Brian Domitrovic: Supply-Side Thermodynamics Are Rocking Our World
John Tamny spots the recession in this piece for Real Clear Markets:
Looking at oil and the gasoline that it is ultimately refined into, the prices of both are high because the dollar is cheap. Keynesians will doubtless note how expensive gasoline will depress consumption, but the greater, more “recessionary” negative of $4 gas is how the cost of one of life’s essentials will depress savings, and with that, the growth capital that funds entrepreneurialism. Devaluation is surely cruel to the consumer, but it’s devastating to the entrepreneur, not to mention the individuals who might like to work for the entrepreneur.
So while the always faulty GDP number has yet to register a downturn, fret not because we’re in the middle of one. Inflation, meaning a decline in the unit of account, always coincides with reduced savings, and then a misallocation of available savings into unproductive, tangible assets least vulnerable to the currency devaluation.
In short, $1,500 gold IS the downturn, precisely because of what it tells us about the direction of limited capital. As for “recession”, though painful, that’s what we’ll hopefully celebrate sooner rather than later as investors reorient capital away from land, art, rare stamps and faulty lenders/investors who’ve bought into the money illusion that is today’s economic pain.
Props to Professor Brian Domitrovic for taking certifiable maniac Jonathan Chait to task for his sloppy, stupid writing.
Jonathan Chait of New Republic fame is the cliché’s most recent enunciator. He wrote the above line last month in a takedown of Republican fiscal policy, in the organ Democracy: A Journal of Ideas. Chait joins a list of distinguished observers – such as MIT/IMF/Peterson Institute majordomo Simon Johnson – who have recently repeated the bald and false assertion: George H.W. Bush called supply-side economics voodoo economics.
Let’s go back 31 years and sift the evidence. The underlying reference is to the 1980 Republican primary campaign, when Bush was trying to make time against a surging and ultimately victorious Ronald Reagan. In April 1980, and in press releases in prior months, Bush did indeed, no doubt about it, say that his opponent espoused “voodoo economic policy.” But – and this is the big but – Bush did not associate Reagan’s economic plan with “supply-side economics.” Rather, Bush called himself “the supply-sider in this race.”
Paul Ryan: If you tax something more, you get less of it. If you tax something less, you get more of it. We don’t want to tax jobs more. We want them to be taxed less so we can get more of them.
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Ryan’s budget predicts less government spending and less taxation will drastically shrink unemployment, rejuvenate the housing market and generate billions in extra government revenue. That forecast comes from the conservative Heritage Foundation, which adheres to Ronald Reagan’s supply side economics: Get the government out of the way and the economy will flourish.
Ralph Benko for Forbes:
Until … Rep. Jack Kemp, a fairly junior member of the House of Representatives, gathered around himself a group of “econoclasts,” to use the witty neologism of economic historian (and fellow Forbes columnist) Brian Domitrovic, who came to call themselves the “supply side.” Their core insight was simple. Rather than rely on a policy of high tax rates and a weak dollar, move toward a policy of low tax rates and a strong dollar. The late Jude Wanniski called it “the Mundell-Laffer Hypothesis.” And it was derided by the policy elites as “Voodoo Economics.”
Brian Domitrovic at Forbes.com:
The problem with composing a straight history of supply-side economics is that inevitably, you’ve got to make it an epic. It’s one whale of a success story – a decade of stagflation vanquished once and for all – with drama, personality, savvy, and intellectual heft in tow. If you’re a scholar settled high in our tut-tutting and left-leaning establishment, brace yourself if you decide to write that book.