Alan Reynolds takes on Martin Feldstein’s recent WSJ editorial at Cato’s blog.
Writing in The Wall Street Journal on April 27–making another last-ditch pitch for a 20% border tax on business imports–Martin Feldstein asserts that unless corporate tax rate cuts are “offset” by tax increases on imports or payrolls then larger projected deficits would crash the stock market by raising long-term interest rates. “The markets’ current fragility,” he writes, “reflects overpriced assets–the S&P 500 price/earnings ratio is now 70% above its historical average–after a decade of excessively low long-term interest rates engineered by the Federal Reserve.”
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Feldstein’s latest argument for adding new import or payroll taxes relies on budget deficits pushing up bond yields and thus threatening “overpriced” stocks. Unfortunately, those claims about deficits, bonds, and stocks all rest on faulty theories and nonexistent evidence.
Man on the Margin talks about the gold standard:
Why is the world returning to gold? The effects of the great liquidity flood experiment introduced by Bernanke and exported to the world’s central banks is ending with an economic whimper among seriously bloated and unmanageable central bank balance sheets. The result is global stagnation, unsustainable debt, and income inequality. The productive and middle class decline while the crony, connected, and speculator pilot fish feed off the whale of monetary chaos.
Central banks have no idea how to extricate themselves from their liquidity flood. The Fed is gingerly tap dancing about the idea of normalization without any real clue of how to get there. The current plan is to stop rolling over maturing debt at some point based upon an undefined moving goal post of data determination. The Fed only need shrink its balance sheet by the ridiculous sum of $2.0 trillion, the amount of excess reserves, to regain normalization. Any rise in interest rates during this process will add to the national debt burden that appears unsustainable, absent a return to significant growth rates.
Congressman Pat Tiberi took to the pages of The Columbus Dispatch in Ohio to defend supply-side economics.
I respectfully disagree with the Sunday letter “Supply-side economics do not work” from Corinne Lyman. There is no question that if we raise tax rates on businesses they will invest, produce and hire less. Cutting taxes, reducing burdensome regulation and enacting other pro-growth policies unleashes employers’ abilities to grow, expand and hire. Historical evidence confirms this to be true.
When President Ronald Reagan slashed tax rates and eased burdensome regulations, the economy flourished. After the first tax rate hike of the 1990s, the nation slumped into recession. The effect of President Bill Clinton’s subsequent tax hike was only tempered by the technology boom. The economy really took off when the Republican Congress enacted welfare reform to encourage work, spending reform to balance the budget, and lower capital gains taxes to boost investment.