Sunday, July 18, 2010

Friday update.

Larry Kudlow sees political uncertainty holding back business.

On The Kudlow Report, Sen. Tom Coburn suggests Washington policy is hostile to capital formation, investment and risk taking.

Also on Kudlow, a panel debates deflation vs inflation.

On CNBC, Steve Forbes explains the weak economy.

Jay Ambrose reports on a philanthropist's evolution in Africa from socialist to capitalist.

Paul Krugman recycles the Keynesian critique of Reaganomics, that tax cuts lead to rising interest rates. Here's the record from the 1980s:

From 2004, George Gilder defends Reagan's supply-side policies.
Since 1980, U.S. marginal tax rates fell some 40 percent on income and 75 percent on capital gains and dividends, and the American economy added close to 36 million jobs. During the same time period, Europe and Japan created scarcely any net new employment outside of government. American companies now constitute 57 percent of global market capitalization, and the U.S. commands close to one half of the world’s economic assets.

America, responsible for one fifth of global GDP in 1980, produced one third of global GDP in 2003....

Why then do critics still speak of “voodoo economics”? Why is it that even some supply-siders insistently deny that lower tax rates pay for themselves with higher revenues, when Reagan’s tax cutting regime brought about a fivefold rise in federal spending without increasing the government share of GDP? Why does the current administration still speak of $1.6 trillion tax cuts and $300 billion stimulus packages as if it cost money to reduce perverse and counterproductive government burdens?

One key reason is the stultifying grip of the demand-side model on the entire economics community. University and media economists still find themselves far behind Reagan in grasping the dynamics of an international economy. The economics profession functions like an establishment of flat earth physicists still patiently waiting for the ships of supply-siders to fall off the edge of the world.

While the economics profession remained lost in a maze of equilibrium models, Ronald Reagan knew the facts of entrepreneurial disequilibrium and creativity. To a supply-sider, government is a kind of business. It competes with other governments around the world. It competes to attract entrepreneurs and capital to its jurisdiction and to foster expansion of existing enterprises. By lowering marginal tax rates—the rates on additional activity—governments can induce people to produce and invest within their borders. By raising tax rates, they drive entrepreneurs to other jurisdictions and to non-taxable activities. That is why high tax rates do not redistribute incomes. They redistribute taxpayers out of taxable activities and onto golf courses, into barter exchanges and among foreign regimes with lower rates.

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