Keys to Prosperity

Stephen Moore

CEN-0571AO

The Greatest Story Ever ToldS&P 500: Nominal vs. Real Price Appreciation, Through 7/31/07, semi-log, Jan-66 = 100

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

19551957

19591961

19631965

19671969

19711973

19751977

19791981

19831985

19871989

19911993

19951997

19992001

20032005

15.32% Peak

10 Year Treasury Note YieldOctober 1, 1955 to July 1, 2007

Inflation Rate, 1970-2007

17.1%

45.1%

22.1%28.4%

-7.2%

-33.5%

-71.8%-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

All Items Education MedicalCare

NewVehicles

Apparel Software Computers

Source: BLS

Education and Medical Prices Skyrocket While Import Prices DropCPI, Percent Change, 2000 to 2006

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

196019

6119

6219

6319

6419

6519

6619

6719

6819

6919

7019

7119

7219

7319

7419

7519

7619

7719

7819

7919

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

05

Source: Federal Reserve

Historical Growth of the Monetary Base Since 1960Monthly Percent Change, 12-Month Moving Average

0

1000

2000

3000

4000

5000

6000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Yahoo! Financial

1032

5049

1114

2596

1922

NASDAQ, 1996 to August 31, 2007

0

20

40

60

80

100

120

Source: Yahoo! Financial

$1.73

$105.06 $106.69

$42.75

$6.01

$59.91

$86.18

AmazonSplit-Adjusted, May-16-1997 to Aug-31-2007

124

126

128

130

132

134

136

138

140

J 20

00 A J O

J 20

01 A J O

J 20

02 A J O

J 20

03 A J O

J 20

04 A J O

J 20

05 A J O

J 20

06 A J O

J 20

07 A J

Source: BLS

Recession

Bush 2003 Tax Cut

130.8

132.5

130.9

129.9

131.5

134.1

138

Payroll Employment Has Fully RecoveredMillions of Jobs, Total Nonfarm Employment, Seasonally Adjusted, January 2000 to August 2007

90

100

110

120

130

140

150

16019

8019

8119

82

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Index, 1980=100

Per Capita Income

Total Compensation

Wages and Salary

Worker Well-Being

Upper and Lower Income Limits for Middle Class Families

$33,408

$41,383

$45,021

$68,304

$44,800

$60,477

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

1967 1987 2005

Year

2005 d

ollars

Lower Limit for the Middle Class

Upper Limit for the Middle Class

Source: Census Bureau

The Ever-Improving American Dream

Share the Wealth?Income Tax Share and Average Income Tax Rate for the Top 1% of Earners

Source: IRS

Rich Pay More Than Their Fair Share2005 Household Income Shares

200

250

300

350

400

450

500

550

600

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

Bil

lio

ns

of

Re

al

20

04

Do

lla

rs d

oll

ars

Defense

Nondefense

Source: CBO

Guns and Butter: Discretionary Spending Explodes

Beltway BonanzaPercentage Increase in Federal Spending in Nominal Dollars, 2001 - 2005

Source: Heritage Foundation, based on Office of Management and Budget

The Coming Tax IncreaseRevenues as a Share of GDP

Source: Free Enterprise Fund

0% 100%

Average Tax Rate

Tax

Rev

enu

e

Normal Range Prohibitive Range

The Laffer Curve

Bush's Supply-Side RecoveryReal Annual Percent Change

Global Post CardsFlat Tax Nations and Their Rates

Estonia 22% Romania 16%

Georgia 12 Russia 13

Iraq 15 Serbia 14

Hong Kong 16 Slovakia 19

Latvia 25 Ukraine 15

Macedonia 12 Jersey 20

Guernsey 20 Albania 10

Lithuania 27 Bulgaria 10

Iceland 35.7 Mongolia 10

Kyrgyzstan 10 Montenegro 15

Source: Laffer Associates

-200

-150

-100

-50

0

50

100

1502

00

5

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

20

27

20

29

20

31

20

33

20

35

20

37

20

39

20

41

20

43

20

45

20

47

20

49

20

51

20

53

20

55

20

57

20

59

20

61

20

63

20

65

20

67

20

69

20

71

20

73

20

75

20

77

20

79

Surplus

Deficit

75 Year Net Deficit: $5.4 Trillion

Source: SSA, Chief Actuary, Estimated Financial Effects of the "Social Security Personal Savings Guarantee and Prosperity Act of 2005," April 20, 2005

Templeton Curve for Pay As You Go Social SecuritySocial Security Cash Flow, Present Value in Billions of Dollars

-100

-50

0

50

100

150

200

250

Surplus

Deficit

Source: SSA, Chief Actuary, Estimated Financial Effects of the "Social Security Personal Savings Guarantee and Prosperity Act of 2005," April 20, 2005

75 Year Net Surplus: $5.8 Trillion

Templeton Curve for Ryan-Sununu Social Security Cash Flow, Present Value in Billions of Dollars

More 18 to 34 Year Olds Believe in UFOs Than Social Security

0%

20%

40%

60%

80%

100%

120%

140%

Cheap FuelPrice of 100 Barrels of Oil as a Percentage of Average Annual Earnings

$25,062

$13,789

$6,404

$5,062

56.7

69.9

64.8

78.7

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Most Free Second Third Least Free

GD

P p

er

Ca

pit

a, P

PP, 2

00

5 (

Co

nsta

nt

2000 I

nte

rnati

on

al

$)

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

Life

Ex

pe

cta

nc

y a

t Birth

, 20

05

Life Expectancy

Source: Cato Institute and Fraser Institute, Economic Freedom of the World, 2007.

Economic Freedom

Free Countries are Wealthier and Healthier