Other contributors to economic growth have the same counter-inflationary effect. Bringing down high marginal tax rates on individual incomes and capital formation (including dividends, capital gains and faster business-depreciation write-offs for equipment purchases) also contributes to a more rapid expansion of the economic pie.
When it pays more to take the extra investment risk or work the extra hour, economic behavior rises to the occasion. Though demand-side economists seem not to recognize it, the recent Bush tax cuts are not one-time stimulants. The tax cuts on capital gains and dividends won't expire until 2008 -- personal rate cuts extend until 2010.
That means pro-growth incentive rewards for risk and work will be in place for many years, nurturing greater investment and encouraging breakthroughs in the next biotech, Internet telephony or broadband advance. This is the stuff of which powerful prosperity booms are made.
Over the next decade, the tax-cut consequences of proliferating capital formation and goods-producing business expansion virtually eliminate any threat of inflation.
Actually, the strong-dollar combination of lower tax rates, higher investment returns, more rapid technological breakthroughs and even greater productivity gains -- all promoting faster economic growth -- will maintain the pressure for lower, not higher, prices. Hence, the Fed must keep the money spigots wide open.
To a great extent, President Bush has made a supply-side bet on the next election. His Keynesian critics argue that the so-called temporary tax cuts are already wearing off. Consequently, they say, 7 percent GDP in this year's third quarter will be a one-time event -- followed by a tepid jobless economy and Bush's defeat.
But there's another doctor's opinion. Reduced marginal tax rates will sustain the new economic-incentive structure for years to come. Lower taxes will keep on spurring new wealth and higher employment levels far longer than almost anyone dreams possible.
Meanwhile, year two of President Bush's supply-side tax-cut experiment could generate 4 percent to 5 percent growth, as many as 2 million new jobs and a handsome re-election victory. But the really interesting part of this calculus is the potential of another six to eight prosperity years (at the least) following 2004.
Left-wing economic pundit Paul Krugman will be floored. The high-tax Democratic presidential field betting on continued recession will be stunned. And George W. Bush's supply-side re-election will have long coattails for federal, state and local legislatures throughout the land.