America's resilient, durable, flexible, market-driven economy --
which features the lowest central-planning influence of any of the 30 major
world economies -- continues to surprise the pessimists.
With numbers now in for third-quarter gross domestic product,
the U.S. economy has maintained a solid, if unspectacular, recovery over the
past year. It has grown at a 3 percent rate, with 3.6 percent growth in the
domestic economy (real gross domestic purchases), since the end of the
recession a year ago. That's solid. The unspectacular part is that
first-year recoveries have typically run in the 5 percent to 7 percent
range. But let's be thankful that the American economic machine is in fact
growing at all.
We can't forget that the onset of war a little more than a year
ago, in the wake of the terrible bombings of the World Trade Center and the
Pentagon, virtually closed down U.S. commerce and financial operations for a
time. So, in producing 3 percent growth, America has performed admirably.
This should shutter partisan arguments that President Bush has failed on the
economy.
Of course, the Democratic Party, in full-campaign stride, is out
painting a picture of an ever-present and terrible recession. But a
combination of modest tax cuts and a monetary nudge from the Fed has helped
generate economic recovery instead of a widely forecasted and prolonged
downturn. The consensus of economists who made that recession forecast
following the terrorist attacks gave new meaning to the term dismal science.
And they were dead wrong.
The pessimists also missed on the technology sector. While tech
stocks have taken a lot of the heat for the worst stock-market correction in
decades, rapid productivity gains from the application of technological
advances continue to work inside our $10.5 trillion GDP. Share prices for
tech-based companies have faltered, but this sector is now sending out signs
of recovery.
In the new GDP report, business investment in equipment and
software increased 6.5 percent at an annual rate in the third quarter -- its
best performance in two and a half years. Business spending on durable goods
increased 23 percent annually. Computer sales are up, rising at a 75 percent
annual rate in the most recent quarter. Wireless is doing well, with
top-line sales and profits at Nextel, Verizon and AT&T coming in
surprisingly robust. And customer demands for cable and broadband are
spiking, if Comcast is any measure of performance. In short, the tech sector
is waking from its long sleep.
And so is the stock market. With overall corporate profits
rising by roughly 20 percent in the third quarter, backed by a 3 percent
growth-trend in the overall economy, the U.S. stock market has now
established a firm base from which future increases can no longer be in
doubt.
The only thing in doubt is the speed at which we are capable of
growing. And to figure that out, we may have to look to Washington.
If Congress and the White House return growth-minded from next
week's election, they can get right to work by eliminating the double and
triple taxation of dividends and other forms of investment. Such a policy
action could put profits from the sale of stocks and homes on an equal
footing where they belong. Next, new business start-ups, which are the
engine of employment, should be made tax-exempt in their early money-making
years, and then taxed at half the normal rate for a few years thereafter.
Growth-minded policymakers should also speed up the arrival of
the Bush income-tax cuts passed in 2001. What's more, they should make
permanent the across-the-board tax-rate-reduction program and the 30 percent
cash-expensing bonus for business write-offs of new equipment. Finally, the
Federal Reserve should be encouraged to inject more cash into the economy.
This would stabilize business prices, finance growth and improve our
potential to expand.
On the other hand, there's always a risk that policymakers might
embrace the Great Society leftover plans now being suggested by numerous
Democrats on the campaign trail. This would be a stupid step backward in
history toward liberal Keynesianism. But the likeliest voters -- those who
are shareholders and business owners -- can be counted on to reject the
anti-growth consequences of increased spending and higher taxes.
Surely the prosperity of the past two decades has proven that
business investment is the key to growth. It is our businesses that create
jobs and the income that sustains consumer spending. But capital formation
is essential to those businesses. We must strive to make the tax cost of
business capital in the United States the lowest in the world.
And let's not forget, a vibrant economy at home is necessary to
produce the military and national-security resources that are so essential
to the spread of freedom and democracy to the darkest corners of the world.
Notebook