- - Monday, March 19, 2018


Bad news is bad, and sometimes good news is bad, too. This is the view of certain economists who are suddenly frightened by record low unemployment and bigger paychecks. As a famous make-believe king of Siam was fond of saying to Anna about something he didn’t understand, “It is a puzzlement.”

Wall Street wise men have decided that the economy is overheating, and the economy designed and delivered by Donald Trump, who can’t seem to do anything right, is in peril. “Inflation is lurking.”

We can’t imagine a better problem for a country to have than an unemployment rate at a 17-year low and an economy that’s creating too many jobs. Bring it on. Does anybody want to return to the immediate past, when no one had to be frightened by spectacular economic growth?

Mr. Trump’s critics complain that the economy is running past its productive capacity, and predict that faster growth in the age of Trump simply can’t persist without a burst of consumer-wrought inflation.

But that’s nonsense, bottled in bond at 120 proof. The big growth decades of modern times were the 1960s, the 1980s, and the 1990s, with growth at 4 percent and sometimes even 5 percent. Inflation in these decades was low, and in the eighth and ninth decades of the century just behind us inflation and interest rates actually fell. Wages rose in each of these periods, but there was no wage-push inflation because the money supply was stable and productivity rose, too.

The myth that faster growth always causes inflation dates from the late 1960s, when economists weaned on the fairy tale of John Maynard Keynes taught it to an entire generation of gullible students as if it were an iron law. Harder-eyed students of history, who know better than to take a professor’s speculation as Gospel, know that the Keynesian model blew up in the Carter years with “stagflation:” Higher inflation and restrained production. The problem then and now then is that gullible economists and Wall Street gurus are incapable of distinguishing between policies that expand the supply of goods and services against policies that expand merely the demand.

Going back to basics would be instructive. Inflation is too many dollars chasing too few goods. But is that a problem now? President Trump’s $1.5 trillion tax and regulatory policies will produce more goods and services, not fewer. The tax-rate reductions on small and large businesses increase incentives for those firms to invest and hire more workers because profits and investment will be taxed at a lower rate. This increase in investment and production, in everything from potato chips to laptop computers, doesn’t raise prices.

After anemic rates of investment during most of the Obama years — especially in 2015 and 2016 — in structures, computers, machinery and other things — have more than doubled, according to the latest data collected by the Commerce Department. That’s up by 6 percent.

More dots must be connected. More dollars invested translates directly to a more productive workforce, which then triggers higher real wages for workers. It’s a virtuous cycle. The winners are American workers who haven’t had a significant pay raise since the late 1990s.

Mr. Trump’s policies have increased the demand for workers and the tightening labor market is bidding up wages. There’s encouraging evidence in the news at Walmart and Costco, two of the largest retail employers. Starting wages have increased to $11 to $13 an hour, up from $9 an hour, not because of a government-imposed minimum wage, but because of competition in the market.

The Trump bonuses are symptomatic of this, too. Five million workers at FedEx, Verizon, ATT, Home Depot and others have received bonus checks of $1,000 to $2,000 over the past three months in the wake of the tax cut. Employers must retain their workers, and in this naturally juiced-up economy, bonuses, benefits, and pay increases are the always reliable way to do that. Those may be crumbs to Nancy Pelosi, but for many workers it tastes a lot like cake.

Our friends on the left got it wrong about the tax cut, with their “tax cuts for the rich” trope. The tax cut was not designed to benefit Warren Buffett, Jeff Bezos or Bill Gates. Cutting business taxes, as every perceptive economist knows, is a middle-class tax cut.

Trump economics is based on the premise that prosperity doesn’t cause inflation. It never has and never will. Economists on Wall Street — and on the Potomac — should pay closer attention this time.

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