Paul Krugman, Howard Dean, and Robert Reich are having a rough time of it these days.
The recent news 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 has made the tax-cut critics look a little silly.
Krugman, Dean, and Reich have made a profession out 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 he wrote a rambling four-page article for the New York Times Magazine called “The Tax Cut Con.” It argued that 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 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 kids and a $50,000 income will pay $2,200 more in taxes. That will really jump start the economy.
The newest job data comes right smack on the heels of the stunningly positive GDP report which showed that economic growth soared by 7 percent from July through September this year. But my analysis, with Club for Growth research assistant Phil Kerpen, indicates that the underlying data is even more encouraging than that.
As I have noted many times on these pages, 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. Bad news. But the really good news in the latest GDP report is that the private sector is finally starting to percolate. In fact, in the 3rd quarter of 2003, the private-sector growth rate was up an astonishing 8.5 percent. Hot diggity dog.
This is what we’ve been waiting for. Here is the data:
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 of 2003, the Dow Jones is up 16 percent and the Nasdaq nearly 20 percent. The folks at the American Shareholders Association report that this stock market adrenaline surge has increased American household wealth by more than $1.2 trillion. This is just as supply-siders on these very pages predicted, and what the anti-supply siders like Krugman and Reich insisted would not happen.
Is a return to a 10,000 Dow and a 2,000 NASDAQ just around the corner? Ask Larry Kudlow that one. But one thing is certain: 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.
And thank you, Mr. Krugman. Wrong again. You’re perfect record is safely intact.
– National Review contributing editor Stephen Moore is president of the Club for Growth.