by Gary Alexander

July 19, 2022

I’ve just returned from the 15th official Freedom Fest (2020 was cancelled by Nevada’ governor and 2021 was held in South Dakota, since Las Vegas was still closed to most conventions). As it turned out, this was the last Freedom Fest in Las Vegas, as next year’s fest will travel to the Soul of Liberty, Memphis!

I’ll limit this summary to a few Thursday morning nuggets of wisdom from economic advisors Arthur Laffer and Steve Moore, both of whom were economic policy advisors in the Reagan White House. In 2017, Laffer and Moore co-wrote a book, “The Wealth of States,” comparing the economic policies of our 50 states. In that regard, Laffer gave a talk Thursday expanding on that theme with new research.

But first, Art always likes to open with a joke, so he asked, “Why are so many investors now investing in Ireland?” Some of us answered, “Because of their lower capital gains taxes.” Laffer agreed, saying that is part of the answer, but the real answer is: “In Ireland, your capital is always Dublin’” (Cue laugh track).

Down to business: In the bulk of his talk, Laffer disclosed results of his forthcoming book, to be released this fall, about the failing economic health of the 11 states which installed state income taxes in the last 60+ years, starting with West Virginia in 1960 and ending with Connecticut in 1991. (The other nine states are Maine, Rhode Island, New Jersey, Pennsylvania, Ohio, Michigan, Illinois, and Nebraska.) He measured their economic health in terms of population growth (or retraction), their gross state product, and tax revenue vs. the other 39 states. He compared the three years before their income tax imposition vs. the latest three years, and he found that in all states, by all metrics, the 11 states that imposed state income taxes were worse off, economically, than those in the other 39 states, and often by a large margin. For instance, Michigan’s share of national GDP fell by about half, from 5.1% of national GDP to 2.7%.

Then he examined why they raised taxes – to improve schools, to provide pensions, to improve roads, and so forth, and he found that nearly all of the 11 states that raised taxes had fallen off in all those categories. The key, he said, is that people can (and do) easily migrate to more tax-favorable states. A quick look at that list of 11 states (above) shows that most are in the Northeast or upper Midwest, while most older Americans or mobile workers are opting for the Sunbelt or those states with lower taxes. Laffer said that the proven formula for success is a lower tax rate with a broad base that doesn’t scare away business.

Speaking of business, Steve Moore made a couple of excellent points in Thursday’s opening “Global Economic Summit” along with moderator Roberto Salinas (from Mexico), Jim Rogers (now living in Singapore), Barbara Kolm (from Austria), and Preity Upala (from Dubai). Moore revealed that a new study he undertook with his associate Jon Decker found that of the top 68 Biden appointees (including cabinet members), 62 percent of those who deal directly with business, economic policy, regulation, energy, finance, and regulation had NO business experience. Only one in eight had “extensive” business experience and their average experience was 2.4 years – yet now these 68 are in charge of a $22 trillion enterprise?! As a result, Moore said, we have lawyers, professors, and community activists creating policy.

This has resulted in a repeat of the Angela Merkel experience Germany – Modern Monetary Policy and extreme Green policies that are now crippling Germany – only we are about five years behind Merkel’s disaster. In 2015, Merkel was TIME Magazine’s “Person of the Year,” but now Germany is “the sick man of Europe” according to The Daily Telegraph. Merkel basically decided to Go Green while relying almost entirely on Putin’s natural gas, a terrible gamble. She also refused to pay the mere 2% of GDP required for their NATO defense shield, so once again Europe has to rely on Uncle Sam for its defense against Russia.

This Isn’t Mr. Putin’s Gas Tax

Several speakers were from the energy business, and nearly all took offense to the Biden brain trust’s mantra of calling high gas prices “Putin’s gas tax,” or hearing him calling on “greedy” gas station owners to roll back prices when their profit margins are already so narrow that they need to sell junk food, beer, coffee, and lottery tickets to make money. In my opinion, the Biden crew obviously misunderstand this business (and most others). There are about 150,000 retail gas stations in the U.S., and big oil companies own only about 5% of them; 95% are small mom & pop operations with low profit margins of $0.10-$0.15 a gallon.

To make a mockery of such claims, I rolled back the clock to a March column I wrote here, when I posted some inflation charts, Pre-Ukraine invasion. Inflation’s primary cause, I said, was adding $6-8 trillion in money through “stimulus” spending and the Fed’s “quantitative easing” (QE) in 2020 and 2021.

Here are a couple of charts I showed with inflation rising sharply through February 2022, pre-Ukraine.

Consumer Price Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Here is the more dramatic increase of the CRB Raw Industrials spot prices, and the copper future prices, both of them doubling in the two years before the invasion of Ukraine on February 24, 2022.

Commodity Price Index and Copper Futures Price Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Europe (notably Italy and Germany) launched Modern Monetary Theory about nine years ago with QE and zero interest rates, but Dr. Stephanie Kelton wrote the MMT textbook as COVID began to spread: The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, published in June 2020. Basically, MMT proposes that a sovereign government can spend new money with abandon, creating full employment and widespread prosperity – as long as it prints its own currency.

Most economists, even pro-government Keynesians like Dr. Lawrence Summers, reject this “free lunch” formula, since history shows that inflation is inevitable, usually leading to hyper-inflation, but the MMT crowd says that this can be fixed with higher taxation. (Sure, try raising taxes in an election year – or any year when household prices are rising rapidly.) This is not a new theory, just an academic gloss on an old joke. Milton Friedman used postulate “helicopter money” as a solution to any social problem – just drop dollar bills out of the sky. Former Fed Chair Ben Bernanke repeated this and became “Helicopter Ben.”

As a couple of speakers on our Global Economic Summit (Barbara Kolm and Steven Moore) said, MMT is neither modern (over-spending is as old as time), monetary (it’s the spending, stupid), nor a theory – it’s a reality! From February 2020 – before COVID struck – through February 2022, the U.S. Treasury’s debt load held by the public grew by $6.1 trillion, from $14.8 trillion to $20.9 trillion (+41.2%). As a result, M2 money supply soared by $6.4 trillion, from $15.4 trillion to $21.8 trillion (+41.6%).

M2 Money Supply and Deposits Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Congress, the Fed, and Presidents Trump and Biden must share the blame for this experiment, although the economic emergency was far more severe in 2020 than in 2021, when millions of jobs went begging and stimulus checks were no longer needed. In 2020, the stimulus created a “V” shaped recovery, so the money pumps could have been shut off far earlier, by the Fall of 2020, but that did not happen.

Real Gross Domestic Product Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Not surprisingly, Fed Chair Powell is among the inflationary deniers, He also blames Putin for it. In his March 16, 2022, post-FOMC press conference, Powell blamed Russia for commodity inflation when the charts above show that most of it was already in place. To solve the problem, Powell said the Fed would use the Fed’s “tools” (using that word 18 times), when a single tool was all he offered – raising rates.

High taxes? High rates? Recession? Deep deficits? Higher inflation? There is no free lunch with MMT!

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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