Under the old law, $100 of corporate profit paid out as a dividend to successful earners netted only $40 of new investable capital, after tax. Today, under the new law, the next $100 of profit will generate an extra $55 of private-investment capital, after tax. The reduced government tax bite on investment income (including capital gains) leaves more new cash to be plowed back into the economy to produce new technology and equipment, new factories and office buildings, and new jobs at higher salaries.
In no uncertain terms, this stock market surge signals the beginning of true economic recovery. And the good news is only beginning to pile up.
Within the financial sector, the money supply is substantially rising -- by roughly $120 billion since the war's end. Inside the economy, prices of raw-material commodities are gradually climbing, profits are continuing upward, and productivity is gaining steadily. Both the manufacturing and service sectors are showing new life signs. Consumer confidence is returning.
Recessionary obstacles to growth -- war uncertainties, energy spikes, unusually bad winter weather, confusing policy debates in Washington -- are all coming down. An easier, not weaker, dollar and a recovering gold price suggest the end of deflationary pressures.
Slowly but surely the major stock indexes are pricing in every one of these favorable developments. So are the money markets, where interest-rate futures are predicting an end to deflation and a gradual return to normalcy. (Heavily traded euro-dollar futures contracts are pointing at a 1 percent rate-rise for both 2004 and 2005.)
This interest-rate outlook bodes well for stronger economic growth. After years of lackluster increases in gross domestic product, we could now be looking -- roughly -- at 4 percent annual growth of real GDP between now and the end of 2005. Corporate profits should rise 12 percent yearly.
Without any nasty external shocks to derail this forecast, the Dow Jones Industrial Average could reach 10,500 by the end of this year, 12,000 by the end of next year, and over 13,000 by the end of 2005.
You say it can't happen? I say it can.
Has there ever been a period of strengthened national security, lower tax rates and an expanding money supply that did not produce prosperity? Never. And when these policies are combined with unbelievable advances in science and technology, when they exist in a free-market capitalist system where every instinct is for more progress, prosperity and freedom, and when they are leveraged through the economy by way of historic productivity increases -- you have a mighty economic boiler that's primed to burn.