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The drama surrounding the debt ceiling negotiations obscures some important facts. The right way to reduce the deficit is by doubling the weak Bush/Obama/Trump/Biden real economic growth from 2% to 4%. Four percent is the Reagan/Clinton rate. And cap discretionary spending growth to 2%.
Only one prominent political leader, Miami GOP Mayor Francis Suarez, is championing something like robust economic growth. Or has shown he really knows how to conjure it.
Not Biden. Not Trump. Not DeSantis. Not Pence. Not Haley. Not Hutchinson. Not Ramaswamy. Not Scott. Not Elder.
The original supply-side revolution, in which I was an O.G., prescribed stabilization of the dollar (preferably through the gold standard but, in the event, by the Fed's tightening).
We coupled the stable dollar with cutting marginal tax rates, reducing the top rate from 70% to 28% (followed by a regrettable but modest bump back up to 39.6%). Then, a capital gains rate cut from 28% to 20%. And welfare reform.
Our policy mix was ridiculed by the Republican establishment, specifically George H.W. Bush, as "voodoo economics." And ridiculed by the Democratic establishment as "trickle-down" (an insult originally coined by Will Rogers to ridicule Herbert Hoover, the supply-siders' poster child for bad economic policy).
The supply-side posse persisted despite ridicule. Washington reluctantly took the "riverboat gamble." Over the ensuing four decades, the (relatively) stable dollar and (relatively) low tax rates doubled real per capita GDP from $30,000 to nearly $60,000. Per the St. Louis Fed, U.S. nominal GDP soared from $2.7T to $26T, world nominal GDP from $11T to $96T.
It propelled the Dow from 814 on the day that Reagan declared for the presidency to ~33,000 today. Not bad for voodoo!
Note that then U.S. Sen. Joe Biden voted in favor of all those tax rate cuts. Equitable prosperity does not need to be a partisan issue.
Ronald Reagan and Bill Clinton fomented sustained 4%-range growth. Their successors did much worse: George W. Bush, 2.25%; Barack Obama, 1.59%; Donald Trump, 1.03%. To be fair, pre-COVID President Donald Trump clocked in at 2.3%, 2.9%, and 2.3%. Not much better than Bush.
The differential between the Reagan/Clinton 4% and the ~2% growth rate since may seem trivial. It's not.
Compounded over 20+ years it means our economy is dramatically smaller than it should have been. Meaning? People are making $60,000/year instead of $90,000/year.
A diminished tax base, $26T instead of $40T, led to yawning deficits instead of the Clinton-era federal budget surpluses. After the '80s and '90s, the political establishment engaged in what economists call "reversion to the mean."
Meaning business as usual. The Democrats blamed greedy corporations. The GOP attempted retreads of its tax-rate cutting glory days.
President Trump talked up prosperity. Yet his cutting the top income tax rate from 39.6% to 37% paled in comparison to the '80s drop from 70% to 28%. Trump's cutting the corporate rate from a nominal 39% to 21% sounded bigger than it was, the effective rate having been at 18.6%.
Supply-side was, and again should be, all about creating an economic climate leading to equitable prosperity. Not tinkering with the tax code.
I'm all for low, broad-based, tax rates! That said, there's little juice left in the tax-rate cutting lemon.
How to end the new stagflation? Dollar stability, preferably through gold, is a start. Then, Nobel Prize-winning economist Paul Romer proved that much of our long-term economic growth comes from scientific and technological innovation.
As capably summarized by Charles I. Jones: "Romer developed endogenous growth theory, emphasizing that technological change is the result of efforts by researchers and entrepreneurs who respond to economic incentives. Anything that affects their efforts, such as tax policy, basic research funding, and education, for example, can potentially influence the long-run prospects of the economy.
"Romer's fundamental contribution is his clear understanding of the economics of ideas and how the discovery of new ideas lies at the heart of economic growth. His 1990 paper is a watershed. ..."
Also notable, as reported by Wired in "The Long Boom," "Research by a few economists, like Stanford University's Paul Romer, suggests that fundamentally new technologies generally don't become productive until a generation after their introduction, the time it takes for people to really learn how to use them in new ways."
Tech is key to prosperity.
Let's give Romer Theory a go. Couple Romer's exogenous growth theory with the Nobel Prize-winning work of Gary Becker and Ted Schultz on human capital.
Human capitalism? Game on!
Among the many presidential aspirants, only Miami Mayor Francis Suarez crusades, in theory and practice, on robust technology innovation as the necessary means to vault America back to sizzling equitable prosperity.
America yearns for prosperity, I have three simple words:
Run Suarez run.
Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply-Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $94T. Read Ralph Benko's reports — More Here.
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