Economic news that you haven't heard


It's not gloom and doom
This isn't a "Bush saved the economy" piece, although in the beginning it reads like that. Mr. Rich Lowry does have a point, the good news (and there is plenty) about the economy is not being reported because it might make President Bush look good.

The payoff is these paragraphs, buried in the article.

Just as blaming Bush for the recession of 2001 was always charging him with being in the wrong place at the wrong time - the economic downturn and tech crash began before he took office - he can't get all the credit for a fortuitous turn in the business cycle. (Although President Clinton somehow managed to claim personal responsibility for every tick up in GDP and every tick down in the unemployment rate.) It's the amazing resiliency, and endless capacity for innovation, of the American economy itself that is responsible for the latest spurt in growth.
   
But one Bush policy in particular did stoke the upturn. As a report of the Joint Economic Committee of Congress explained, consumer spending never stopped growing in the 2001 recession. It was a free-fall in investment that caused the economic stall. Bush's 2003 tax cuts on dividends and capital gains were meant to recharge that particular engine in the economy, and they did. According to Kane, investment has grown at a rate of 9.2 percent since those tax cuts, higher than the average of 6 percent of the past two decades.

Ka-ching.

Let me explain.

A capitalist economy depends on cashflow to increase wealth. Assets alone aren't enough, that money has to move from person to person. The economy doesn't care if the original person gets a profit or even if they get their investment back, it only depends on money moving. The more that money moves, the bigger the economy grows.

Anything that restricts or prevents cashflow will dampen the economy. It doesn't matter if those restrictions are targeted only at "the rich," it will still slow the economy.

There are two other things that you should keep in mind. First, a graduated tax system impacts marginal behavior. That is, a graduated tax won't affect those already wealthy as much as it will affect those trying to become wealthy.

Second, no matter how many "super-rich" people any society may have, the collective assets of everyone else is much greater than the "super-rich."

So the best way to increase tax revenue is to grow the economy and increase the overall wealth. Government doesn't do that well, it has to meddle.

Reducing taxes is one of the few things that I think President Bush did right, and it shows in both a bigger economy and more tax revenue.

— NeoWayland

Posted: Fri - January 6, 2006 at 04:53 AM  Tag


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