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VodkaPundit

Money Money Money

March 30th, 2004 - 11:57 am

Larry Kudlow says the Fed won’t be putting the brakes on the economy any time soon:

If the economy produces faster than it consumes, or if aggregate supply (investment) rises faster than aggregate demand (consumption), then overall prices will fall rather than rise. Hence, no Fed snugging.

Over the past three quarters of the real post-tax-cut recovery, inflation-adjusted economic growth has averaged 5.1 percent at an annual rate. Inside the economy, consumer spending (demand) has increased at a 4.5 percent average annual pace, while housing and business investment (supply) has advanced at a much faster 10.6 percent yearly rate. Business investment in equipment, software, and structures (i.e., office buildings and factory plants) has increased 10.2 percent. Therefore, supply is in fact growing faster than demand, a non-inflationary development.

The good news in Mr. Kohn’s paradigm is that rising productivity

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