Real Growth

I truly like Cactus at Angry Bear, though at times, he requires a Translator. An example is this Post by him. It begins with a declamation of utilizing straight average growth rates instead of the geometric mean; not bothering to explain the reasoning behind that decision (simply put: it remains a methods to eliminate Highs and Lows from distorting the data). He also needs to learn the ‘Cut and Paste’ practice of putting a discernable Table in a Post (Don’t think this is easy; it is the reason I never use Tables or Graphs). The basic contention remains that keeping Taxes constants outperforms both Tax Cuts and Tax Hikes, as determined by the statistical growth ratios over the last 25 years. It is a truism! Cactus makes the Contention that Tax Cuts imposed during one Administration, brings slower Growth in Successor administrations. Also True!

Where Cactus fails in his Post comes in his assignment of the slower Growth to the lessened capacity of Government spending. Actual curtailment of Government spending would actually lessen Growth rates, but suppression of the growth of Government spending will not have an adverse effect on overall economic growth. Why then does maintaining Taxes constant, or even introducing Tax hikes, perform better than Tax Cuts?

The Answer lies in superfluous Investment–financial instruments introduced to act as a Middleman between real Investment in Plant and Material and the Retail of Products. Tax constancy acts as a brake on Money Supply (see my previous Post), Tax hikes acts as a Contraction of Money Supply, and Tax Cuts spurs both the Money Supply and superfluous Investment instruments. The later actually sap Business Profits by artificial financial Charges, and raise overall Pricing in all Markets. It is real Investment in Plant, Material, and R&D which promotes actual economic growth. lgl