The American economy has been in the doldrums for over 20 years, unlike the conditions of vibrant equitable prosperity America enjoyed under Ronald Reagan, who turned it around, and Bill Clinton, who extended that. What to do?
Sebastian Mallaby's "The Power Law: Venture Capital and the Making of the New Future" is a rip-roaring read full of eccentric geniuses going on to glory or infamy with a Big Reveal of the impact of the investors who financed the inventors of our modern era.
Meanwhile? Republicans and Democrats, right and left, have taken their eye off the ball.
The Pachyderms are just itching to give tax breaks to their donor class and country club cronies with a sop to Cerberus for the pesky proletarians.
That's not supply-side economics. It's Social Darwinism in supply-side drag.
Meanwhile, the Donks keep trying to put out an orgy of social spending. That's not good social democracy.
That's just saddling our kids with debt to buy votes. Thank you, Sens. Kyrsten Sinema, D-Ariz., and Joe Manchin, D-WVa, for thwarting that!
Worse news! Our economic elites, both GOP and Dem, have formed cargo cults enacting parodies of their policy idols, Reagan for the Republicans, FDR for the Democrats.
Reagan (with Democratic enthusiasm, including Sen. Joe Biden) cut the top income tax rate from 70% to 28%. Clinton (and with the enthusiastic support of Sen. Joe Biden) cut the capital gains rate from 28% to 20%.
That was way more potent than cutting the top rate from 39.6% to 37%, or even cutting the nominal top corporate tax rate from 35% (effective rate of 18.6%) to 21%.
Biden led on bipartisan COVID relief spending, followed by a panoply of proposed goodies targeted toward Democratic voters. That's very different from FDR's well designed, immensely popular, social insurance, Social Security.
Social democracy, broad-based funding for universal and proportionate social benefits, is antithetical to "democratic socialism." Apparently, Ron Klain did not get the memo.
Now, the good news. A smart and consequential public intellectual, Mallaby has formulated a smart recipe to restore America (and the world) to vibrant equitable prosperity. He makes the case vividly in a new book which should be on every congressional desk.
Mallaby, the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations, has written "The Power Law" (Penguin Press 2022). It may be the most informative and engaging economic narrative history since Liaquat Ahamed's "Lords of Finance: The Bankers Who Broke the World," which won the 2010 Pulitzer Prize in history.
"The Power Law" tells the rousing story of how America came to conquer and dominate the commanding heights of high tech, with its attendant prosperity and power, focusing on the inventors and the investors. The author thereupon lays out a clear and reliable roadmap on how to drive America back to prosperity and power.
He opens with a wry shoutout to "unreasonable" people. "This book has two broad purposes. The first is to explain the venture capital mindset. ... The book's second purpose is to evaluate venture capital's social impact. ... Yet even as the public mood has turned against the tech-industrial complex, the positive case for venture capital has grown more compelling. ... In a world of intensifying geoeconomic competition, the countries with the greatest innovation hubs are likely to be the most prosperous and ultimately the most powerful."
So where does America's (or its competitors') future prosperity and power lie? Mallaby draws four lessons from his epic stories of multibillion dollar successes and failures. He promulgates a 21st century Supply Side 2.0.
Call them Mallaby's Laws of Prosperity and Power:
- "[T]ax breaks work better than subsidies." Mallaby emphasizes the badness of the double taxation of income at the corporate as well as dividend level. He also offers some shrewd observations on the profound benefits to the economy that come from a reduced tax rate on capital gains.
- "[T]ax breaks for venture investors should be coupled with incentives for the employees of startups. . . . To lure talent away from comfortable safety the prize must be large and society should want it to be large, because of the positive spillovers that flow from vibrant startups."
- "[G]overnments must invest in science — both the training of young scientists and the fundamental research that is too far removed from commercialization to attract VC funding."
- "[G]overnments should think globally. They must compete to attract foreign scientists and entrepreneurs by handing out visas liberally. They should embrace internationally accepted tax provisions and legal forms with which foreign venture capitalists feel comfortable. They should not privilege their own firms at the expense of open global competition."
Thus, Mallaby lays out the roadmap for how America can get its mojo back and go forward to prosperity and power. Onward to a golden age!
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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