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'Goldilocks needs tax reform ... not root-canal economic populism'

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'Goldilocks needs tax reform ... not root-canal economic populism'
Topic: Business 12:55 pm EST, Jan  6, 2008

Here's Larry Kudlow:

The key thing to remember is that businesses drive the economy. Businesses create jobs and incomes for consumers to spend.

Larry Kudlow has managed, unfortunately, to transform himself from an inciteful observer of market events into a fairly one dimensional shill for wall street's political interests. This essay (appearing in NRO, not a business journal) is a perfect example. He cites "facts" that have no relationship to reality (holiday sales suprised on the upside?!?), talks about lazzie-faire economics while pining for government assistance in the form of yet another rate cut, and also, in the passage quoted above, manages to treat his readers like children.

The fact is that we are teterring on the edge of an economic precipice built upon phoney growth and no one is quite sure how deep it is. The current housing crisis, which threatens bank failure, was completely predictable and driven by the extremely irresponsible actions of the creditors whose interests Kudlow here represents. Of course they don't want the government to regulate them, they're rich, but the minute hard times beset them they start screaming for government assistance in the form of rate cuts, literally screaming as Kudlow's former cohost famously did on national television in the late summer, and they get them!

The reason Wallstreet has to generate phoney growth in the form of housing inflation is that we're not getting enough real growth in terms of actual middle class purchasing power, and the fundamental reasons for that aren't addressed by a simple tax cut. Despite Kudlows insistance to the contrary, real wage growth has been anemic through-out this recovery, held back by offshoring and H1-B visas. The reason those programs are required to keep American workers "competitive" is our abysmally stupid healthcare system, wherein employers have to pay truck loads for services that no one can refuse to buy.

Healthcare is not like other market commodities because people who need services cannot refuse to purchase them or choose between acceptible and luxury classes of service. You buy it or you die. So in an unregulated environment there is no force that counteracts price increases. And the vested interests that are making a killing offering those services have hired the exact same libertarian idealogs to defend those interests that Kudlow has now joined.

End the upward spiral of healthcare costs and require job mobility and permanent residency for foreign workers imported into the US and you'll see real, sustainable increases in middle class purchasing power, which will drive real economic growth.

Ultimately, if the rewards of business growth, systemically, aren't seen by employees, consumers don't have money to spend on new products, and so businesses can't grow. Instead you see the money all going to shareholders, and so there is all this excess investment capital out there that isn't going to be spent buying things, but instead wants to fund mortages and the like. This sort of concentration of wealth, which is caused by government intervention on behalf of some people and lazzie-faire for others, can strangle the economy by pulling the liquidity out. Thats exactly what caused the great depression.

'Goldilocks needs tax reform ... not root-canal economic populism'



 
 
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