The great “existentialist philosopher” Yogi Berra once famously said, “history is just one damn thing after another.” Of course the antithesis of Yogi was George Santayana, an equally famous philosopher who said wisely, “those who neglect the mistakes of the past, are doomed to repeat them.”As we listen to the promises and policy proposals of the Democratic (and some Republican) presidential candidates, all I see is dollar signs, the dollars rushing out of our pockets into government programs unlikely to succeed. History has shown, time and time again, that low taxes, including low tariffs, and liberal trade policies have driven each and every one of our nation's economic expansions. They have created jobs, lowered budget deficits and debts, produced massive growths in the GDP and driven America to the top of the economic pyramid. Even the poor in our country are infinitely better off than the poor in most of the world.
As I write these words in the dog days of August, with all the bad news of the subprime mortgage market, liquidity crunch and a fluctuating stock market, it's important to keep things in perspective and heed the words of Santayana, not Berra.
In other words, we should turn to history and its empirical evidence, and not give in to irrational decisions based on fatalism and the neglect of real history.
One such historical fact to remember is that the past 25 years have been the best stock market for investors in U.S. history. As the widely respected New York Times financial journalist Floyd Norris wrote (and blogged) recently, the Dow Jones industrial average hit bottom on Aug. 12, 1982, at 776.9, while interest rates were at 15 percent.
Since that date, the compounded rate of return from the last quarter of 1982 until this summer, circa 2007, has been 11.8 percent. Taking into account inflation, the rate of return has been 8.5 percent. Norris pointed out this quarter of a century is the best ever in U.S. history.
This remarkable achievement didn't just happen; it was the result of policy decisions in the 1980s, '90s and more recently – confirming the fact that lower tax rates on capital and labor, sound monetary policies, with open-market initiatives and liberalized trade, leads to stronger economic growth and rising values in equities.
We neglect these lessons at our peril.
As economist Art Laffer pointed out recently, “If these pro-growth policies that have led to our 25-year bull market are reversed, don't be surprised if our financial gains and competitive edge quickly disappear.”
While we as a nation have economic problems, solving those problems does not entail the use of higher taxes and more govenrmental programs. More of our Presidential candidates need a an economic history lesson.