Tuesday, October 19, 2010

Cometh the hour...

Cometh the man...let us hope a leadership transition is imminent.

To this day commentators on the right and left attribute the arrest of inflation to the Volcker Fed’s austerity, but the greater truth is that the dollar is a political concept more than anything, and with markets well ahead of polls in terms of pricing in a Reagan victory, the dollar started to correct upward as it became apparent that a politician who understood the importance of a strong dollar would be elected the following November.

In concert with the dollar’s rise, other pro-growth policy changes started to heal an economy that establishment thinkers had left for dead. The old “new normal” was quickly discredited as a better policy mix bolstered the desires of the ambitious to produce.

On the regulation front, rules meant to block the natural evolution of commerce began to be rolled back during the Carter years, and continued under Reagan. This was essential in that far from stabilizing economic activity, regulations inhibit natural growth as businesses must become expert on dealing with rules, as opposed to growing the business itself.

In terms of income tax rates, we began the 1980s with a top tax rate of 70%, but by 1986 Reagan helped push the top rate down to 28%. Government spending is simply another form of taxation, and while Reagan never achieved the cuts he desired, spending as a percentage of the economy’s actual size declined.

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