Monetary Policy, Taxation, and International Investment Strategy

By Victor A. Canto; Arthur B. Laffer | Go to book overview

2
World Money and U.S. Inflation: Part I

VICTOR A. CANTO AND ALEX WINTERS

The ubiquitous nature of inflation and recession across countries in various degrees in recent years justifies labeling the phenomenon global rather than national. 1 While talk of economic "interdependence" is widespread, economic policy is still perceived as national in scope. Economic policy initiatives proceed on the premise that economies of different nations are, at best, only loosely connected.

This isolationist frame of mind has been most notable in the design of policies to control inflation. Experience, however, lends credence to the notion that domestic factors alone are not sufficient to explain domestic inflation. Moreover, policy implications that emanate from a worldwide view of inflation are very different from those resulting from a closed economy perspective.

Whether true or not, one can imagine that the monetary authorities could control a closed economy's money supply--say, demand deposits plus currency. In the world economy, however, control, as a practical matter, borders on inconceivable. The role of any one country's monetary authority--such as the U.S. Federal Reserve Board--wanes dramatically in the perspective of the world.

Money is, after all, one of the easiest commodities to move across national borders. Banks and other financial institutions operate in numerous U.S. and foreign locations. Even when the foreign operations are not direct subsidiaries, correspondent relationships and other close associations have been developed. Money markets, not only within the United States but also in the world economy, are closely interrelated by this vast financial network. 2 The advent of floating

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Monetary Policy, Taxation, and International Investment Strategy
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures ix
  • Tables xiii
  • Introduction xix
  • Note xlii
  • PART ONE MONETARY POLICY 1
  • 1: Capacity Utilization and Inflation 3
  • 2: World Money and U.S. Inflation 13
  • 3: Alternative Monetary Theories of Inflation 25
  • 5: The Quality of Inflation Indicators 80
  • 6: The Yield Curve 87
  • PART TWO - FISCAL POLICY 93
  • 7 - Bush's Economic Agenda within a Supply-Side Framework 111
  • 8: Tax Amnesty: The Missing Link 113
  • 9: Fifteen Percent is Fine, but Indexing is Divine 123
  • Notes 144
  • 10: Stylized Facts and Fallacies of Capital Gains Tax Rate Reductions and Indexa tion 147
  • 11: Friday the 13th 157
  • 12: Debt and Taxes Are the Only Certainty 165
  • Note 173
  • 13: Borrowed Prosperity 175
  • Notes 187
  • 14: The Savings Monster 189
  • 15: Are We Climbing the Wall of Resistance toward National Health Insurance? 209
  • PART THREE INTERNATIONAL ECONOMIC ISSUES 219
  • 16: Tax Rate Reductions and Foreign Exchange Rates 221
  • Notes 230
  • 17: The Trade Balance 233
  • 18: National Paedomorphosis 241
  • PART FOUR PORTFOLIO STRATEGIES 255
  • 19: Part I: The Legend 257
  • Notes 267
  • 20: Part II 269
  • 21: The Small-Cap and State Competitive Environment 283
  • 22: International Stock Returns and Real Exchange Rates 301
  • Notes 320
  • Index 321
  • About the Contributors 327
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