So says Art Laffer (of Laffer Curve fame) in the WSJ: The Age of Prosperity Is Over , Art Laffer, Oct.27, 2008.
Here are some snippets. Full article (link below) is worth browsing.
* * * * *
Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent.
* * * * *
When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.
* * * * *
Taxpayers had nothing to do with either side of (toxic) mortgage transactions. If the house’s value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers.
* * * * *
Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.
* * * * *
The government doesn’t create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.
* * * * *
Some 14 months ago, the projected deficit for the 2008 fiscal year was about 0.6% of GDP. With the $170 billion stimulus package last March, the add-ons to housing and agriculture bills, and the slowdown in tax receipts, the deficit for 2008 actually came in at 3.2% of GDP, with the 2009 deficit projected at 3.8% of GDP.
* * * * *
The net national debt in 2001 was at a 20-year low of about 35% of GDP, and today it stands at 50% of GDP.
* * * * *
Giving more money to people when they fail and taking more money away from people when they work doesn’t increase work.
* * * * *
An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output.
Just look at the era beginning with President Reagan’s tax cuts, Paul Volcker’s sound money, and all the other pro-growth, supply-side policies.
Bill Clinton and Alan Greenspan added their efforts to strengthen what had begun under President Reagan. President Clinton signed into law welfare reform, so people actually have to look for a job before being eligible for welfare. He ended the “retirement test” for Social Security benefits (a huge tax cut for elderly workers), pushed the North American Free Trade Agreement through Congress against his union supporters and many of his own party members, signed the largest capital gains tax cut ever (which exempted owner-occupied homes from capital gains taxes), and finally reduced government spending as a share of GDP by an amazing three percentage points (more than the next four best presidents combined).
* * * * *
Whenever people make decisions when they are panicked, the consequences are rarely pretty.
For example, Jimmy Carter’s emergency energy plan, included wellhead price controls, excess profits taxes on oil companies, and gasoline price controls at the pump. The consequences of these actions were disastrous. Just look at the stock market from the post-Kennedy high in early 1966 to the pre-Reagan low in August of 1982. The average annual real return for U.S. assets compounded annually was -6% per year for 16 years. That, ladies and gentlemen, is a bear market.
* * * * *
Full article:
http://online.wsj.com/article/SB122506830024970697.html
* * * * *
Want more from the Homa Files?
Click link => The Homa Files Blog
The Homa Files 
Leave a comment