Friday, October 01, 2004

The illusion of a free lunch

Posted by Craig Westover | 9:43 AM |  

In an excellent column on today’s Pioneer Press Opinion Page, editorial board member Mark Yost provides an easy-to-understand explanation of supply side economics stripped of partisan “pumping and dumping.”

Noting that the Bush tax cuts are already being demonized by the left, Yost makes the case that they were just what the economy needed. But he worries that all the good by the tax cuts may be overshadowed by the explosive growth of non discretionary spending and unfounded initiates like the Medicare prescription drug plan. “This,” he notes “is where the president would do well to review Reaganomics 101.”

One of the most important — and simplest — elements of Ronald Reagan's economic plan was the Laffer Curve. Named for economist Arthur Laffer, the curve charted below shows that even the most entrepreneurial people can take only so much. Once taxation reaches the saturation point, revenues go down as rates go up because the confiscatory rates discourage economic activity. Conversely, if tax rates are cut from that oppressive level, revenues will actually go up. And that's exactly what happened under Reagan.

"Only by reducing the growth of government," said Reagan, "can we increase the growth of the economy."

(For Reagonomics 201, click here.)

Yost’s column runs in tandem with a column by fellow editorial board colleague Glenda Holste. Although the columns run under a “Facts Unfiltered” banner, Holste’s column is a rather partisan look at the U.S. fiscal situation and doesn’t add much to the well-worn “I’m a more fiscal conservative than you are” argument. Because he is willing to criticize the president on principle, not partisanship, Yost’s argument and conclusions come off as much more credible.
So, to answer the question of the day: Is it possible to have a free lunch? Of course not. But as Reagan showed, a little fiscal discipline — something that's sorely lacking in both this administration and this Congress — can go a long way. Bush would be wise to heed that advice — something John Kerry roundly rejects — in a second term.
Read the full article . . . .