TO understand what’s happening in the economy today, you need to understand one fact. The New York Stock Exchange is the largest gambling casino in the U.S., maybe the world. The Toronto Stock Exchange is the largest gambling casino in Canada.
Let me explain by talking about a mythical company, Acme Mechanical. It has buildings, machinery, materials on hand and stock in trade. It has to do repairs on machinery and buildings, pay workers, pay taxes and advertise.
Unless there is a catastrophe, like a fire that destroys a factory or a major employee layoff, the company’s worth won’t change from one day to the next, over one week or from month to month.
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If it issues a quarterly report or declares a dividend, people can see what the company has done.
On the stock market, the company’s share values can change on a minute-by-minute basis, depending on who is buying what and when. That’s true even though the company isn’t changing that fast.
The changeability of the share price has to do with the gambling involved, not Acme Mechanical itself. Those share prices are based on guesswork – people guessing what Acme will do. They’re guessing in relation to other companies that compete with Acme. They’re guessing on how the economy in general is doing.
A maxim in the TSX is, “buy on rumour, sell on fact.” That’s gambling at its best, or worst. Such gambling ultimately distorts the market.
Given the guesswork, the market is an easy target for manipulation by companies or traders. People from Enron and a number of trading firms are in prison or awaiting trial for dishonesty.
Guesswork also exists in the commodity exchanges. The key phrase is price discovery, which is perfect gamblers’ language.
Do you know, when you put your commodity into the market, that you are getting the best possible price for that year?
And, on the side, what relationship is there between market price and cost of production?
Once in a while, the real world catches up to the gamblers and the system fails. We saw a correction happen last September and October, all around the world.
The U.S. government will spend close to $1 trillion trying to stabilize the American economy. America’s stock market and financial system will need more scrutiny, either in the form of more regulation or better supervision of existing regulations, or both. Other countries are undertaking similar activities.
Canada may prove to be a leader in helping the banking community. First, though, we will need to improve Employment Insurance, low-cost housing and other social assistance. In that way, we’ll have an effective safety net for everyone, an effective system of last resort.
The gamblers will keep gambling. We cannot stop them. But we can demand they undertake their activities in a way that doesn’t cause international economic havoc.
Rob Brown is a former agricultural writer and broadcaster now doing studies in ethics. He can be reached at moral.economy@sasktel.net.
