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That’S More Like It, Mr. President
On Iraq and the economy, he has a strong grasp of detail.


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Larry Kudlow

It’s been a rough stretch for President Bush. The story in Iraq turned sour in key cities like Fallujah and Najaf. Then the Abu Ghraib prison scandal hit. The economy has turned up, but nobody seems to notice.

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In a few public events — such as the Tim Russert interview on Meet the Press — the president has sometimes appeared halting and defensive. But not so at the White House this past Thursday.

At a press briefing I attended in the Roosevelt Room, George W. Bush showed a side of himself we haven’t seen in a while. He was tough, decisive, and strong. He communicated commanding visions on both Iraq and the economy, and he had a strong grasp of detail.

Bush’s confident side doesn’t always come through. But on this day, smack between a Capitol Hill appearance to bolster Republican morale and an Oval Office meeting with his generals, the commander-in-chief was in charge.

Bush stated at the outset that he was very optimistic about the war on terror — that he believed the U.S. has “a good strategy to achieve the objective of a free Iraq.” He noted that there have been tough moments, and tough images on television. But he made it clear that he’s unyielding in the pursuit of his wartime goals.

On the economy, he said there would be no tax increases. Nor would there be economic isolationism on trade. He repeated his support for personal-retirement accounts to reform Social Security, and emphasized a commitment to stopping frivolous lawsuits.

“I inherited a bad economy,” he said, noting that former GE CEO Jack Welsh advised him in late 2000 that recession was imminent. “So we acted immediately after taking office to make the U.S. the best place to do business in the world.”

I asked the president why the polls don’t give him more credit on the economy. You’d think they would, given that the Bush tax cuts ignited an economic boom, along with record corporate dividend payments and recent breakout job-creation. Bush said there’s more work to do in getting the message out, but he quickly added that “difficult TV imagery” has created negative thoughts, putting risk capital on hold. Clearly, Bush sees the link between Iraq and the economy.

I also asked the president if he would veto the pork-barrel highway bill before Congress. He left this door open, but it wasn’t clear he understood the symbolic importance of this vote. Sixty-five percent of likely voters, according to a recent Rasmussen poll, say lower federal spending is today’s top fiscal priority. To control government spending, more Americans put their trust in Kerry (41 percent) than Bush (40 percent).

The president was more decisive on oil. “If Congress would pass my energy bill, we’d have 1½ million more barrels a day,” he asserted.

Bush believes the root cause of $40 oil is rising demand from a strong global economy, and he refuses to sell oil from the Strategic Petroleum Reserve. He believes that’s a political gimmick. He noted that in 2000, President Clinton sold oil from SPRO at $35 a barrel. The price briefly fell to $28, but climbed back to $35 only a few weeks later.

According to SPRO, the reserve will remove about 8 million barrels from the market for its inventory in the next three months. That’s about 100,000 barrels a day. Saudi Arabia, meanwhile, is pushing for an OPEC production increase of 2½ million more barrels a day. Clearly the president is relying on his Saudi influence.

But the former oil man suggested an interesting scenario. Should the future price of oil drop below the spot price (they are nearly equal now), it would make sense to hold back purchases and lower the oil cost by using futures. He called this an oil hedge. Traders call this backwardization. It’s a rare president who understands this level of detail.

Will events turn around in Iraq? More U.S. troops are headed into the war zone, and the president is outlining a detailed strategy on the June 30 transition to Iraqi sovereignty. How about the economy at home? The low-tax Bush boom certainly has legs. Economists who expect a second-half slowdown will be very surprised when the recovery speeds up.

The president does have more to do, however. He should make a strong effort to hold down government spending and keep renewing his pledge to hold low tax rates where they are. He should work hard to connect with the politically powerful investor class, emphasizing his goal of expanded personal savings accounts.

There will be numerous polls between now and November, but the democratized stock market will ultimately tell the story. Just as a declining market foreshadowed Al Gore’s defeat four years ago, a rising market in the next five months will accurately predict a big Bush victory.

— Larry Kudlow, NRO’s Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC’s Kudlow & Cramer.



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