The real question we gotta ask ourselves is, are we in a "new era", or,
if not, how long the current equity pyramid charade can continue.
Larry Kudlow has been one of the economists pounding the table that
we're in a "new era", so here's his take on the 20th century, which
I'll cut and paste below:
Kudlow calls it "democratic capitalism" that half of all U.S. households
now own shares of stock. By contrast, most market bears believe that
the widespread ownership of stocks is a certain omen that the end of the
good times is near. But Kudlow believes economic freedom incents the
people who control the means of production and service to innovate and
take the risks necessary to bring even more prosperity.
It is interesting that we have come back full circle to an argument for
laissez-faire simply because, as we all remember, the invisible hand is
all-to-eager to flip us the bird. Still, it seems clear that there's at
least some truth to Laffer's list of four major prosperity killers:
1) high inflation and interest rates; 2) confiscatory tax-rates; 3)
government over-regulation, especially wage and price controls; and 4)
protectionist trade tariffs.
What IS interesting in the last 10 years especially is that a new class
of rich -- the rich from technology -- will exert a lot more control
over the government of the next 100 years, and technology people have
natural libertarian tendencies toward personal freedom, privacy, less
regulation, less taxation, and less trade barriers. We may actually be
living through the next revolution in which technology leads to money
leads to power leads to a creation of whole new levels of freedom for
the country and the world. Maybe my belief in this is far too utopian,
but I believe this is one of the more serendipitous consequences of the
information revolution, and one that heretofore has not gotten much
So here's the virtuous cycle: economic freedom incents entrepreneurial
freedom which begets innovation which in turn creates more economic
freedom and prosperity. Notes Kudlow, "The great technology advances of
the last twenty years -- micro-chips and micro-processors, personal
computers, software support systems, wireless telecommunications,
biotechnology, emerging nano-technology and, of course, the Internet --
have all marched through Reagan's open door policies of entrepreneurial
> In Praise of Economic Freedom
> by Lawrence Kudlow
> Thursday, December 23, 1999
> Comments: 13 posts
> As the curtain comes down on the 20th century, the U.S. economy finds
> itself in the 17th year of the longest consecutive period of prosperity
> of the past 100 years. This according to the Cambridge, Mass.-based
> National Bureau of Economic Research, the nation's principal arbiter of
> business cycle trends and turning points.
> Since 1982, the technology-driven U.S. economy has created over 41
> million new jobs, leading to the current unemployment rate of 4.1% and
> broad inflation measures barely registering above 1%. Record-setting
> inflation and interest rates held over from the 1970s have evaporated
> during the past two decades, while the household net worth of American
> families has increased by roughly $30 trillion.
> The stock market has gained 13-fold, with a total return of 13% per year
> after inflation and 50% of American households now own shares. It is the
> greatest example of Democratic capitalism in world history. And it is
> also changing the economic culture from government-dependence to
> wealth-creating markets and individual asset ownership. The new Investor
> Class is becoming the invisible hand in American politics.
> Cyclical threats
> Unfortunately, not all of the major 20th century economic cycles have
> been so blessed. Between 1929 and 1940, for example, economic growth
> averaged less than 1% annually, while unemployment averaged 20%. The
> stock market lost nearly 1% per year during the 1930s. Between September
> 3, 1929 and July 8, 1932, the market value of the nation's greatest
> corporations declined an incredible 89%.
> During the 1970s, America experienced the twin evils of high inflation
> and rising unemployment. Real living standards declined steadily,
> productivity lapsed, profit quality deteriorated and the American spirit
> collapsed. Between 1968 and 1982, stock market investors lost roughly
> 60% of the inflation-adjusted value of their portfolios in the worst
> post-war bear market.
> This economic decay was a sharp reversal from the post-war prosperity of
> the 1950s and 60s. The longest bull market in stocks in the 20th century
> occurred between 1949 and 1968. Real economic growth averaged better
> than 4% yearly during this period, while both inflation and unemployment
> were consistently low. By the mid-1960s a less than 2% inflation rate
> was coupled with under 4% unemployment.
> Now, as we peer into the 21st century, the question for economists is
> what have we learned from the 20th? Why did some long cycles prosper
> while others blundered?
> The answer is economic freedom. The freedom to work, produce, invest,
> take risks, invent and innovate with minimal government obstacles. But
> the road to economic freedom in the 20th century was all too often
> blocked by circuitous twists and turns based on liberal Keynesian
> planning theories and intellectual distrust of entrepreneurship and
> Those cycles with freedom-enhancing incentives to promote high economic
> returns for both capital investment and worker effort -- such as the
> 1920s, the 50s and 60s, and the 1980s and 90s -- had enviable records of
> But those period of high government activism, such as the 1930s and 40s
> (abstracting from the war effort), and the mid-1960s to early 1980s,
> fell far short of the prosperity mark. In fact, other than the brief
> 1920s interlude, the role of government continued to expand throughout
> the 20th century until blocked by President Reagan's free-market
> I can describe it no better than my friend and mentor Arthur Laffer, who
> defines the precondition for optimal economic performance as the absence
> of four major prosperity killers: 1) high inflation and interest rates;
> 2) confiscatory tax-rates; 3) government over-regulation, especially
> wage and price controls; and 4) protectionist trade tariffs.
> The perils of government activism
> One hundred years ago, avant-garde economists embraced government
> interventionism and rejected unfettered capitalism. This was mainly in
> response to the painful monetary-based depression of the 1890s, as well
> as numerous social problems resulting from a population shift away from
> agrarian rural areas to the major metropolitan cities.
> The Progressive-Wilsonian era ignored the great post-Civil War to 1910
> long wave of technological-industrial innovation that produced record
> prosperity, wealth creation and a booming stock market for 50 years.
> Early century social thinkers and journalistic muckrakers lost sight of
> the spectacular rise of overall living standards and instead focused on
> the uneven distribution of income. So economic reformers revived the
> income tax, undertook rabid anti-trust busting, created the Federal
> Reserve System, child-labor laws, workmen's compensation and numerous
> regulatory agencies.
> Government activism accelerated during the collapse of the1930s.
> Presidents Herbert Hoover and Franklin Roosevelt turned a mild recession
> into a deep and long depression.
> Hoover, who I rate as the single worst economic president in the 20th
> century, signed the Smoot-Hawley protectionist tariff, and then raised
> the top personal tax-rate from 25% to 65% in order to balance a
> recessionary budget.
> Franklin Roosevelt deserves credit for his sunny personal disposition
> and optimistic vision of America. But Roosevelt's policies, especially
> after 1934, were counter-productive. Perhaps it can be said that the
> modest government spending stimulus was pro-recovery, at least in an
> economic stabilization sense. And certainly the legalization of
> collective bargaining for trade unions was a freedom-enhancing event.
> But most of FDR's industrial policies had an adverse effect on
> production and employment by mandating excessive wage rates that made
> labor overly expensive relative to capital. Hence both were largely
> unemployed. Later on, ironically, both Roosevelt and Truman were quick
> to use wage and pricecontrols when it served their political purpose.
> Also, FDR's industrial policies included highly punitive tax-rates,
> thereby violating even Keynes' pump-priming notions. Roosevelt took the
> top personal tax-rate to 90%, where it stayed until the Kennedy tax cut
> of 1964.
> FDR significantly raised the corporate income tax and the capital gains
> tax. What's more, he imposed special surtaxes on undistributed corporate
> income (undivided profits tax). The result of these punitive tax
> measures was a paralyzing influence on enterprise and investment.
> These tax hikes, along with Roosevelt's later extremism in the
> implementation of various industrial, anti-trust and labor policies,
> what the eminent economist Joseph Schumpeter called "anti-capitalist
> attitudes", smothered all manner of innovative risk-taking in the 1930s.
> Business felt threatened by New Deal attitudes and administrators.
> Entrepreneurs believed they were guilty until proven innocent, and thus
> technological innovation was virtually non-existent during the 1930s.
> The absence of economic growth in that decade can be largely traced to
> the tax, regulatory and intellectual biases against entrepreneurial
> The ups and downs of Post-War America
> Twenty years later President Dwight Eisenhower created a pro-business
> administration where the entrepreneur once again achieved a position of
> esteem. Though Ike did not lower the 90% tax rate, he enhanced the
> post-war movement toward expanded free trade and dollar-gold exchange
> stability. Near-zero inflation and trade liberalization exerted tax-cut
> effects throughout the economy, and economic growth responded.
> President Kennedy was less congenial to business (remember his assault
> on Big Steel), but he did launch broad-based tax reduction that
> ultimately brought the top personal rate down to 70%. What's more, JFK
> was a hard dollar man.
> Between Kennedy and Reagan, however, U.S. economic fortunes declined
> steadily. Johnson, Nixon, Ford and Carter combined for a murderers row
> of economic malfeasance. This was the high tide of Keynesian
> fine-tuning, with disastrous economic consequences. Of this group, Nixon
> exerted the most powerful negative influence on the economy. After
> Hoover, I rate him the second worst economic president of the 20th
> He was responsible for the launch of double-digit inflation by
> de-linking the dollar from gold and pressuring his Fed chairman Arthur
> Burns to unleash excessive money supply growth in order to win the 1972
> re-election. Interacting with unindexed personal tax brackets, this
> inflation caused a massive tax-hike effect that undermined economic
> Just as bad, the supposedly conservative Nixon unveiled a massive wage
> and price control program, including interest, dividends, profits and
> energy, that obstructed markets and thwarted the efficient allocation
> and distribution of resources. One way or another, wage and price
> controls remained in place until Reagan abolished them in the early 80s.
> Nixon was also the king spender on entitlements and other social
> programs. Lyndon Johnson's Great Society programs were launched in the
> late '60s, but they were funded by Richard Nixon in the early 1970s.
> And it was Nixon's overspending on Social Security cost-of-living
> adjustments and numerous other welfare plans that laid the foundation
> for the chronic budget deficits of the 1980s and 1990s (until recently,
> whererapid growth finally solved the problem, a vision predicted by
> supply-siders nearly 20 years ago).
> Reagan comes through
> Ronald Reagan broke through the stagflation of the '70s with a two-track
> approach that solved recessionary unemployment with marginal tax-rate
> reduction (the top rate was lowered to 28%) and ended inflation by
> enhancing the gold value of the dollar.
> Columbia Professor Robert Mundell, the author of these policy approaches
> and the last 20th century Nobel recipient for economics, recently told
> an interviewer that "Reagan's marginal tax-rate reduction and
> deregulation cleaned out the economic barn. The benefits of these
> policies continued spilling over into the 1990s."
> Future historians are likely to rank Reagan and Roosevelt as the
> dominant presidential influences of the 20th century in both economic
> and foreign affairs. For me it is interesting to compare and contrast
> the optimism of these two great leaders.
> Reagan's optimism was under-girded by a set of free-market policies that
> returned the entrepreneur to the center of the economy. Roosevelt
> optimism was backed by a set of government planning policies that pushed
> business free enterprise outside the circle of influence.
> Factually, the 4% economic growth performance of the Reagan-dominant
> 1980s and 1990s wins hands down over the less than 1% growth performance
> of the Roosevelt 1930s. True it was Hoover who buried Roosevelt in an
> economic hole, but let's not forget that Nixon, Ford and Carter provided
> Reagan with a devastating economic situation.
> At the end of the day, Reagan's pursuit of sound money, low tax-rates,
> deregulation, and free trade is really the great 20th century economic
> growth lesson that should become the 21st century vision. Reagan's
> policies reopened the door to entrepreneurial opportunity and
> technological advance.
> A future benefit
> The great technology advances of the last twenty years -- micro-chips
> and micro-processors, personal computers, software support systems,
> wireless telecommunications, biotechnology, emerging nano-technology
> and, of course, the Internet -- have all marched through Reagan's open
> door policies of entrepreneurial freedom.
> If these policies are continued into the 21st century, then the U.S.
> will succeed in producing not only an even faster prosperity rate, and
> the economic model of free-market capitalist entrepreneurship will
> forever replace discredited state planning socialist state planning, to
> the benefit of future generations worldwide.
> Lawrence Kudlow is chief economist at American Skandia Life Assurance
> Corporation. A version of this article originally appeared in The
> Washington Times.
Wow. We just experienced the last Saturday of 1999. The last Saturday
of the 1990's. The last Saturday of the 1900's. Heck, the last
Saturday of the 1000's. Ready or not, 2000, here we come...