Commentary

Soaring Indicators

By Stephen Moore
This article was published in The Washington Times, Nov. 28, 2003.

Paul Krugman, Howard Dean and Robert Reich are having a bad hair month. The recent news that housing starts have reached a 17-year high is more solid news of a robust expansion on the way. This comes on the heels of the latest jobs report that the unemployment rate dipped to 6 percent (which was once upon a time considered full employment) and that the economy has created about 300,000 new jobs over the past three months. These figures have made the tax-cut critics look a little silly.

Messrs. Krugman, Dean and Reich have made a profession of railing against the Bush economy and the hollowness of the supply-side tax-cutting theory.

In fact, poor Paul Krugman just a few weeks ago wrote a rambling four-page article for the New York Times Magazine called “The tax-cut con.” It argued supply-siders have it all wrong — that tax cuts don’t lead to more jobs, more growth, more investment and a higher stock market.

Oops.

Meanwhile, the sizzle would seem to certainly have gone out of Howard Dean’s steak (dang). Nary a day goes by that Mr. Dean doesn’t declare the Bush tax cut a miserable failure. He wants to repeal the whole tax cut. If Howard Dean is president, the capital-gains tax goes from 15 to 20 percent, the dividend tax goes from 15 to 40 percent, and the average family with two children and a $50,000 income will pay $1,300 more in taxes. That will really jump-start the economy.

The latest job and housing data are echoes of the stunningly positive GDP report that economic growth soared by 8.2 percent from July through September this year. But my analysis, with Club for Growth research assistant Phil Kerpen, indicates the underlying data are even more encouraging.

As I have noted many times, the GDP data is contaminated by the inclusion of government spending. When the government spends more, the official GDP grows, even though the government very rarely spends money efficiently.

In 2001, 2002 and the first half of 2003, the government was outgrowing the private sector in GDP. Much of that was a 20 percent surge in defense spending, but also a lot of new domestic pork spending. That’s not the kind of economic growth we want.

But the really good news in the latest GDP report is that the private sector is finally starting to percolate. In fact, in the third quarter of 2003, the private-sector growth rate was up an astonishing 8.5 percent. Hot diggity dog.

The tax cut has made one very other important positive contribution to growth, perhaps the most important of all. The stock market has soared ever since the tax cut was enacted. Since May 2003, the Dow Jones is up 14 percent and the Nasdaq nearly 18 percent. The folks at the American Shareholders Association report this stock-market adrenaline surge has increased American household wealth by more than $1 trillion.

This is just as supply-siders on these very pages predicted, and what the anti-supply-siders like Mr. Krugman and Mr. Reich insisted would not happen. The recent mutual fund scandals have taken back some of these gains, but this year’s stock market still promises to be the healthiest since 1999.

So what is not to like about the tax cuts? Americans are richer, the American economy is stronger and the stock market is a lot higher, thanks to the tax cut. Thank you, President Bush. You have proven once again what Ronald Reagan, Jack Kemp, John F. Kennedy, Calvin Coolidge and Adam Smith always knew to be true: Tax cuts are like steroids for a disabled economy.

And thank you, Mr. Krugman. Wrong again. We can always count on you for boneheaded economic analysis. You’re perfect record is safely intact.

Stephen Moore is a senior fellow at the Cato Institute.