WALL STREETS’ UNWISE OBSESSION WITH STIMULUS

A referees’ job is to fairly enforce the rules of the competition. Nothing annoys a sports fan more than a referee who gets involved in deciding the outcome of the game. Watching the financial news this year, I feel more like a sports fan watching a game officiated by a group of biased referees. Unsurprisingly, in business as well as in sports, the team whose side is being benefitted by the unfair refs, rarely complains about the bad calls.
 
I am referring to Wall Streets’ daily obsession with ongoing government Stimulus. I equate this to a spoiled trust-fund child worrying whether Mommy and Daddy will keep the money flowing. The stimulus is cheered on by Wall Street, and it increases stock prices, but does it really add any wealth to society?
 
In our free market, wealth is created when a company produces a product or service that improves life such that others are willing to pay for it. The system works because companies that create wealth are rewarded, while those who do not will fail. Take the computer industry as an example. The founders of the PC and the MAC made huge fortunes for themselves, but their billions are grains of sand compared to the wealth those products created for others. Computer companies that did not add to society’s wealth have long since failed – as they should have.
 
Governments’ role is to act somewhat like the referee, establishing rules of play and seeing that they are followed. It is not governments job to put points on the board, partly because it does not have points to give. Unlike a business, government does not create wealth, it can only transfer it. If a referee gives 10 yards to one team in a football game, it can only do so by taking 10 yards from the other. Likewise, if a government hands out a stimulus dollar, it must take that dollar from someone else.
 
If, for example, government lowers interest rates, all it is really doing is taking wealth away from savers and giving it to borrowers. When government uses deficit spending, it is taking wealth from future generations to give to the current one. If these behaviors create inflation it is essentially taking value from the poorest among us, those who own little, and transferring it to the richest who own the assets whose value is inflating.
 
So, if government cannot create wealth but only transfer it, why is Wall Street so excited about more stimulus checks? Why do they want government referees to step in and put points on the board? Because they are the team who will be getting those points. Wall Street should remember, the bad referee that helps you today may hurt you tomorrow.
 
Regardless of what Wall Street is doing, investors should remember to focus on companies that provide products and services they believe society will want in the future. Only by continually creating wealth, can a business grow its real long-term value. And those great companies don’t need the referee’s unfair help.