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Barreling Ahead Into 2005
Big media won't say it, but the economy's hitting on all cylinders.


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Larry Kudlow

The headline of the late-year lead story in Investor’s Business Daily went like this: “Consumer Optimism Roars Back In December As Sales End Strong.” Yes, indeed. The U.S. economy is hitting on all cylinders as 2004 passes into 2005. Ever since the election, stock markets have been on an upward tear, pointing to continued prosperity in the new year.

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IBD, however, is only one of a few newspapers to cover this story accurately. Most in the mainstream media steadfastly refuse to give the economy a break.

It’s been going on all year. The strong recovery got no respect during the presidential election, as John Kerry and his minions pounded President Bush for presiding over a “Hoover” economy. Kerry said Bush failed to create new jobs, even though traditional measures of economic health have been advancing nicely for two years. The media largely reported it the Kerry way.

Bush may not have been the most adept debater on the economy, but the facts spoke loudly in his favor. The most comprehensive measure of economic health — inflation-adjusted gross domestic product — has been trending steadily around 4 percent for the last two years. This is half a percent above the nation’s 3.5 percent long-run growth trend.

Meanwhile, the unemployment rate — which used to be the key election-year labor-market indicator — moved down from 6.3 percent to 5.4 percent, indicating strong U.S. work conditions. Then there’s the 2 percent inflation trend, a stat never mentioned during the campaign but a long stone’s throw from Jimmy Carter’s 15 percent rate of price increases.

Big media let Kerry get away with murder as he obsessed over non-farm payroll jobs, which were slow to recover but have in fact expanded by over 2 million in the past eighteen months. Nonetheless, the other major jobs report — the household survey — went virtually unreported.

The household measure shows a 2.5 million jobs gain during Bush’s first term and a whopping 4.2 million increase since the end of the 2001 recession. It’s a real measure, too: It gives us the unemployment rate. It also does not triple-count job gains or losses, as is the case with the payroll survey, while it does include self-employed workers and independent contractors, key parts of our new Internet-based information economy.

Then there’s the positive impact of reduced marginal tax rates. The Bush supply-side tax cuts were implemented early in 2003, in the wake of the 9/11 attacks, a burst technology bubble, and the corporate scandals. They caused an immediate jolt to the economy, as both employment and investment responded to a badly-needed dose of economic incentives. By taxing work and investment less, the economy got much more of both.

Here are a few simple facts. In the six quarters after Bush’s tax cuts, real GDP expanded at a 4.6 percent annual rate, much faster than the 2.5 percent pace of the six earlier recovery quarters. Consumer spending jumped from 2.8 percent to 3.9 percent. Business investment in new plant and equipment surged to 13.4 percent from only 1 percent before the tax cuts. Personal income jumped to a 5 percent growth rate, nearly double the earlier speed of 2.6 percent. The average employment gain (combining both surveys) was 2.4 million compared with virtually no gain before the tax cuts.

Corporate profits, without which businesses cannot create jobs, now stand at a record $1.118 trillion — 56 percent above their recession trough, 25 percent above the prior recovery peak of the late ’90s, and at a near-record 9.5 percent of GDP. Broad stock market averages have jumped 60 percent from their lows. Home ownership is at an all-time high, as are existing home sales. U.S. household wealth stands at a record $51 trillion.

Nowadays, amidst all this economic good news, the declinist rant has shifted to the twin budget and trade deficits. The former is declining even while import increases are widening the latter. Both, however, are sins of economic strength, not weakness.

Believe it or not, liberal editorialists now argue for the need to slow down the economy. Prosperity is bad, you see. Americans borrow, consume, and thrive too much in this latest Alice-in-Wonderland media conflagration that turns positives into negatives.

Gibberish. Nothing more than another big-media campaign to raise taxes. Under Bush, it won’t happen. Instead, the president will nurture economic growth with more tax incentives for work, saving, investment, and risk-taking. Europeans derisively call this cowboy capitalism. The president thinks of it as free-market ownership. Whatever the label, in the Bush view workers, entrepreneurs, and the self-employed — not government planners or entitlement programs — provide the backbone for America’s prosperity. Left to our own devices, we will keep barreling ahead at a speed that our envious rivals can only dream about.

— Larry Kudlow, NRO’s Economics Editor, is host with Jim Cramer of CNBC’s Kudlow & Cramer and author of the daily web blog, Kudlow’s Money Politic$.



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