History Lesson

The Obama/Geithner solution to high unemployment is to not only print money (de-value currency), but also to raise taxes, a solution that has never worked in the past. I thought it would be interesting to take a look at the opinion of another when it comes to trying to solve the economic crisis that we are currently experiencing.

“It is a paradoxical truth that tax rates are too high today, and tax revenues are too low. And the soundest way to raise the revenue in the long run is to cut the rates now. The experience of a number of European countries in Japan has borne this out. This country’s own experience with tax reduction in 1954 has borne this out also. And the reason is that only full employment can balance the budget. The tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous expanding economy which can bring about budget surplus.”
-President John F. Kennedy (1962)

Unfortunately, President Kennedy was assassinated in November of that year. His successor, Lyndon Johnson, pushed the tax bill through in Kennedy’s name, and signed it into law in February 1964. In 1965, as Kennedy predicted, revenues were flooding into the Treasury. That year, the government was on track to run a $3 billion surplus. Employment rose as the tax cuts led to increased demand for dollars (which supported the dollar’s value), and the recession ended.

Maybe history can teach us something.

Till next time,

Bill



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