I wrote this about two years ago. It still applies today. g
There are two basic elements that will result in a vibrant, fully productive American economy: low taxes, and a stable non-inflating dollar.
President Bush is working hard on one element, lowering taxes, for which he is receiving grief from liberals who stubbornly maintain we need higher taxes to fix our problems, this in the face of an economy that has steadily produced lower unemployment, and solid growth.
Robert Reich, a former Clinton Labor Secretary, is one of these leftists. He dangerously claims the supply-side economists are dreaming and it will soon come to an end. He wants higher taxes and more government solutions. He is wildly wrong, as will be shown in a moment.
Basically, the so called supply-side economists believe in low taxes and a monetary standard that produces no inflation, such as the gold standard, and history shows that this has repeatedly worked in the past.
The difference today is that We The People can understand what is going on here, rather than just trusting our fate to confusing elitists like Reich, who have a track record of being wrong anyway.
As an example of history proving that supply-side economics works, look at Britain from 1815 until about 1875. To quote from Jude Wanniski’s book, The Way The World Works:
What made the Industrial Revolution and the Pax Britannica possible was the audacity of the British Parliament in 1815. Spurred by middleclass agitators such as Henry Brougham, the legislature rejected the stern warnings of the fiscal experts (people such as Robert Reich and Ben Bernanke) and in one swoop eliminated Pitt’s income tax, which had been producing £14.6 million or a fifth of all revenues, and tariffs and domestic taxes that had been producing £4 million more. Had the British left their tax rates high in an attempt to quickly pay down their debts, the sixty-year bull market that followed would not have been possible. As it was, the nation moved down the Laffer Curve in a “return to normalcy” (from war) on tax rates. As the economy surged in the following decades, expanding revenues were used both to pay down the debt and reduce other tax rates. By 1855, the £900 million debt had been paid down to £808.5 million, and although the Russian War of 1855-57 added £30 million, by the end of the century the debt was chiseled down to £639 million. Over the same eighty-five year period, interest rates on government bonds dropped steadily, from almost 6 percent in 1815 to less than 2% percent. When Sir Robert Peel brought back the income tax in 1846, the effect was not to push the economy back up the Curve, because Peel’s sole intent was to use the income-tax revenues to repeal the Corn Laws, the duties on foreign grains. The reform was enormously beneficial, because the income tax fell across all lines of production, while the Corn Laws subsidized agriculture at the expense of all other producers. The economy became more efficient as a result of the reform.
But it is hardly accurate to suggest that British economic expansion did not get underway until Peel ended the Corn Laws and brought back the income tax. Modern (liberal) historians who have been taught that the income tax is a “good tax” often seem troubled that it was removed in 1815, as if the economy could not do without it.”
Between 1816 and 1875 Britain was to become the world’s workshop, the world’s banker, and the world’s trader. . . . By 1860 she was supplying half the world’s output of coal and manufactured goods. In 1830 world production of coal was about 30 million tons, of which Britain produced four-fifths; in 1870 it was about 220 million tons, of which Britain produced half. . . . In 1870 the external trade of the United Kingdom was greater than that of France, Germany, and Italy combined and three times that of the United States. The output of pig iron had risen from 700,000 tons a year in 1830 to about 3,800,000 in 1869-71, and to over 6,500,000 in 1871-73. While many industries were dependent on the coal fields, the main growth had been in cotton. Cotton was the one industry into which mechanization had cut deeply by 1820. Textile operatives were more than 10 percent of the working population in 1841. . . .
Between 1815 and 1851 occurred the most rapid economic development of domestic resources in the whole of British economic history.
Great Britain had a stable gold backed pound, one element, and as soon as the government began lowering taxes, the other element, an economic explosion occurred.
But the people of England didn’t really understand the economics of their prosperity, and today suffer under a floating, fiat pound and high interest rates, thanks partly to their leftist labor party.
If we, the American people, once get a good grasp on this, we will demand a non-inflating dollar and low interest rates. There is simply no other formula that works as well.
Ben Bernanke will claim he has inflation under control by artificially raising interest rates. What that really means is he is going to induce a recession the same as his processor Greenspan did in 1999 with the excuse he “needs to control inflation.” This is hogwash, and history proves it.
Please, please get a copy of The Way The World Works by Jude Wanniski and read it.