Riding the Right Curve
Larry Kudlow says, "Laffer days are here again."
..................Reagan economic guru Art Laffer taught us thirty years ago that lower tax rates ignite economic growth. Now, the Laffer curve is tracking a business-led expansion that is throwing off record budget revenues while corporate profits are soaring. Profits are the mother's milk of business, the economy, and stocks, and are laying the foundation for even more hefty job gains.
According to the Fed, after-tax profits for last year's fourth quarter hit 8.1 percent of GDP, a post-WWII record. At a trillion dollars, profits are way ahead of their prior peak in 1999 and have nearly doubled since their recent trough in 2001. Family net wealth, the nation's true savings rate, advanced 8 percent in 2005 to a record level of $52 trillion.
On Friday, appropriately taking on the mantle of Salesman-in-Chief, President Bush answered his critics by giving a strong speech arguing for first principles on lower tax rates, free trade, global economic connectivity, and the use of trade as a diplomatic tool as well as an economic growth measure. Bush is certainly on the right track. And while Congress may appear to have gone offline on the critical extension of the 2003 investor tax cuts, Ways and Means Chairman Bill Thomas tells me that prospects for extension remain good. If so, this economic expansion will continue for many years to come.
In the months ahead, Ben Bernanke will follow the anti-inflation thinking of Milton Friedman. President Bush will continue to embrace the pro-growth Laffer curve. And the anti-worker Phillips curve will be pushed into the dustbin of history. In other words, economic growth principles will keep American capitalism on the prosperity path.
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