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On The “Boiler” Plate
It's time for some financial life during wartime.


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Larry Kudlow

Following the Pearl Harbor bombings sixty years ago, many observers noted that the sleeping giant had been awakened. Winston Churchill said at the time that the Japanese invasion unleashed the engines of a “mighty boiler.” Similar logic can be applied to our current situation.

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The invasion of New York and Washington by murderous terrorist organizations must be viewed as a wake-up call to the United States and its allies. Yes, there will be bombing. Yes, there may be ground troops. Yes, there may be collateral damage. But the combined resources and intelligence of the U.S. and its allies will target and remove the terrorist enemy. Hand-ringers and naysayers need not apply for this campaign — and our political, financial, and business leaders must remain positive.

This week, there was not much heroism in the financial world. Wall Street chanted a new mantra of pessimism as reopened stock-market prices plunged. Broad stock indexes dropped near their three-year lows as recessionary expectations deepened in the aftermath of September 11. And despite the patriotic attempts of individual investors to rally the market, large-scale selling by institutional investment funds and their hedge-fund brethren created an environment best characterized as “things always look darkest before they turn completely black.”

But have matters turned so bad as to rob America of its traditional spirit of optimism? I don’t think so.

Domestically, the urgent need for pro-growth economic recovery measures has been hammered home by the destruction in New York and Washington — which could amount to nearly $100 billion of lost output, not to speak of the horrible loss of human life and human capital. Already, plans are being put in place to stimulate economic growth with additional tax-cuts and infrastructure spending plans.

Indeed, the Bush administration is now moving to significantly shift its original economic design. Working with Congress, the president can forge bi-partisan support for investment tax-cuts, business tax relief, and an accelerated schedule for personal tax-rate reduction. The phony Herbert Hoover lockbox barrier to real tax-cut stimulus is out the window as the nation deals with the twin challenges of war and recession. Strong economic recovery at home is vital to financing the international assault on global terrorism. Both the American output and spirit will benefit from across-the-board economic stimulus.

On the Hill, hardliners will need to temper their gut reactions in the days ahead.

Some conservatives will grouse at the increase in federal spending, but they will be wrong to do so. Infrastructure spending — in particular on the airline industry — is really a supply-side measure that will grease the wheels of business and commerce and real estate. The money spent to enhance airport security on the ground and in the skies will be vital to economic recovery. Also, and hopefully, the expected federal subsidies to get that sector off its feet will include deregulation measures for jetway slot-and-route competition. No economy can survive without a vibrant air-travel system.

Some liberals will complain about tax-cuts for the rich or big business. They will also be wrong. It is business that creates jobs and reduces unemployment. And business — especially the small entrepreneurial business — requires new capital to expand. Remember, it is the entrepreneur that will carry technological innovations forward, continuing the remarkable economic growth transformation we have experienced over the past two decades.

Opportunities abound during the rebuilding process. With military precision, tech firms are answering the call in New York and Washington. Famous names like Sun Microsystems, Hewlett Packard, Microsoft, IBM, and Cisco are operating in overdrive. Their stock prices may be down, but their recovery mission is strong and resolute. Meanwhile, new firms with new names, all needing fresh injections of capital, will emerge in the business-rebuilding process. It’s the American way.

Even the tradition-bound Federal Reserve Board is changing its ways. In order to inject much-needed doses of new liquidity into the economy, the central bank is taking the unusual step of relaxing its interest-rate policy target in order to accommodate rising money-supply demands.

The post-Cold War world remains a very dangerous place. But rather than Russia or China, the enemy appears to be a global consortium of terrorist groups and their state-sponsored havens. The enemy will be pursued, under the guidance of a determined President George W. Bush (who, in his own baptism, grows stronger each day) and his top advisors Colin Powell, Don Rumsfeld, and Dick Cheney. These are skilled, savvy, veteran counselors to the president. Their vast experience and their cool heads under fire will serve us well.

Winston Churchill’s “mighty boiler” is burning strong in the new century, though today it is more a technology incubator that unleashes worldwide forces of economic growth. Once again, the prosperity-enhancing principles of freedom and democracy entrusted to us by our Creator will be our guide in the challenging days ahead.



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