Wouldn’t it be terrible if government cut its budget and the Federal Reserve didn’t increase the money supply during a depression? Well, that’s exactly what was done in 1920-21. Not only did the Earth not break free of its axis and go tumbling toward the sun, but the downturn was reversed in short order. Here’s my article on this issue. The YouTube is about to hit 50,000 views.
Tim Reynolds Says:
Hi Tom,
Great speech. During the Great Depression, successive Canadian gov’ts did exactly what you prescribe, that is, cut taxes and spending, and, yet, Canadians suffered a horrible depression (although not one Canadian bank failed). How do you reconcile these different outcomes?
Best,
Tim
Alan Says:
November 11th, 2009 at 8:43 pm
What did the Canadian Central Bank do during that time frame?
Anita Bonghit Says:
Apparently the Canadian Government didn’t do “exactly” the same thing. The US escaped the 1920 depression in less than 18 months because the allowed the economy to repair itself and they did not stifle business through oppressive taxation. There is a FACT of economics that when taxes go down revenues go up. Even John F. Kennedy knew that and lowered taxes during his short term to help the economy. The real problem is that progressive liberals don’t like facts that get in the way of their agenda. Progressive Liberals love oppressive taxation and believe they are the aristocracy.
woods Says:
I appreciate what you are saying, but it is not a law of economics that lower tax rates lead to higher revenues. They can, but this is an empirical rather than a theoretical question. (It’s obviously not true that if we lower rates from 11% to 0% the government will earn more revenue.) It depends on whether the existing tax rates are in the prohibitive range identified by Laffer.
Amonite Says:
Woods, check out the ‘laffer curve’. You can google it. Certainly 0% brings 0 revenue, but neither does 100% bring 100% revenue. (The majority of people would stop working under such a system, or the money flow starts moving through tax loopholes and to other states/countries that are less oppressive. Indeed, I believe everything above 50% is considered ‘the prohibitive range’ in which taxing any higher gets less and less return. And between state and federal taxes, and the hidden taxes we pay every day, one would be surprised at the high tax rate the upper tax brackets and businesses (which drive our economy!) are forced into paying while the lower brackets pay into the system very little or none at all.
woods Says:
I’m well aware of the Laffer Curve, having written the entry on it for a recent encyclopedia. The Laffer Curve does not say every single rate reduction will increase revenues. That holds true only if (for one thing) the initial rates are in the so-called prohibitive range.
Thomas E. Woods, Jr., is the New York Times bestselling author of ten books. A senior fellow of the Ludwig von Mises Institute, Woods holds a bachelor's degree in history from Harvard and his master's, M.Phil., and Ph.D. from Columbia University. Read more »
