No, cut the marginal tax rates more and the deficits will go away. Raise the rates enough and the deficit will grow even if spending is cut. Then spending will have to be further retrenched, ultimately reaching the point where the country will not be able to defend itself. In general, around the world, the countries with low or declining tax rates increase their government spending more than countries with high or rising tax rates. That’s because the low tax countries grow six times faster than the high tax countries do. What matters is not the deficit, but the rate of economic growth, which depends on low tax rates, secure property rights, open trade, and stable money.
Bret Swanson and George Gilder predict that the U.S. Internet of 2015 will be at least 50 times larger than it was in 2006. Their report, “Estimating the Exaflood: The Impact of Video and Rich Media on the Internet — A ‘zettabyte’ by 2015?,” estimates that annual totals for various categories of U.S. IP traffic in the year 2015. It projects: Movie downloads and P2P file sharing of 100 exabytes Internet video, gaming and virtual worlds of 200 exabytes Non-internet IPTV of 100 exabytes, and possibly much more Business IP Traffic of 100 exabytes Gilder notes that an exabyte is equal to one billion gigabytes, or approximately 50,000 times the contents of the U.S. Library of Congress. This report expands Read More ›
Driving the economy are not dollars in peoples’ pockets but the ideas in their heads. Not buying-power but incentives impel people to take risks and make efforts and investments. More dollars may even reduce peoples’ incentives to work and invent and invest. Every dollar rebated to a consumer comes from another consumer or investor. You cannot increase spending power (real income) without first increasing output. Supply creates its own demand. Demand does not increase supply except to the extent that the demand symbolizes previous productive efforts that expanded output. Democrats and wobbly Republicans are panicked by class rhetoric from lowering the top rates which most affect incentives. These top marginal rates yield all the revenue (the lower the rates the Read More ›
Everyone should check out this new site covering economics and financial markets: RealClearMarkets.com.
James Surowiecki and Megan McArdle are resonably interesting economic commentators — he a liberal from the New Yorker, she a slighted more market-oriented blogger for The Atlantic who was formerly known as Jane Galt — but they continue the long tradition of cluelessness about supply-side economics. Here’s Surowiecki with a typically superficial essay about the “great lie.” And McArdle, (1) claiming that a right-wing magazine just spiked a book review of hers because she didn’t toe the line on taxes. …and (2) saying again yesterday that the supply-siders are “simply incorrect.” I tried commenting on McArdle’s blog today, but she refuses to post my polite note despite accepting all sorts of other worthless nonsense. I’ve been spiked! Bret UPDATE: McArdle Read More ›
Quick, Jon Chait, which raving supply-side moon-bat wrote this today? “In the past 50 years, there have been two macroeconomic policy changes in the United States that have really mattered. One of these was the supply-side reduction in marginal tax rates, initiated after Ronald Reagan was elected president in 1980 and continued and extended during the current administration. The other was the advent of “inflation targeting,” which is the term I prefer for a monetary policy focused on inflation-control to the exclusion of other objectives. As a result of these changes, steady GDP growth, low unemployment rates and low inflation rates — once thought to be an impossible combination — have been a reality in the U.S. for more than Read More ›
See my review of Jonathan Chait’s new book The Big Con.
The Big Boom
By Bret Swanson | September 13, 2007
In 2007, U.S. GDP will approach $14 trillion, tax revenue will easily top $2.5 trillion, and the budget deficit will drop towards a trivial 1% of GDP. Despite recent volatility, domestic stock markets remain near all-time highs achieved earlier this summer. Riding a worldwide surge of tax cuts, free trade, and innovation, global output this year will surpass $50 trillion. But in reading Jonathan Chait’s new book “The Big Con,” one would assume that the Reagan and Bush economic programs had plunged the U.S. into depression and the global boom did not exist.
One would have to assume. Because in this book about “crackpot economics,” Chait has remarkably little to say about economic growth, tax receipts, budgets, or the epochal story of globalization. With all the global evidence refuting Chait’s predetermined conclusion that supply-side economics doesn’t work, he retreats to a political analysis of the Republican Party and petty defamation of some of the era’s most important economic thinkers.
Chait’s thesis is that the Republican Party has been captured, and the U.S. therefore governed, by the supply-siders, a small economic “cult” of “off the wall,” “insane,” “totally deranged, completely nuts,” “sheer loons.” He begins with the assertion that supply-side economics has been “conclusively disproven” and moves on to ridicule the excesses of K Street lobbyists. Chait’s exposé of K Street bloat is undeniable and humorous, but he seems not to realize that the K Street explosion utterly contradicts his central charge against supply-side economics.
After 25 years in which supply-side tax cuts dominated U.S. economic policy, how is it possible to pay for K Street’s preposterous pork, perks, and narrow tax preferences, not to mention Iraq, Afghanistan, and entitlements, all with a miniscule deficit? If supply-side tax cuts didn’t positively affect economic growth and thus tax receipts, how could federal tax revenue, at nearly 19% of GDP, possibly be higher today than the 18.2% average of the last 40 years?
Contrary to reports in the popular press, neither Chinese stock market swings nor the sub-prime mortgage market are likely to stop the American expansion. Will there be more foreclosures, bankruptcies and sad stories? Yes, yes and yes. Will it bring down the current expansion? Unlikely – the diverse and flexible nature of the $13 trillion U.S. economy gives it a depth and sturdiness that is vastly under appreciated. See this good column from our friend Ashby Foote on the sturdiness of the U.S. economy.
Policy makers should recognize information technology as the centerpiece of economic policy and develop their plans accordingly, concludes the Digital Prosperity study published this week by the Information Technology and Innovation Foundation.
“In the new global economy information and communications technology (IT) is the major driver, not just of improved quality of life, but also of economic growth,” writes Foundation president, Dr. Robert D. Atkinson, author of the study.
Atkinson is a widely respected economist who formerly served as project director of the Congressional Office of Technology Assessment, and is the former director of the Progressive Policy Institute’s Technology and New Economy Project of the centrist Democratic Leadership Council.
Based on reviews of other studies, and Atkinson’s own research, the report maintains, “IT was responsible for two-thirds of total factor growth in productivity between 1995 and 2002 and virtually all of the growth in labor productivity” in the United States.
I had just last night finished reading Alan Reynolds’ spectacular new book Income and Wealth, and I wake up this morning to find that he’s written a great article about the “top 1%” in The Wall Street Journal. Among other malignant myths, statistical slights-of-hand, dubious data, and conceptual quackery that Reynolds demolishes, he shows in the book that: — Comparing the top and bottom household quintiles can be highly misleading because the top quintile has almost SIX TIMES more full-time, year-round workers than the bottom quintile. Some 56% of bottom-quintile households have no workers at all. As Reynolds says, “work matters.” — Age matters. The median net worth of households headed by someone 45-54 years old is $144,700. And by Read More ›