Now that we have a new president a lot of Americans think that their lives are going to get better. Unfortunately, while we may have changed presidents, the laws of economics haven’t changed one iota. It appears that Barack Obama will initiate policies that will quickly deteriorate the economy and make him and the Democratic Party very unpopular.
The Republicans were thrown out of office because they were doing a bad job of handling economic matters. Their chief mistake was promoting an easy-money policy which went a long way toward creating the housing and stock bubble that burst just at election time. Further, Republican crimes against the economy include profligate spending, protectionism and the introduction of more government programs.
The voting public, being completely pragmatic about these things, threw the rascals out. Now, however, the country badly needs an administration that will make things better by making the right economic moves.
To the best of our knowledge the answer to making the economy better is “supply side economics.” The most important keys in supply side economics are low taxes, few regulations, sound money, unhampered foreign trade and a legal system that protects property rights.
The Bush administration and Republicans did well on the tax part of the supply side picture but did badly on the sound money. On the rest of the supply side keys they were moderately bad. Therefore, the electorate threw them out.
Now Obama and his regime enter the picture.
All indications made prior to the election are that they will go in the direct opposite direction from what they should do to achieve good improvement in the economy. They appear intent on increasing taxes especially on those evil rich people, causing inflation with huge spending increases, inflicting more regulation on business, imposing protectionist measures on international trade and giving the unions and the legal community more powers to pillage America.
Economic laws remain unchanged whether or not we choose to follow them. The penalties for violation of economic law will remain stiff no matter who is in office. However, with modern communications and information technology the penalties are inflicted faster and more thoroughly.
One of the great ironies is that while some Republicans and most Democrats have decided to ignore the natural laws of supply side economics, large parts of the rest of the world are starting to embrace them. Wherever supply side economics have been applied the economic benefits have been swift and large.
All over the developed world tax rates are coming down. Ireland has gone from being the poor step child of Europe to being the most prosperous country in Europe. Even Germany and France are moving to cut taxes and welfare programs. The Soviet Union of all places has adopted a 13 per cent flat tax with a resulting huge increase in tax revenue.
China and India are adopting supply side policies with great success. It appears that only in the United States is supply side economics in low esteem.
This means that if Obama and his regime start a wholesale assault on business and the free market, there are now many places for capital to flee where it is more appreciated and treated better.
Some capital will flee the country some capital will simply go into hiding and wait for a better day. One inevitable result will be that the average American will take a severe economic beating.
Since Obama is a very smart man he may realize some of these realities and act accordingly.
He can preserve the power of the Democratic Party by introducing his proposed economic changes very slowly or not at all.
So far there is no indication of this. In fact, Bush tax cuts will probably be allowed to lapse so the nation will be hit soon and suddenly with a huge tax increase where it hurts the most, in capital formation.
Therefore, there is a great potential for the Democrats will lose a lot of their power in the next election.
Meanwhile, there is a dire need for the Republicans to retrench, return to their base and come up with some real leadership.