View From a Height
Commentary from the Mile High City
Thursday, January 09, 2003
The Washington Post's Lead Editorial is another in a long line of disingenuous criticisms of Republican policies in general. Bush is a "wedge driver," not a "uniter," at least not the way the Post would like him to be. Again, one could just as easily criticize the Democrats for failing to unite behind his plan, or to meet him halfway, or whatever. The Post would be much more honest if it simply said it didn't like Bush's proposal, rather than faulting him for refusing the give the game away. Evidently, having principles is only a value-free admirable quality if they're liberal principles.

It would be more honest, of course, but also fatal, forcing the editorial writers to argue policy rather than politics. And this is a policy battle they have already lost. Polls show that the dividend tax cut is extremely popular, and would be good for the market, the economy, investors, and, oddly, businesses themselves. Dividends will be paid out of cash; stock appreciation can come about from paper profits. Businesses will need to reduce debt to have the cash on hand in order to pay the dividends. But they weren't borrowing and spending very much, to begin with.

The main effect is psychological: by making dividends more attractive to investors, it will also mean that companies that wish to finance themselves through debt will have to pay higher interest rates in order to attract lenders. This will force up bond interest rates (and force down bond prices; look for bond funds to take a hit as the market absorbs this information), and may force up other interest rates as well, which certainly won't do the economy any good. But that's a mid-term effect, and a natural result of a recovering economy, in any case. Note that this is not the classic interest rate argument that a deficit puts the Federal Government into competition for loans, forcing up rates. The government could be running surpluses, and it would have the same effect of making bonds less attractive.

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