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It’s The Slowdown, Stupid
The elephant that dares not speak its name.


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Larry Kudlow

There is an elephant in the living room of the U.S.-European Union talks going on this week. And that elephant, which no one seems to want to talk about, is the continued world economic slowdown. It’s all very interesting for the Europeans to attack George Bush on SDI and Kyoto and his opinions on capital punishment and his literary-linguistic prowess, or lack thereof. But I have to believe that ordinary main-street European citizens are much more interested in whether they will have a job at the end of this year.

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I keep scanning headlines to find references to the global economic slump, but it’s not an item on the official U.S.-EU agenda. Bush Defends Kyoto Treaty Decision. Bush Says Russia is Not the Enemy. Protesters Converge on Swedish City. Bush Encounters Bad Shadow on Tour. Yada yada. Still no reference to the decline of economic growth among the former Western allies.

That’s why stock markets are falling. They are sending a vote of no confidence on future economic-growth prospects for the Big Three areas of Japan, U.S.A., and the Euro Union countries. In the run-up to the U.S.-EU meetings, and during the meetings themselves, English, French, German, and U.S. markets have all dropped four to five percent. And as for the Euro countries themselves, they are all down 15 percent or so year to date, much worse than the U.S. equity marts. Traditional economic-growth-stimulating measures, such as sound currencies, tax cuts, deregulation, and trade liberalization, are nowhere being discussed in these meetings. Actually, the biggest economic headline coming out of Europe is the EU anti-trust protectionist rejection of the big GE-Honeywell deal. Not even Jack Welch, America’s leading businessman, could talk sense into the Euro regulators.

And then, of course, there’s the near-defunct Euro currency, which I call the Euro peso. Pesos, you may remember, never float. They sink. That’s what the Euro has done. Eighteen months ago it was first offered at $1.18 and today it is 85 cents. Was there any discussion of currency coordination and stability between the dollar and the euro at these meetings? Nope. But world currency instability is the handmaiden of global economic slumps. Ditto for protectionism.

Why hasn’t W. been selling the growth benefits of broad-based tax cuts as Reagan did in his first European trip in 1981? Granted there’s no Thatcher to back up Bush today. But newly elected Italian president Berlusconi would back up Bush and so, probably, would the Spanish leader Aznar. Meanwhile, all the Franco-German rantings about Kyoto really misses the point. Strict limits on energy production are a sure prescription for economic austerity. Nations with 8.5 percent unemployment should be searching for growth solutions, not austerity policies. Month after month, official EU economic forecasts downgrade future growth and upgrade future inflation estimates.

It’s the global slowdown, stupid. No one wants to talk about it. Punitive global-warming packages are not the answer. Tax cuts, currency stability, deregulation, and free trade provide an answer. But while stock markets are booing, western leaders appear not to be listening.



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