Thursday, July 05, 2007

If It Ain't Broke, Don't Fix It

A flurry of new reports shows that the Goldilocks economy is alive and well.

New readings for both manufacturing and services from the Institute for Supply Management show solid economic growth both now and in the future. Also, a private sector survey on jobs suggests a solid number tomorrow when the Labor Department reports.

Additionally, core inflation is running only 1.9 percent ahead of year ago, with headline inflation increasing only 2.3 percent. Hard goods prices are actually falling by 2 percent over the past year. Forward inflation spreads in the bond market are signaling continued low inflation ahead. And gold prices haven’t moved in a year.

Commercial rents in major cities are very strong according to this morning’s Wall Street Journal. And while housing is still a drag, business construction remains strong.

Real GDP for the second quarter should come in close to 3 percent after a near death experience of only 0.7 percent in the first quarter. Federal Reserve policy is on hold, as it should be.

It remains a bullish scenario.

However, congressional Democratic tax polices aimed at raising taxes on private partnership investment and public buyout firms is just plain stupid. The Bush boom is nearly six years old, with a very strong stock market, low unemployment, and low inflation. If it ain’t broke, don’t fix it.

This war on prosperity almost seems as though Democrats wish to bring down the Bush boom, in order to gain election year fodder. Perhaps I’m being too cynical, but I can think of no good reason for these tax hike proposals.