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Posted on 03/23/2006 9:37:36 AM PST by RedBloodedAmerican
Despite the grim picture the mainstream media continue to paint about just about everything, there’s one thing they just can’t taint: This U.S. economy remains very healthy.
It’s always amazing to listen to conventional demand-side economic pundits who try as hard as they can to minimize the excellent performance of the American economy ever since lower marginal tax-rate incentives were put into place almost two-and-a-half years ago. The latest chant is that a warm winter has artificially stimulated consumer spending and that a day of reckoning marked by a housing-price crash and an overwhelming debt burden is headed our way. This is utter nonsense.
Apart from the inherent resiliency of our free-market capitalist economy, the fact remains that tax-induced capital cost reduction and resulting higher investment returns have boosted investment, healed business woes and created employment growth near 2 million new jobs a year.
Unemployment sits at 4.8 percent. Wages are perking up, with average hourly earnings rising 3.5 percent over the past year and 4.8 percent at an annual rate over the past three months — their best performances since 2001. Falling gas prices at the pump are boosting real incomes enough that consumer spending is rolling ahead despite a slowdown in the housing sector and somewhat higher mortgage rates.
Of course, you can’t please the worrywarts. Yesterday, they complained that wages weren’t rising. Today, they’re bellyaching that wage growth is too fast and that the Fed is going to have to tighten monetary policy much more to ward off cost-push inflation.
Fortunately, new Federal Reserve Chairman Ben Bernanke rebutted the Phillips-curve view in a recent speech. Bernanke correctly argued that low inflation promotes economic growth and that strong economic growth is something to be desired, not shunned. The Fed chair cited Milton Friedman’s argument of nearly 50 years ago that inflation is a monetary phenomenon and not a function of too many people working.
In Friedman terms, there is a wee bit of excess money in the system. Monetary growth, the raw material of bank deposits, is a bit too rapid. But some of this will be absorbed by strong business investment, while the rest will be removed by the Fed as it raises its target rate a few more times. All of this is a normalization of interest rates in line with a strong economy.
Reagan economic guru Art Laffer taught us 30 years ago that lower tax rates ignite economic growth. Now, the Laffer curve is tracking a business-led expansion that is throwing off record budget revenues, while corporate profits are soaring. Profits are laying the foundation for even more hefty job gains.
After-tax profits for last year’s fourth quarter hit 8.1 percent of GDP, a post-World War II record. Profits are ahead of their prior peak in 1999 and have nearly doubled since their recent trough in 2001. Family net worth, the nation’s true savings rate, advanced 8 percent in 2005, to a record $52 trillion.
President Bush recently answered his critics by giving a strong speech arguing for lower tax rates, free trade, global economic connectivity and the use of trade as a diplomatic tool as well as an economic growth measure. Bush is right. And while Congress may appear to have gone offline on extension of the 2003 investor tax cuts, Ways and Means Chairman Bill Thomas tells me that prospects for extension remain good. If so, this economic expansion will continue for years.
In the months ahead, Bernanke will follow the anti-inflation thinking of Friedman. Bush will continue to embrace the
Reagan economic guru Art Laffer taught us 30 years ago that lower tax rates ignite economic growth. Now, the Laffer curve is tracking a business-led expansion that is throwing off record budget revenues, while corporate profits are soaring. Profits are laying the foundation for even more hefty job gains.
After-tax profits for last year’s fourth quarter hit 8.1 percent of GDP, a post-World War II record. Profits are ahead of their prior peak in 1999 and have nearly doubled since their recent trough in 2001. Family net worth, the nation’s true savings rate, advanced 8 percent in 2005, to a record $52 trillion.
President Bush recently answered his critics by giving a strong speech arguing for lower tax rates, free trade, global economic connectivity and the use of trade as a diplomatic tool as well as an economic growth measure. Bush is right. And while Congress may appear to have gone offline on extension of the 2003 investor tax cuts, Ways and Means Chairman Bill Thomas tells me that prospects for extension remain good. If so, this economic expansion will continue for years.
fyi
"Family net worth, the nation’s true savings rate, advanced 8 percent in 2005, to a record $52 trillion."
Real estate appreciation?
Ma&Pa sixpack see only rising Gas prices, cig taxes, health bills, etc... and their incomes flat...
Well, yeah ... but ... we're still DOOMED.
Waiting for all the Housing Bubble Doom and Gloomers to join this discussion.
Headline story from AP today says "Upbeat economic news sends stocks lower" Also, they go on to say that the increase in housing starts reported this morning will not last. Our media, including the financial news media, is filled with handwringers and doom-and-gloomers who actually root for bad news. When that bad news isn't forthcoming they either create it or turn good news to bad.
More bad news: "Sales of existing homes unexpectedly rose last month as a warmer than usual winter boosted demand in many parts of the country."
http://www.freerepublic.com/focus/f-news/1601748/posts
The Laffer Curve is aptly named after Professor Art Laffer. He was an advisor to President Reagan in the early 1980s, but, despite that, he has become quite well known through his 'curve'! He suggested that, as taxes increased from fairly low levels, tax revenue received by the government would also increase. However, as tax rates rose, there would come a point where people would not regard it as worth working so hard. This lack of incentives would lead to a fall in income and therefore a fall in tax revenue. The logical end-point is with tax rates at 100% where no one would bother to work (understandably!) and so tax revenue would become zero.
This is illustrated by the Laffer Curve:
T* represents the optimum tax rate where the maximum amount of tax revenue can be collected. Laffer and other right-wing economists used the curve to argue that taxes were currently too high and should therefore be reduced to encourage incentives and harder work
The public doesn't need to worry itself over this silly economic trivia. They only need to remember three things:
Worst Economy Since Herbert Hoover
The Poor are Getting Poorer
The Rich are Getting Richer
We in the MSM will make sure that you never forget these essential truths.
Perhaps Ma and Pa sixpack should invest their money in something other than beer, cigarettes, and a gas-guzzling SUV and maybe their health and financial position would improve. Geeze, at almost $4/pack, if they each gave up smoking (assuming a pack a day) they could savel almost $3000 per year. But then, that's not as much fun as sitting around drinkin' and smokin' and watching your health go down the tubes...
Your image didn't post. So here's another one or two.
I don't know who you consider to be Ma&Pa sixpack, but Mrs. Antonello and I don't own property and we saw our combined incomes rise about 15% in 2005. Taking both savings and paid down debts into consideration our net worth rose over 10%.
And no, we didn't get new jobs or hit the lottery.
"a gas-guzzling SUV"
Your slip is showing....
The Laffer Curve is not just theory, either. India and Britain have both decreased tax rates in the past and saw tax receipts rise, as has the US. It's important to notice in the top graph that there are two different tax rates that produce identical tax receipts. That is, Point B is a significantly higher tax rate than Point A, but both produce the same tax revenues. The reason is because of the disincentives to work associated with the higher tax rates. (This was clearly seen in Britain in the late 1960's during their "Brain drain" and the migration from the Jersey Islands when the Super Tax was extended to include those islands.)
Friedman and others have argued that the optimal tax rates (e.g., revenue maximizing) around is 17%.
bttt
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