Art Laffer is pessimistic about 2011:

the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

In 1981, Ronald Reagan — with bipartisan support — began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

From Edward Luttwak’s review of a 2007 Niall Ferguson book: “why was the 20th century so much more violent than earlier epochs of mankind? Ferguson’s answer is that, in this era, a particularly lethal mixture was compounded out of three specific factors: ethnic conflict with a racial dimension, economic volatility, and empires in decline.” Doesn’t it seem from time to time that some greater unrest or war is just around the corner?

This entry was posted on Tuesday, June 8th, 2010 at 6:46 am and is filed under business, Democrats, General, Religion, Republicans, War. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.