Wednesday, July 05, 2006

The Bush Boom

Conventional demand-side economists keep talking about an economic slowdown. (See today’s WSJ front-page story).

These folks are stubborn if nothing else. They ignore the huge success of supply side tax cuts that lowered the marginal tax rate on capital to the lowest level in history.

Private business investment continues its surge. It remains an explosive engine of growth creating jobs, incomes and consumer spending.

The thought here is very simple: Low tax rates on capital benefit both businesses and consumers. In fact, a combination of record low taxes and record high profits is the key to understanding our current economic boom, which is the greatest story never told.

Just take a look at today’s factory orders report for May. It shows that order backlogs are surging at a 13 percent rate. This is yet another indicator of the business boom.

Moreover, the ADP jobs report hints at a much stronger than expected jobs gain in Friday’s report—368,000 new jobs in June, compared to street consensus of only 160,000. (This is the largest monthly increase in employment since the ADP index was created five years ago.)

Yet, the demand-siders continue their doom and gloom. They’ve predicted four or five growth pauses in the last three years, as the economy shrugged off their pessimism and roared ahead. They have been wrong over and over again. And all signs suggest they will continue to be wrong.

Low tax rates work. Just look at the economy.