What I Learned Today

*The WSJ editorializes on the lousy revenue estimates at the Joint Tax Committee and the Congressional Budget Office. It's an important point because I believe the Laffer curve is still the most underrated economic growth policy tool out there. With historically low tax-rates on capital today, federal tax receipts are soaring. In fact, at roughly $2.4 trillion estimated for 2006, tax collections are way above the prior peak, which was around $2 trillion in FY 2000. This, of course, at lower tax-rates. Washington estimators always assume the economy is cyclical and governed by immutable laws. But the reality is growth would have been much slower after 9/11 without strong investment incentives provided by the Bush tax cuts on capital.

*Sen. John McCain has been campaigning around the country to cut spending and eliminate budget earmarks. He made a great speech on this point at the Reagan Library a few days ago. McCain is dead right and the GOP House and Senate should take stringent action to make earmarks transparent and votable before passage. They should also implement Sen. Judd Gregg's SOS plan, which has Gramm-Rudman-type across-the-board budget cuts and a line item veto in order to meet reduced spending targets.

*The Bernanke Fed should raise their target rate 50 basis point tomorrow to enhance their credibility and enforce their tough rhetoric on curbing inflation. Forward market price indicators like TIP spreads, gold, and the dollar have responded to Bernanke's rhetorical toughness. But now is the time for execution. The Wicksell model clearly shows that a 5.5 percent fed target rate would be a slight penalty above neutral. The central bank should go there immediately and then it may be possible to pause after that. Importantly, the Fed should be guided by forward-market prices for bonds, commodities, and the dollar to guide their liquidity policies.

*Online pollster Scott Rasmussen finds that 36 percent of Americans are very worried about inflation and another 36 percent are somewhat worried. This should spur the Fed.

*Denying White House press credentials to the New York Times for its unpardonable outing of the U.S. government's effort to track world terror funds is a very interesting proposition. I'd like to see a Congressional debate on this and I'd like to see where election-year Democrats and Republicans come out on this issue.

*Warren Buffett praises the estate tax, but of course he doesn't pay it.

*Chip stocks are getting killed. The SOX index is at an eight-month low. Until this sector shows life signs of recovery, it is doubtful that the overall stock market will rebound.

*Despite conventional wisdom that oil prices are a one-way trade higher, I still believe there is a significant chance that prices will drop $20 or more. Don't ask me when, but Milton Friedman was right 30 years ago. Markets are more powerful than OPEC. Right now production is rising, inventories are high, and consumption is flattening. I think oil is moving to $40 to $50 at some point probably in the next six months.