Erik Larson

Feb 4, 2009

Supply Side Logic

A private email from a friend of mine… which I’m making public now:

“Kensyian stimulus—spending for spendings sake—doesn’t

work—because it takes money from the most productive job-creating sectors

of the economy and redistributes it to the least productive sectors (low

income workers and government). Plus, it destroys incentives for business

formation, work, savings and investment. Government can borrow, tax and

print money. All three of these actions create drag on the private job

creating sections of the economy, either by increasing the cost of capital,

decreasing incentives to work, save and invest, or by devaluing the currency

(inflation).

The practical non-ideological approach to economic recovery involves cutting

marginal tax rates, sound money and deregulation. Ask Coolidge, Kennedy,

Reagan and the much maligned Bush circa 2002. You want a depression or

mighty stagflation raise taxes and/or spending. Ask Hoover, Roosevelt,

Carter and Bush 2008 and his Dem congress (Frank, Dodd etc.)

Nothing they are doing now will work. Look for Carter era stagflation (low

growth and high inflation within a couple years). Maybe worse.”