That clatter you hear in the back-ground is the boys beating the durms for the newest name on the list of the deserving needy . . . the stock market. People must buy stocks to pull America out of the doldrums - which means cutting the capital gains tax.
Cut capital gains and the Dow Jones will surge, rush, zoom and leap forward 500 points. American businessman will have money to buy new machines and employ more people . . . but only if that tax is cut because investors won't risk their money if they have to hand over their profits to the federal racketeers.
Nevertheless there are other causes, having nothing to do with taxes, for the fact is 5 million fewer investors are in the market than there used to be.
One of the causes is the belief that stock prices are dishonestly rigged. You don't have to read the smudged mimeographed sheets distributed by minuscule, socialist corpuscles to be exposed to the opinion there is massive lawbreaking in the stock market. Look at the business press. Read Robert Bleiberg in Barrons (July 24): ". . . illegal trading on inside information is running riot up and down Wall Street."
A jockey who bets against the favorite because he knows, while the betting public doesn't, that the horse has a chest cold is cashing in on insider information. The president of a company who secretly buys stocks after he learns of a new lucrative merger offer is also cashing in on insider information and breaking the law. This law is broken so often that the Wall Street Journal reported there is circumstantial evidence that there was illegal insider traffic in the stocks of 27 out of 30 companies subject to merger offers in April and May of this year alone.
If any potential investors can read the market is a swindle, in the most respected organs of the business press, it's absurb to go fishing for fancy explanation for the refusals of buyers to volunteer to get their pockets picked. Nor is that the only kind of readily available bummer business news to scare off buyers.
In Business Week they can learn about the bankruptcy of the Washington Group Inc., whose chief executive officer was Smith Bagley, President Carter's friend and frequent host. In a complicated set of deals it appears that Bagley and an associate borrowed money, bought a company with it and then made the company liable for the debt. Not a very nice deal for the company's stockholders: nor is that all. Business Week reports the Justice Department and the Securities and Exchange Commission have started an investigation of the Washington Group Inc. No allegations of illegal acts have been made against Bagley and perhaps they never will, but if such "strange goings on" (the magazine's phrase) can be publicly connected to a close friend of the president of our country, then it's no wonder a lot of folks prefer the risk of real estate.
Would-be stock market investors remember Avon. In the past five years the value of Avon stock has fallen 65 percent, which adds up to $5 billion beating for the company's shareholders.
The Avon disaster is one of the worst crash landings in the canyons of lower Manhattan. News of such exceptional wrecks, however, can frighten off people from stocks in general. Many also don't buy because Wall Street has gone out of its way to merchandise itself as an international casino. Along with the executives of many of the companies whose stock Wall Street sells, brokers have pushed the idea of buying as a gamble on future price rises so long and so loud they have convinced the world that owning stock is a leisure-time activity, an entertainment diversion for money you don't really need and can afford to lose.
As the stockbrokers came to resemble the $2 window, owning stock came to feel less like owning a piece of a business than like visiting Churchill Downs. And, with dividends kept forever low, potential customers can't help but feel used and besieged. For all the talk out of businessmen's mouths about what they owe their stockholders, the way they act conveys the message that it's really very little.
Stockholders see their money sunk into bombastically designed, horrendously expensive headquarters buildings and into fancy-pants private jets. They look at their shrunken, misshaped investments, their flat dividend checks and listen to the screaming about ending tax deductions on the three-martini lunch. They know the government only picks up half the tab for those drinks and they also know who picks up the rest, so they sell out and buy bonds or real estate or antique toys - anything that will hold its value.
It wasn't just the tax laws that played matador to the bull market.