Henninger: America's Two Economies - WSJ.com
This is also why Laffer is right about the causes of the ongoing Depression in the 1930's and the lack of growth in socialist economies like America and Europe today.
Too much is going to the public sector - the supply and demand functions of the private economy need to restored and the amount of money taken by government as a percentage of GDP reversed.
Just like grocery shopping by almost everyone, when prices go up and salaries don't, people change what they buy and often buy less. With government regulation and taxes raising the cost of economic activity in the economy, there is less activity and different types of activity.
Democrats and unions don't want to and can't believe high taxes impact job creation and, as Mark Twain said, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
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