Different River

”You can never step in the same river twice.” –Heraclitus

Pat Sajak (yes, that Pat Sajak) is back from a vacation in Europe, where he cut himself off from news, Internet, and the phone, and met lots of people, including Venetian gondoliers using cellphones. He had these thoughts:

Well, it turns out everyone doesn’t hate us. Most people are too busy taking care of their families or working or shopping to care much one way or the other. Without the prisms of CNN and “The Twin Times” of New York and Los Angeles to remind me of how terrible a country we live in and how despised we are, I had to rely on real people and actual events to show me the world, and it seemed to be a much more hospitable place.

As for the “wired” gondoliers, even they fueled the optimism. It’s becoming more and more difficult to keep a society in darkness. As that tool of dictatorships and despots and thugs is taken away, it will become impossible to hold the next generation in check. As people-to-people communication seeps into places like North Korea, goofballs such as Kim Jong Il will find it harder to convince people they are world-class athletes or brilliant scholars. It will be harder for terrorists to justify their means. And, yes, it will be harder to portray America as Satan incarnate.

There will be very tough times in the short-term future, as the wounded beasts of terror and tyranny strike to try to hold back the tide. But, if we can get over that hump, and continue to champion freedom and democracy in the world, the word will spread. It will find its way into all the shadowy corners of the earth, and the forces of light will prevail over the forces of darkness.

Tax cuts stimulate the economy by giving people more incentives to earn. If people get to keep a higher percentage of what they earn, that means a higher return on work and investment, so on average, they will work and invest more, and on average make more money. (Not ever individual necessarily — but enough people that the average goes up.) This extra income is also taxed (though at a lower rate than before). It is quite possible that the total income from all this extra working and investing could be so high that the total amont of money collected in tases is higher under the new, lower rate than it was under the old, higher rate. And the people will still have more money than before. In short, the pie can bigger, so everybody (both government, and individual people) can get a bigger piece. When there’s a tax increase, the opposite can happen — lower, even negative economic “growth,” and lower tax revenue.

Economically ignorant people — by which I mean to include most journalists, pundits, and lots of politicians — often scoff at the notion that tax cuts can increase the amount of money the government collects in taxes. They seem to think that the idea is not only wrong, but so self-evidently wrong that anyone who believes it is either a crank or a moron, or both. These are folks who think that the Laffer Curve is voodoo economics, and that Ronald Reagan and George W. Bush were/are morons for thinking that their tax cuts would not cause “massive deficits” because of lower tax collections.

Of course, these folks rarely check to see what happens after a tax reduction. If they did, they’d be very embarrased — and they the were honest, they’d have to change their minds. So I love to point this stuff out when it happens.

Here are some results of the Bush tax cut:

1. The unemployment rate is at its lowest level since September 2001. That rate is 5.0%, which is about as low as it can go and be sustainable. (The unemployment rate can rarely go to zero, because there always people changing jobs, leaving school, switching from at-home parenting to working as their kids get older, and stuff like that — everyone looking for a job in theory counts as “unemployed” regardless of why they are unemployed or whether they’ve ever held a job.)

2. Tax collections are rising, and deficits are falling:
   

   July 8 (Bloomberg) — Rising tax payments and a growing economy may push the U.S. federal deficit down to $325 billion or lower, a 24 percent decline from the previous estimate, the Congressional Budget Office said.

   The agency, in a monthly snapshot for fiscal 2005 that ends on Sept. 30, said tax payments and spending were running ahead of the year-ago pace. As a result this year’s deficit “will be significantly less than $350 billion, perhaps below $325 billion.”

   The White House is scheduled to issue its revised estimates on tax collections, spending and the deficit on July 13. In February, White House budget director Joshua Bolten forecast a deficit of $427 billion, about 3.5 percent of the nation’s gross domestic product.

(Hat tip for the good news: Clayton Cramer. Also found at Pejmanesque.)