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The Price We Must Pay
We are at war. And war changes everything.


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Larry Kudlow

After today’s heinous crimes committed by terrorists against the U.S. and the rest of civilized humanity, there must be a sea change in American policies if we are to effectively play the rough hand that God has dealt us.

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We are at war. And war changes everything, including policies. We must now embrace war policies.

Among the carnage and massive human suffering there is an important wake-up call that must be heeded by Democrats and Republicans alike: We live in a dangerous world, and we must never forget how utterly important it is to maintain our defenses in order to preserve freedom and democracy and our way of life.

The terrorist invasion of the U.S. mainland underscores the urgent need to rebuild the defense and national security structure that has slowly but steadily eroded in recent years. Barbaric terrorists have revealed significant flaws in our intelligence systems and in our security arrangements at home. This will all have to be changed. The threat of terrorist use of nuclear or other weapons of massive destruction hammers home the urgent need for strategic defense measures and a general technological rebuilding of our defense posture.

In financial terms, this will cost hundreds of billions of dollars. So be it. It’s a drop in the bucket for the defense of freedom. We will sell bonds to finance military security. bonds will finance investment in freedom.

In economic policy terms, today’s terrorist invasion similarly changes everything. To backstop national security recovery we must take aggressive actions to stimulate economic recovery. It was Reagan who argued 20 years ago that U.S. economic decline in the 1970s stimulated Soviet adventurism and expansionism. Reagan knew that economic recovery at home would insure international recovery abroad.

In an interesting book by Professor Gary Dean Best, entitled Pride, Prejudice, and Politics, a similar point was made about the linkage between domestic economic policy and international security policy. Prof. Best noted that the failure of the U.S. to recover from the Depression — where even as late as 1940 the unemployment rate was 14.6% — created an image that the economically-plagued U.S. would be a weak player on the world political scene. Quite simply, Best argued that economic weakness at home encouraged Hitler and Japan abroad.

In today’s terms, one cannot help but wonder whether Mideast-based terrorist groups do not think that their energy-producing state government sponsors can simply turn the dial, tighten oil production, and thereby weaken the American economy even more. Is it entirely a coincidence that the terrorist actions aimed at closing down Wall Street, closing down the Pentagon, and even closing down the U.S. government, have occurred in the immediate aftermath of worsening economic news and slumping stock market performance?

No matter what the cost, the U.S. must be prepared to restore its economy. Phony lockboxes must be thrown out the window. Unnecessary obsessions over debt retirement must be driven away. Now is the time for aggressive fiscal and monetary stimulus to promote growth and finance freedonm. Substantial tax cuts on individuals, businesses, capital investment, and equipment depreciation should be immediately put into place. Lower tax rates across the board will aid recovery by reducing production and investment costs while stimulating an entrepreneurial economic return. The Federal Reserve Board must substantially increase the volume of bank reserves to reliquefy the financial system and the economy. Steps to promote energy production must be taken aggressively.

Here in New York, with the destruction of the World Trade Center, those of us in the financial community will grieve over the sad and tragic loss of husbands and wives who worked Downtown. So many of us involved in politics and government will know people who lost their lives in the plane hijackings. While we grieve sadly, our anger will demand immediate U.S. retaliation to clean out the terrorist criminals and the states that sponsor them. We know who they are. We know where they are. And we will hope and pray that president Bush takes immediate and effective actions.

But amidst the grieving and the anger, none of us should lose sight of the long-term goal of preserving our freedom and democracy. This is a national security goal, and it is also an economic security goal. What happened today changes everything. Lord give us the strength to learn from it and take the right actions to preserve it.



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