TAS: Meanwhile we've just lost roughly $5 trillion in national wealth through the collapse of the Nasdaq and other reversals.
GILDER: Right. By the only measure that matters, over the past 14 months we have increased national debt significantly, measured as a proportion of total national assets.
TAS: Why doesn't anybody focus on this?
GILDER: The economics profession has been captured by accountants. There are no longer any economists worthy of the name except for a few lonely, derided supply-siders who are capable of appreciating the dynamics of the real economy.
TAS: "Accountants"?
GILDER: So-called economists who are incapable of doing anything more than adding and subtracting income and outgo in a static way, rather than grasping the dynamics of economic growth and creative destruction and innovation and all the energies that in fact explain economic activity.
TAS: Any favorites?
GILDER: Paul Krugman. He is the Mr. Micawber of economics and has just about as clear a grasp of the way to prosperity. Like Micawber he is imprisoned by fears of debt because he has no notion of entrepreneurial productivity. He has persuaded himself that tax cuts are either unfair—because he imagines them as nothing more than a static payoff to those who will "get back" $600 or $6 million from the Bush plan—or bankrupting, because he ignores their reverberating power across the whole economy. Every small business, every large business, every new entrepreneur, every venture capitalist, indeed every state and town government, has new opportunities as a result of a reduction in marginal tax rates.
These dynamic effects dwarf the utterly trivial little distributive calculations Krugman is offering in his fatuous weekly column in the New York Tmes. He should be mortified and made to return to his university in humiliation—masked in green eye shades—for betraying his calling as an economist. If he wants to be an accountant, maybe he should put out...what do you put out? You put out...
TAS: A shingle?
GILDER: Shingle. He should put out a shingle as accountant. But he would have to be a very small-town accountant, with only small businesses as clients, because large businesses have to deal with debt in an intelligent way.
Of course the Bush administration speaks exactly the same language, so I shouldn't be so harsh on Krugman. Perhaps Larry Lindsey could join up as a partner. Krugman and Lindsey, CPAs--it has a ring to it.
TAS: Where are the good economists?
GILDER: They show up in odd places. A decade or so ago, Keith Marsden, a World Bank economist, showed that countries with low tax rates increased their government spending three times as fast as countries with high tax rates.
TAS: How?
GILDER: They grew six times as fast. The country that increased its government spending most during a 30-year period through the mid-'90s was Hong Kong, which also had the lowest tax rates of any major industrial power in the world. Hong Kong had a top rate of around 16-and-two-thirds percent, and increased spending more than any other country. Of course the government spending did not increase significantly as a share of total output because Hong Kong was growing so fast. Just this week a team at the National Bureau for Economic Reaserch published a study showing that the reductions in the top U.S. personal tax rate in 1986 increased the revenues of small businesses by 28 percent in three years.
TAS: If we don't care about the absolute size of the national debt, but only the national debt as a proportion of total national wealth, doesn't that make the ideal tax rate zero?
GILDER: Zero would certainly be preferable to our current rates. The government would have to engage in what might seem like a Ponzi scheme, paying off the existing debt holders by issuing new debt. But if you make the very reasonable assumption that the money not absorbed in taxes would be invested much more powerfully and would unleash overpowering incentives to produce, federal debt would actually shrink relative to national assets.
This is similar to what growth companies do all the time. They don't pay dividends or pay down their debt. They keep adding more debt and issuing more shares. But their relative indebtedness shrinks—assuming the key assumption underlying their entire existence in the first place is correct.
TAS: Which is?
GILDER: That wealth will grow faster in their hands than in the hands of their investors. That's why the investors give them the money. The investors don't want their money back, they want the companies to keep building wealth. It's only when investors begin to lose faith in the long-run growth of a company that they demand the kind of short-term payout represented by dividends or paying down debt.
TAS: Ford vetoed more spending bills than any president in history, and sustained many of them. And of course he went on to become the greatest president in American history, and there was that great public outcry to change the 25th amendment so he could serve a third term. Plus they renamed National Airport after him. Also the Grand Canyon.
GILDER: Right. I had completely forgotten that. Was Ford president?
TAS: So let me see if I have this straight: The right Republican model is to pay off Democrats to allow us to have tax cuts.
GILDER: That's right.
TAS: Because that's what Democrats like, they like bribes. So we bribe them, so they're happy, then we get tax cuts so we can go to work, get rich, and pay off Democrats with the leftover.
GILDER: That's right.
TAS: And everyone takes their proper role in the order of nature.
GILDER: Yes.
TAS: Character is destiny.
GILDER: You've got it. |
