My last piece ‘The Matrix Exposed’ generated a bit of a stir. And as per usual the PhD’s had some fairly colourful things to say to me regarding the notion that more money and more credit may actually stall an economy. But look I’m not trying to be offensive to anyone. I’m simply making a case that when consumer credit becomes the basis of growth, well you have a real problem. And that is a pretty reasonable argument even without the hoards of data backing it up.
But so allow me an attempt to mend some bridges. Let’s start by looking at the various existing frameworks that drive economic policy. We have Monetary policy (the banks), Fiscal policy (Congress), Microeconomic policy (Corporations). So let’s look at each.
Let’s begin with Fiscal policy. The very first issue that should jump out to everyone is that Congress has been utterly ineffective for almost 2 decades now. That is because the partisanship has become so intense that there simply seems no room for compromise in an effort to get any reasonable piece of legislation done. What we are left with is a slew of outdated fiscal policies. Perhaps most detrimental is a corporate tax rate nearly twice that of many other developed nations.
The problem with relatively (to other nations) high corporate tax rates is it means that any domestic investment, everything else equal, has a significantly longer breakeven point. Said another way, the return on domestic investment is much lower than the return on foreign capital investment (ceteris paribus). This is a very intuitive concept, easily digestible by all. The implication is that the relative level of corporate tax rates here in the US incentivize corporations to invest elsewhere.
This post was published at David Stockmans Contra Corner on September 16, 2016.