David Gitlitz, chief economist of TrendMacrolytics, said recently that while it's gone unreported by the mainstream press, capital investment has been the fastest-growing segment of the economy. Revised third-quarter GDP numbers showed capital goods expenditures - for equipment and software - growing at a 10.8 percent annual rate. The Commerce Department recently reported that new orders for non-defense capital goods, excluding aircraft, rose by 1.3 percent in October, are up at an annual rate of more than 14.5 percent the last three months and have grown by 10.7 percent in the past year.
Spending in Washington is always to be constrained, and deficits do matter when they are purely monetized by the Fed or simply used to raise taxes on labor and capital, but this economy of ours is growing, our labor markets are flexible and our capital markets are the best in the world.
In "The World Is Flat," Thomas Friedman reminds us that globalization is good and markets are being created where there were none before. Capitalism is spreading in Eastern Europe, India, China and Russia, and I continue to believe political liberalization will ultimately follow. This is the history of post-World War II, and it can be the post-Cold War history if we don't lose our confidence or lose our way and become protectionist, isolationist and xenophobic.
The major cause of our 15 straight quarters of 3.5 percent-plus economic growth, almost 4 million new jobs and revenues rising 16 percent to 17 percent per annum is the lower tax rates on capital gains, dividends and the income of our people.
To raise capital gains tax by 33 percent and to raise taxes on dividends by 133 percent, as some are suggesting, is mindless economics, counterproductive and dangerous to the health of our economy.
Economic growth is the only true way to meet the problems ahead. Where necessary, we must use public-private partnerships to aid the poor and enterprise zones to create urban jobs, spread entrepreneurship and job creation to the Gulf Coast region. We must unleash the homebuilders of America to help rebuild the housing stock of that region with incentives discussed by the president in his speech to the nation from New Orleans in September.
Congress, the chairman of the Fed and the opinion-makers of America need to show some confidence in the ability of our democratic-capitalistic economy to meet these challenges, and while they may be great, our response should be good pro-growth policies and faith in free markets, free people, free enterprise, free trade.