A merry day-after-Christmas came Wednesday, the fifth day of a partial government shutdown, when all three major stock indexes soared. The surge salvaged a market on the verge of collapse following a four-day selloff and months of sluggish performance.
With the Dow Jones industrial climbing 1,086 points, Wednesday was the largest single-day gain in stock market history.
The resurgence came after a record-breaking holiday shopping spree attributed in part to larger paychecks and job growth funded by federal tax cuts.
Americans will do the country and the world a favor to celebrate this news and enter 2019 with confidence to invest in homes, businesses, ideas, children, health care, education and more. Our economy rises and falls on the confidence of consumers to engage in transactions that increase the velocity of capital and improve the way we live.
To find rationale for economic confidence, listen to acclaimed economist and former Ronald Regan adviser Art Laffer — namesake of the Laffer Curve.
Laffer — a friend, supporter and occasional adviser of Colorado Governor-elect Jared Polis — took to the airwaves Wednesday to reiterate his longstanding belief the U.S. economy has entered the early stage of a major and sustainable economic boom that will help the rich, poor and middle class. Let’s hope is prophetic. Speaking to a business conference last month, Laffer described five economic “pillars” that led to sustained economic growth during the administrations of Presidents John F. Kennedy and Reagan. The country looks good on three of the five, while two — free trade and federal spending — need work.
Pillar 1: Tax cuts. This is simple math. Tax cuts lead corporations to hire, increase wages, and offer bonuses in pursuit of higher profits. Higher wages, higher employment, and lower unemployment equal economic growth. Despite lower tax rates, the increased economic activity correlates with growing federal tax revenues.
Pillar 2: Government spending. Laffer believes federal spending restraint plays a major role in facilitating economic growth, and he doesn’t give the Trump administration and Congress high marks in this category. “We are spending way too much money today in the United States federal government,” he said at November’s Restaurant Finance & Development Conference Workshops.
Pillar 3: Responsible Federal Reserve monetary policy. Though Trump begrudges interest rate hikes, Laffer cautions against low-to-zero interest money that has artificially fueled the economy for much of the past decade. “I think we are going to move back up to where interest rates get where they should be. I think that’s where you get supply and demand and capital flows being in really good stead,” Laffer said.
Pillar 4: Regulation. Too much slows the economy, and a new federal rule forces government to eliminate two regulations each time it enacts a new one. This auto-tuning of the country’s economic engine should continue paying off by reducing overhead for businesses that provide jobs.
Pillar 5: Free trade. Trump’s trade wars don’t bode well for the benefits of international free trade, and Laffer calls the tariffs a “work in progress.” It is hard to justify Trump’s tariffs as anything other than tax hikes on American consumers. Conversely, winning trade wars could eliminate barriers to selling American products overseas.
These are difficult times for too many Americans, especially those affected directly by the partial government shutdown.
Wednesday created a glimmer of hope, and showed us the sky may not be ready to fall. No one can predict the economy’s next move, but an array of indicators give reason for confidence. Let’s hope Wednesday’s post-Christmas gains are a sign of times to come.