Lee, re your mention on drug stocks, this article was in the LA Times today -
Gore, Bush: Two Different Futures for the
Economy
By JAMES FLANIGAN
Whoever wins this presidential election will be confronted by a
cooling economy and will have to deal with it as presidents have
always done, by cutting taxes and pumping money into the economy.
But long term, the differences between the candidates become
more interesting for investors and voters. For behind their political
rhetoric, Republican George W. Bush and Democrat Al Gore have
dramatically different ideas about the economy and industrial
development.
And an examination of the candidates' positions on taxes, energy,
the environment and many other matters can offer insights about the
direction of industries and investments in the next four or possibly
eight years.
Meanwhile, however, the next president is likely to be greeted by
an economic slowdown or, worse, a rise in inflation leading to higher
interest rates and a recession.
Many economists expect the economy to slow to a growth rate of
about 3% next year, from roughly 4.2% this year. That would mean
about $100 billion less in economic output, or 2 to 3 million fewer new
jobs. Whoever takes office in January will have to keep the economy
moving at a pace that avoids a sharp reversal in the value of the
dollar and a major downturn in the stock market.
Worse for the new president would be inflation rising above
today's already worrisome 3.5% annual rate, up from 2.2% last year.
If inflation picked up, the Federal Reserve would be forced to raise
interest rates, even if doing so threw the economy into a recession.
The increasingly nervous financial markets today "are watching
inflation right now," says economist William Rhodes of Williams
Capital Management, a New York investment firm.
If Gore or Bush do face a recession in their first year in office--as
Presidents Nixon, Carter and Reagan did in their time--either man
will do what is necessary, tax cuts and government spending, to get
the economy humming again.
And Gore or Bush will be more fortunate than their predecessors
because the next president will inherit federal budget surplus of $200
billion. Surpluses of that magnitude will persist through 2002, predicts
economist Edward Yardeni of the Deutsche Bank Alex. Brown
investment firm. Even a stock market downturn would not reduce the
federal surpluses, because people selling stock would incur capital
gains taxes that would continue to fill government coffers.
* * *
It is in the long term that the ideas of the candidates will steer the
economy in differing directions.
On taxes, a Bush administration would encourage faster economic
growth in a more decentralized economy. George W. Bush's idea is
to cut taxes by reducing tax bracket levels, from today's five brackets
ranging from 15% to 39.6%, to four brackets ranging from 10% to
33%.
The reduction in brackets would help simplify a highly complex
system, says Lawrence Stone, a tax expert at Los Angeles law firm
Irell & Manella who served in the Treasury Department in the
Kennedy and Johnson administrations.
The effect of such tax reductions would be to spur economic
growth--but that would not happen immediately. Broad tax legislation
such as Bush is proposing is not passed quickly by Congress. Bush's
program, even if it passed in a timely fashion, would take effect three
to four years from now and in some cases not until late this decade.
Its long-term importance would be to set a decentralized, lower-tax
pattern for the U.S. economy--as the administration of Ronald
Reagan did 20 years ago.
A Gore administration would use tax policy differently. Rather
than a broad tax reduction, Gore would give tax credits and tax
deductions for specific purposes.
For example, Gore would use tax credits to help families pay for
after-school child care. He would have tax deductions of up to
$10,000 for tuitions and fees at colleges, graduate schools and training
institutions and tax-favored accounts that would enable employers
and workers to finance retraining and pursue lifelong learning.
A principal aim of a Gore administration would be to pay down
the national debt. Doing so would tend to hold down interest rates.
The long-term importance of a Gore program is that it would increase
government guidance of the U.S. economy, in the tradition of Franklin
D. Roosevelt's New Deal.
To be sure, neither candidate is an economic absolutist. Both
Bush and Gore propose to use anticipated budget surpluses to finance
prescription drug programs for the elderly and to expand aid to
education and other purposes.
Pharmaceutical companies and firms engaged in modernizing
education in the public or private sector stand to benefit in this decade
no matter who is in the White House.
But in energy policy, Gore and Bush stand in stark contrast. In
energy, a Bush administration would be more traditional, encouraging
development of oil and natural gas in the United States. A pipeline to
bring natural gas from Alaska would be encouraged, as would
development of new oil in Alaska.
Tax credits and research grants would encourage technology to
gasify and liquefy coal, with the aim of making coal resources usable
environmentally. Companies across a broad range from electric
utilities such as Duke Energy, to explorers for natural gas such as
Barrett Resources of Denver, to companies experimenting with new
fossil fuel delivery systems, such as Syntroleum of Tulsa, would stand
to benefit in such a policy environment.
* * *
A Gore administration, as the candidate indicated in the debate
last week, would try to develop a new kind of energy industry. Gore
would grant tax credits for hybrid cars and trucks powered by both
gasoline and electricity. His administration would support tax credits
for new kinds of electrical motors and home and commercial heating
and cooling systems.
The environmental industry also would receive a new emphasis in
a Gore administration. Gore would use tax credits to support fuel cell
development and new water resource systems. "There would be
programs for resource productivity, the reuse of water and land and
many other resources," says Grant Ferrier, head of Environmental
Business International, a San Diego consulting firm and publisher of
environmental newsletters.
This would be good news for companies such as Vivendi, Cadiz,
Ballard Power Systems and FuelCell Energy. A Gore administration
would support research in energy and environmental ideas that first
surfaced in the oil-short 1970s, with the difference being that
technology has improved in the intervening decades and there is more
money around today.
The paradox of this election is that the effect in the short term will
be business as usual, but in the next four or eight years the outcome
could change the course of the economy.
* * *
latimes.com |
