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What The Market Is Telling Greenspan


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Larry Kudlow

The stock market’s performance on Friday is telling Alan Greenspan that’s he’s totally wrong. There is simply no inflation threat from the so-called diminishing pool of available labor (which, by the way, actually sounds a lot like Karl Marx’s “Reserve Army” of Labor, which was supposedly necessary to sustain capitalism). It’s sort of ironic that Greenspan, a free-market follower of Ayn Rand, is relying on quasi-Marxist theories of labor economics.

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The basic message here is that the market is trying to tell Greenspan that wages are moderate, productivity is strong, inflation outside of a temporary oil spike is non-existent, and the economy will live happily ever after — provided that the Fed does not attempt Soviet-style central planning and interest-rate fine tuning.

COULD IT BE BUSH/McCAIN?Turning to politics, the debate last week could turn out to have been a seminal event, prologue to tonight’s debate. For the first time, it presented us the strong possibility of a Bush/McCain ticket — and I think that’s a good ticket. In many ways McCain is a conservative Colin Powell — i.e., if we decide that we need a strong Eisenhower type military presence, someone experienced in foreign policy, I’d rather have a conservative like McCain than a Colin Powell.

I think Steve Forbes made a huge mistake obsessing over the raising of the retirement age. He wasted valuable time he could have used to explain in greater detail his own tax cut plan and generally reaching out to the investor class. He also came across as a huge attack dog — which just doesn’t play to the soccer-mom vote.

Almost as important as the new investor class is the Internet. The volume of people going online in commerce and retailing is huge, and growing exponentially.

Governor Leavitt’s approach is completely wrong. Any governor who lines up with him will be hurt in the polls. What you have to do is figure out a way to decrease land-based taxes instead of increasing cyber-taxes, because ordinary people are overtaxed.

Ever since Reagan made it unfashionable to raise the income-tax rate, governors and mayors have been raising fees and user charges; it’s nothing more than a big tax grab. Worse, state and local taxes are growing three and a half times the inflation rate — what do they need this money for anyway?

While Forbes came out on the right side on the tax moratorium, McCain was the only one who made the Laffer-curve point. Lower Internet taxes will produce more economic growth in general, and that growth will produce more than the necessary tax revenues across the board. McCain is too heavily influenced by Rudman and the Concord Coalition in terms of their pessimism about economic growth and entitlements — late-’80s issues — but he has an A+ position on the tax moratorium.



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