"buying opportunity": not just an insensitive statement from Harper, but unjustified

Anybody who knows financial markets would know that unless you really do your homework, you cannot say when there is a 'buying opportunity'. Certainly it would be wrong to say that, based on a casual application of the (economically unjustified) notion that stocks always bounce back after they go down, there was a buying opportunity back on Tuesday. That's what Stephen Harper did. Professionals who have done a lot of trades will tell that, unless you have done your homework and understand why a market is not being efficient, you won't make money betting on any simple strategy like mean reversion.

Now this post is not just about Stephen Harper. It's about commentators like Susan Riley of the Ottawa Citizen, who wrote, "...his logic is impeccable: stock markets go down, but eventually go back up", and Andrew Coyne who wrote of, "...Harper’s perfectly sensible observation that the present panic on the stock markets presents a remarkable buying opportunity ". Experience trading in the markets will tell you that, unless you figure out why somebody sold a stock down too aggressively, you don't have a better than even chance betting on it bouncing back. Right now, I'd say very few people, if any, really know exactly how bad the financial crisis is, and certainly not casual commentators who are mainly focused on Canadian politics.

Don't tell me that if you wait long enough, stocks will bounce back. If you wait, you have inflation to worry about. Look at the inflation adjusted return on stocks in the 1970's. Moreover, you can only wait until you die. In the long run we are all dead, as Keynes observed. For single stocks, consider an extreme example -- look at Lehman Brother's share price. Is it going to bounce back?

No, Stephen Harper's statement was not a sensible or logical statement that was simply insensitive. It was just wrong. As an economist, Harper should know something about market efficiency and how difficult it is to predict whether a stock price will go up or down. But I guess it was just too good an opportunity to try to express to voters his belief that the economy is probably okay.

Stephen Harper and the conversation the Governor General needs to have with him

Her Excellency, the Governor General (HE), needs to have this conversation with Stephen Harper (SH) when he comes to visit Rideau Hall later this week (in the style of Andrew Coyne):

HE: Mr. Harper, you've come to ask us to dissolve parliament and call a new election, we are told.

SH: Yes, your excellency.

HE: We trust that you are not doing so because you think you could win a majority in the next parliament?

SH: Oh no, your excellency! Certainly not. That would be against the spirit of Bill C16, the fixed election date legislation that my government proposed and parliament passed last year. No, parliament is dysfunctional. It's dysfunctional now. That's why I'm here. We passed a bunch of legislation before but now, now it has become dysfunctional.

HE: We are glad to hear that you are respecting the spirit of Bill C16. We suspected as much when we read what you said, "My expectation would be that we will have another minority. I think that's the reality of the current political environment," when you visited Tuktoyaktuk. Pray tell Mr. Harper, how do you know that parliament is dysfunctional now?

SH: Well, your excellency, I've just had meetings with the leaders of the three opposition parties. We disagree so much on the issues that I believe our government doesn't have the confidence of parliament.

HE: But what if we get another minority government? What will have changed?

SH: Like I said in Tuktoyaktuk, I want to get a fresh mandate out of an election, even if it's another minority government.

HE: But, assuming you win a minority government, the opposition leaders will still be the same, and they will still have the same disagreements with you.

SH: Your excellency, parliament will be different. There will be new MPs, new ministers, new critics, new committees. Parliament will be different.

HE: But you haven't consulted parliament. You've only consulted the party leaders. Mr. Harper, perhaps we should consult with this parliament before we spend $300 million on another election just so that you can empty the opposition parties' coffers, and so leave them in the position of not being able to threaten to go to the polls. (Yes, we have been reading Mr. Flanagan's exposition of your battle plan.) Is that what you really mean by a "fresh mandate"? We are going to have to think about all of this for a few days before we would be able to grant your request to dissolve parliament.