When you've lived behind the curtain, nothing is finer than seeing the light.

So, beating the odds, the supply-siders won in Germany over the weekend. What does this mean?

We'll see, but suffice to say that it's encouraging to say the least. I'd just like to highlight an excellent analogy Forbes' uses to explain how across-the-board tax cuts not only make things easier on business and working families, but also makes it significantly easier for government to control deficits, provided of course that they don't squander the increased tax revenue:

Even if the budget deficit did rise--which is doubtful if the tax cuts resemble the ones Free Democrats want--a larger economy with better incentives would handle a larger deficit better than a weaker economy could handle a smaller one. A 325-pound barbell is always heavier than a 250-pound barbell. But an NFL tackle can lift the first barbell easier than a jockey can lift the second.

Deficits certainly matter. The point here is that even assuming that the budget deficit in Germany rose, for whatever reason, the stronger economy that would inevitably result from the tax cuts would be far easier to "lift" than would even a lesser deficit by a far smaller economy. 

It's a simple matter of incentives ladies and gentlemen. Would you or anyone else you know be more or less inclined to invest if you had more money left over at the end of the day because you weren't paying higher income taxes? Anyone who says "less", it's time for a brain scan.

The same goes for business. If the marginal tax rate for business is a flat 15%, business would have far more inventive to invest in long-term capital projects than if that rate was 25%. And the repercussions for the lower tax rate in terms of government revenue are significant. When the tax rate is high, businesses and individuals have less of an incentive to work, save and investment and a greater incentive to avoid paying income taxes. The empirical data on this fact is now too strong to ignore; it happens every single time government lowers the tax rate. The exact opposite happens every time it raises the rate.

If Merkel uses this opportunity to do that which she ran on in the election, good things will happen for Germany. Better still:

These tax cuts would also put pressure on other countries, particularly Germany's main competitors, to reduce tax rates themselves. After Reagan's tax cuts in the 1980s, many advanced countries around the world also cut taxes, and not just those with "conservative" governments. Sometimes it was just a defense mechanism to hold onto capital and productive workers.

And if Europe as a whole starts moving in that direction, we will see a corresponding amplification in the devaluation of the dollar if America continues on its present course of skyrocketing deficits, exploding costs and more taxes. 

Mark my words, if Merkel does what she says she will we will have data indicating the wrongness of everything Obama has done before the 2012 election. The numbers will be indisputable.

Russ