A look at why we should be worrying more about profits and less about lending to solve the financial crisis. More:

Profits are the most cyclical component of national income. From the third quarter of 2007 through the third quarter of 2008, Commerce Department figures show that wage and salary disbursements rose by three percent. Meanwhile, profits fell by 9 percent. Fourth quarter figures, which will be available in a few weeks, are likely to show an even wider discrepancy.

Economic recovery will not come from bank bailouts. It will not come very quickly from the various public works projects in the pending stimulus proposal. The fastest way to recovery would be to inject more profits into the system. Bryan Caplan, the GMU economist who co-blogs with me at EconLog, has suggested reducing the employer contribution to payroll taxes. In today's economy, this will flow directly into profits. It would encourage business to expand. Moreover, by lowering the cost of labor, it would encourage hiring.

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