Government can do anything the voters want; it only has to decide how to pay for it.  They can borrow the money, but if they act foolishly the lenders will worry about getting paid back and either not lend them the money or insist on such a high rate of interest that it will become prohibitively expensive.

They could raise taxes to fund their extravagant programs but we have repeatedly seen that increasing the taxes on the producers just makes them produce less and more likely drives the tax revenues down. Businesses find more hospitable countries and the redistributionists quickly run out of other people's money.

Inflation is the most insidious option because it raises costs of essential commodities faster than wages and thus hurts the poorest the most, who understand the cause of it the least.  They rarely comprehend that the hucksters who promised them free tuition, free food and free health care are paying for it all  by raising the price on their milk, Cheerios, gasoline, cigarettes, beer, lumber, shoes, tires, clothes and everything else they buy.

Still worse our progressive tax system magnifies the pain of inflation by pushing earners into a higher tax bracket to retain the same buying power. Their purchasing power goes down while taxes go up.

Inflation seems on the horizon yet prices have remained flat for over a year and wages are actually down. Inflation is a factor of the amount of money in circulation and the velocity of the money- how fast it circulates. Trillions of dollars are sitting in very low yield money market funds and other low risk vehicles because of the political uncertainty from radical new legislation and pending tax increases in various forms.

Another factor limiting inflation is the currency scares in  Greece and Europe, and some concern in China.  Sometimes you do not have to be good; you just have to not be the worst.

Investors and business people are taking profits this year because of the announced tax increases next year.  No one is hiring, no one is investing, and no one is lending.  No one want to make a long term loan if interest rates are expected to climb, and when interest rates are near zero there is really only one direction to go. We face the toxic blend of dramatically increasing inflation and regulation.  Businesses are frozen in a bunker mentality.

If the Republicans sweep Congress in November there will be a willingness to re-engage in the economy, and this will increase the velocity of money and trigger the inflation that is currently bottled up in uncertainty. This would require a tax cut to keep the wage bracket creep from pushing people into a higher bracket  in effect raising taxes and thus choking off any recovery when prices start heading to the roof.

We need to do more than just reduce taxes on business. We need to create some comfort and consistency that they will remain low.  Nobody is likely to make long term commitments when they are concerned that tax and regulatory policies can radically change every two to four years. The extreme actions of the Democrats in control have severely hindered our recovery; but counter measures from the Republicans, even if economically correct, will not restore the confidence that is needed without some political unity to create the conditions to keep the business environment receptive.  This requires a change in more than political parties; this requires a change in political culture.  This is a much more difficult change to make.

Henry Oliner

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