While we can't predict the specific outcome of President Bush's recently announced stimulus package, we find the proposal and the coinciding debate itself to be constructive for the markets in 2003 and beyond. As its centerpiece, the proposal to eliminate the double taxation of dividends is generating much debate and questions, along with many cheers and some jeers: It's clear that the plan is unlikely to find it's way through Congress without undergoing alterations, but the mere fact that broad, sweeping tax relief is the key component of upcoming economic policy is a strong, positive signal for growth advocates, free marketers, and investors of all stripes.
There's a central question that the tax debate addresses, without directly asking: Which is better at creating jobs: the private sector, through investment, or the public sector, through redistribution of income? Clients familiar with our investment approach know that our intense, security-by-security research process is augmented by a "top-down," or thematic element that concentrates on macro-economic factors. Fiscal policy, monetary policy, regulations, and taxes all have a bearing on how a society's resources are put to work. It's been our long-held view that the private sector is much more inclined to view capital as a means to foster growth, in contrast to the public sector's inclination to view capital as a means to spend.
As Milton Friedman has noted, "Economic freedom is an indispensable means toward the achievement of political freedom." We find this perspective a valuable one from which to assess government policy. Thus, we feel that private sector investment will create more "real" jobs in our economy, and continue to foster the increases in productivity that drove our economy's unprecedented economic growth rates in the 1990's. The by-product of such growth should be a financial market that will take a longer view, creating higher multiples and favorable stock prices. Put simply, from a macro-economic perspective, such shifting of resources to the private sector increases the opportunities for capital to be put to work, and should bode well for the markets, in the long term.
In the short term, the give-and-take of the legislative process will likely induce some market gyrations, but we'll leave the hashing out of the details to the congressional committees, policy makers, and other beltway denizens. However, as the stimulus package works its way through Congress, the President's opening gambit indicates that investors can look forward to the prospect of keeping more of our society's capital in the private sector, where it will find fertile ground for growth and innovation.