harden.

Over the past year, major missteps have been taken both by the leader of the self-designated greatest nation on earth and the leader of the province in which The Contra Guys reside. Both men will clearly undermine stock markets in the long term. This is not to suggest that their policies are the be all and end all, but their impact is decidedly negative.

George Bush's enormous error was the package of huge tax cuts he is in the process of implementing. The cost in dollar terms is at least double, and perhaps triple, the bill for the Iraq and Afghanistan ventures, the burdens of Sept. 11, and homeland security combined.

While tax cuts do have an economic role to play, Mr. Bush's offer of a gravy train to the rich is not an appropriate remedy when jobs are becoming scarcer and government debts and deficits gush red ink all over the balance sheet.

Let's put it simply. Which will help energize an economy more: Bill Gates and nine others of his ilk each saving a million bucks a year, or the provision of $1,000 in tax savings and cash transfers to 10,000 people?

While the total dollar value is the same, the latter will ignite the economy far more effectively, as those in need spend the money on TVs and furniture, higher quality food, and so on. What might Bill and his cronies purchase? Enhanced security systems, perhaps?

Before we opine on Ontario Premier Ernie Eves and his energy policy, let us state clearly that at various times we have voted for all the major political parties -- and some minor ones, too -- so this is not meant as a political criticism, but rather an economic one.

Besides, if Mr. Eves does not like it, we're sure he'll simply spend our tax dollars to contradict us.

The premier's move to subsidize energy prices was completely misguided. While the government's brain trust insists that the manoeuvre will not cost Ontario taxpayers, it will of course. It will hurt our pocketbooks deeply, as it will ratchet up the negative side of the balance sheet both in current dollar terms and with future interest.

Money needed for other sectors, such as healthcare and education, will be diverted out of government coffers to cover this ludicrous energy policy.

By failing to reward conservation, diminished resources will be left for the future -- as anyone who learned about elasticity of demand in Economics 20 will be aware. And alternative energy sources that might have been developed will be placed on the back burner or taken off the stove altogether.

At the end of the day, the province that is key to Canadian commercial and economic health ends up hamstrung, a situation that will not bode well for the Toronto Stock Exchange.

The primary responsibility of government is to serve the people -- not to implement vacuous policies simply to get re-elected. If a government serves the populace well, all other things being equal, it will be re-elected more often than not.

Ultimately, it is the responsibility of both the government and the electorate to think about the longer term -- and not just next month's electricity bill.


back