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Politics : THE VAST RIGHT WING CONSPIRACY -- Ignore unavailable to you. Want to Upgrade?

To: calgal who wrote (4727)	12/9/2003 12:17:22 AM
From: calgal	Respond to of 6358

Is inflation brewing? Jack Kemp (archive) December 8, 2003 \| Print \| Send The economy is performing like gangbusters. In November manufacturing had its best month in 20 years, construction activity rose to its highest level on record and last week the unemployment rate fell below 6 percent. Disposable income increased almost 6 percent last year, and the stock market has added $2 trillion to the nation's balance sheet since the beginning of the year. Worker productivity is rising at a blistering 9-percent pace, which helped fuel the overall economy in the third quarter to grow at the fastest annual rate in two decades. There is no doubt that the primary impetus for this growth is the Bush tax rate reductions, which have taken the shackles off the economic recovery. Moreover, economic policy took a turn for the better last week when President Bush rescinded his earlier ill-advised increase of steel tariffs, which should lower prices on everything made of steel and create additional economic momentum. My hope is that the president now will go further and take the tariffs off steel completely and - while he's at it - reduce the farm subsidies that are hurting American consumers and Third World countries, particularly in Africa and other nations that want to increase the amount of agricultural products sold in the United States. With all of this good economic news, it is only a matter of time before the Keynesian outcry begins: "Too much growth! The economy is overheating and creating inflation." They will blame the inflation on a rising deficit and say taxes should be raised to reduce the deficit and lower inflationary pressures. As sure as the sun rises in the east, they will say it, and just as surely as the sun sets in the west, they will be wrong. The sole cause of inflation is the Fed's recklessly buying bonds and pumping too much liquidity into the economy, pushing prices higher and wages lower, temporarily fooling producers into believing demand is higher than it really is. Budget deficits result from recession and undisciplined government spending, which displaces private investment and places a drag on economic growth. Inflation is the outcome only if the Fed attempts to counteract that drag and pump up growth artificially by injecting too much liquidity into the economy. In other words, the cause of inflation is exactly opposite from what Keynesians believe. Supply-side experience informs us that the prescription for shutting off inflation is not to take action like raising taxes to slow economic growth, but rather to reduce excess liquidity in the Federal Reserve Board's portfolio to the point that it is sufficient to keep the economy running at peak performance. Another beneficial byproduct of getting the liquidity level right is that the value of the dollar will automatically return to equilibrium, providing a correct "unit of account," a numeraire. That's why it is so important for the Bush administration and Alan Greenspan's Fed to pay attention to inflation indicators earlier rather than later before they sprout into higher prices and a full-blown dollar crisis. Some of the classic warning signs of inflation are flashing but not because the economy is growing too fast. The price of gold broke the $400-per-ounce barrier and closed the week at $406. The CRB commodities price index of price-sensitive commodities is up 36 percent from its low point - although that low was reached during a deflationary recession. The trade-weighted exchange value of the dollar has fallen 20 percent from its top, which was not unexpected. The Producer Price Index has been steadily rising since May 2002, and even the lagging Consumer Price Index has begun to rise. It is vital for policymakers to see these signals for what they are and to understand what is occurring. The inflation signals are coming during a period of fundamentally sound rapid economic growth, and they are occurring concurrently with a sinking dollar - a portion of that decline having been engineered by the administration's threatening and jawboning other countries about the values of their currencies. Unless the Fed and the Bush administration recognize what is going on and take corrective steps now, they could find themselves feeling politically compelled to pursue exactly the wrong policies - raising taxes, manipulating interest rates and intervening into foreign currency markets in a counterproductive attempt to strengthen the dollar. It is time for the Fed to sell bonds and drain excess liquidity until inflation signals fade and announce a price-rule for the dollar that seeks neither a strong dollar nor a weak dollar but a stable dollar as a unit of account. If it does, short-term interest rates will rise. Long-term interest rates, however, which already exceed short rates by 400 basis points, wouldn't rise much, and growth would continue apace. In addition, the Bush administration should cease its weak-dollar rhetoric and come to the realization that the only effective way to increase manufacturing activity and exports over the long run is to lower tariffs and continue the drive to lower tax rates on labor and capital. Economic growth will do the rest. It may be the same old supply-side prescription, but experience has provided empirical evidence both to its rationale and efficacy. ©2003 Copley News Service townhall.com

To: calgal who wrote (4727)	12/9/2003 12:17:33 AM
From: calgal	Read Replies (1) \| Respond to of 6358

The amazing American job machine Rich Lowry (archive) December 8, 2003 \| Print \| Send The American economy is destroying jobs, and that's a good thing. It is in destroying jobs that the economy improves and makes it possible for the standard of living of all Americans to increase. This constant churning means that even a "stagnant" American job market is extremely dynamic, and that the ranks of the unemployed are not necessarily the dispossessed of the earth, as Democrats tend to portray them. Keep this in mind as Congress gears up for a debate on whether unemployment benefits should be extended beyond their normal six-month term for the fourth time in the past two years. Democrats will attack anyone opposing this extension as a heartless extremist attempting to trample on the poor. But an extension of benefits might, perversely, prolong unemployment, and it will serve to dampen the dynamism of the American economy, which is its greatest asset. In any given year, roughly 10 percent of all jobs in the American economy are destroyed, while an equal number rises up to take their place, according to the latest Economic Report of the President. The trick, of course, is to create more jobs than are lost. Since 1980, according to Michael Cox of the Federal Reserve Bank of Dallas, "Americans have filed 106 million initial claims for unemployment benefits, each representing a lost job." But during the past decade, the economy has still added a net 40 million new jobs. Even when the economy isn't creating net new jobs, as has been the case recently, it's creating new jobs. Payroll employment was stagnant last year. But between 3.5 million and 5 million workers entered new jobs each month in 2002. Even during a "jobless recovery," the majority of workers looking for jobs in any given month is different from those workers seeking jobs the next month. Since 1970, the median duration of unemployment has been 6.6 weeks when the economy is growing, and 8.2 weeks immediately following a recession. In roughly 40 percent of cases, the period of unemployment is 5 weeks or less. So the unemployed aren't a single class of people, but a group constantly changing as people cycle in and out. In many cases, job turnover -- although painful -- is a very good thing. It is by switching jobs that people learn new skills and find a better match for the skills they already have, thus earning higher wages. A typical young worker has seven jobs during his first 10 years in the job market. A third of that worker's wage growth will occur when leaving one job for another. Public policy should be leery of anything that discourages this churning in the job market. (Otherwise, four out of 10 of all Americans would still be working on a farm, as we were a century ago.) Because unemployment benefits essentially subsidize unemployment, they can have this effect, encouraging people to stay unemployed instead of jumping back into the job market. One study shows that each additional week of unemployment benefits increases the time a person spends unemployed by a day. Indeed, the unemployed are twice as likely to find a job in the week before their benefits expire than in the weeks prior. Makes you go, "huh," doesn't it? People respond to incentives. Experiments in a few states have shown that giving a re-employment bonus to the unemployed speeds up the time it takes them to find a new job by roughly a week. Europe has longer and more generous unemployment benefits than the United States -- and also chronically higher rates of unemployment. So, as the economy begins to purr and the unemployment rate dips, the last thing the government should do is give people a disincentive to join in the great roiling American job market. Opposing an extension of unemployment benefits isn't heartless, but an act of well-placed faith -- in the dynamism of the American economy and in the resourcefulness of its workers. Rich Lowry is editor of National Review, a Townhall.com member group, and author of Legacy: Paying the Price for the Clinton Years. ©2003 King Features Syndicate townhall.com