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 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."
Make no mistake dear readers, listening and watching the presidential candidates in the Democratic Party debate over the economy, I believe they are all headed in the direction of higher tax rates, and protectionist trade policies. Have they all forgotten John F. Kennedy in the early 1960s and indeed Bill Clinton in the 1990s? Where, oh where is the pro-growth, pro-trade, pro-internationalist wing of the Democratic Party? Except for Joe Lieberman, they apparently no longer exist.
Some history for all of us, 25 years ago, there was a mighty revival of classical economics led by two young economists named Robert Mundell of Columbia University and the aforementioned Art Laffer then a professor at USC.