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March 28, 2007



There are two problems with the Caplan thesis.

By the way Larry Kudlow made this argument years ago.

First the main driving force behind the capital spending boom was a sharp drop in the cost of computing power. I know of essentially no evidence that tax policy played a role in this. If anything government made a major contribution to it by subsidizing research and the education of engineers and scientists. Even the internet portion of the boom was dependent on the early development of the system by the Pentagon.

Second, even though we talk about the role of entrepreneurs like Bill Gates, the 1990s capital spending boom occurred almost completely in the corporate sector where individual income taxes do not enter into the calculation. Actually, small business and individuals did not really participate in the boom until large firms with full scale technology departments worked the bugs out of the systems and developed simple software. Only about 11% of nonresidential fixed investment in the US is done by s-coprs, partnerships, etc.., that are
subject to the individual income tax and this share actually fell in the 1990s --exactly the opposite of what the Caplan-Kudlow thesis predicts.


"But that's all it is - a hunch. As Bryan says, it's hard to say for sure using formal empirical methods . And this raises a question. Why, when the full effects of policies are so uncertain, are so many people so dogmatic about their likely effects? Are introspection and common sense really sufficient to justify strong beliefs?"

This really says it all, Chris and applies as equally to climate change and its sceptics, Christianity and its sceptics, everything and its sceptics.

One is then reduced to following indicators - trails, if you like, of cause and effect.

Kevin Carson

Anyone not a child or with child must have a rabbit.

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