Monetary Policy, Taxation, and International Investment Strategy

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

3
Alternative Monetary Theories of Inflation: Part II

VICTOR A. CANTO AND ARTHUR B. LAFFER

Legend contends that once upon a time a big man in acceptable physical condition, but most of all a New Yorker, was confronted by four toughs on his way home after an evening on the town. Choosing discretion over valor, he ran like the blazes with his four assailants in hot pursuit. One by one, his pursuers flagged and dropped out of the macabre chase until only one remained. At this point, the New Yorker stopped, turned around, and retraced his steps, confronting each assailant one by one and beating the living daylights out of each of them.

Arguments for monetarism also are numerous and, on their surface, seem invincible. However, when confronted openly and explicitly, one by one, each of the arguments collapses under its own weight. This paper is the second in our monetary series and focuses on different variants of a common theme: M1 monetarism, M2 monetarism, and global monetarism.

The past has more influence on our analysis than any of us would care to admit. As in dominoes, we all build on what is rather than what should be. Errors, once introduced, persist. Each time a subject is broadened, the errors of the past must once again be convincingly put to rest--and put to rest to the satisfaction of the skeptics.

Virtually everyone holds to the view that money matters and most people believe that money matters a lot. Monetarists distinguish themselves from others who also believe that money matters a lot by postulating that for all practical purposes (1) the quantity of money supplied to the economy is controlled by government, and (2) the demand for money is sufficiently stable such that changes in the measured quantity of money reflect changes in supply.

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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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