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Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

The Reagan in Romney



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While some of my conservative colleagues are criticizing the Romney campaign for one thing or another, I want to make a distinct point that is largely being overlooked: Mitt Romney is the most fiscally conservative Republican standard-bearer since Ronald Reagan.

Looking back through his speeches, interviews, and programmatic proposals, I see an emphasis on economic freedom, free enterprise, low tax rates, deep federal spending cuts, and free trade, and a free-market approach to tough social problems, such as health care, education, and poverty. Meaning no disrespect to George W. Bush, John McCain, Robert Dole, and George H. W. Bush, not one of these former Republican leaders was the consistent and comprehensive free-market advocate that Romney has been.

Read my full column here

The Jobs Report Bad News



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Stocks loved today’s jobs report, rising well over 200 points at this writing. But equities may be suffering from a certain irrational exuberance. Yes, nonfarm payrolls rose by 163,000 in July. That’s better than the prior two months and probably signals no double-dip recession — at least for now.

But there are a lot of negatives in this report.

For one, the small-business household survey dropped 195,000. That’s what drove the unemployment rate up to 8.3 percent. These two factors virtually cancel out the better-than-expected rise in nonfarm payrolls.

By the way, the labor force shrunk by 150,000. The participation rate slipped to 63.7 percent. And the overall U-6 discouraged-workers unemployment rate increased to 15 percent.

Average hourly earnings registered a slight 0.1 percent increase. But that only adds up to a 1.7 percent increase year-on-year, which is below the rising consumer price index.

So Team Obama will undoubtedly continue to tell us that jobs and the economy are getting better, but this mixed employment report takes the steam out of that argument.

A couple of other economic reports coming out this week raise red flags. The ISM manufacturing index came in below 50 for the second straight month, and the ISM services index is barely above 50. (Below 50 signals contraction.) Meanwhile, factory orders fell 0.5 percent and are down 2.6 percent at an annual rate over the past three months. Even worse, core capital-goods orders (non-defense, excluding aircraft) fell 1.7 percent in June and have dropped 3.9 percent annually over the past three months.

In other words, business investment is still weak. So are real consumer incomes. And the unemployment rate continues to edge higher. All this springs from an economy growing no more than 1.5 to 2 percent.

Tax and regulatory threats are everywhere. From Obamacare and the EPA and the NLRB on the regulatory side, to the failure to extend all the Bush tax cuts, it’s a wonder businesses are investing and hiring at all — especially small businesses, which may have stopped dead in recent months.

My modest proposal for the worst economic recovery in modern times is threefold: Extend all the Bush tax cuts, slash the corporate tax rate, and approve and begin building the Keystone Pipeline. This is a supply-side proposal. It’s completely unlike all of Obama’s goofy, short-term, spending-and-tax-credit stimuli, which have completely failed.

Come to think of it, it’s sort of Mitt Romney’s economic platform.  

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One-on-One with Mitt Romney



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Last night on The Kudlow Report, Mitt Romney unveiled his five-point recovery plan: energy, trade, a balanced budget, education, and economic freedom to keep taxes and regulations low. He also blasted Obama for “you didn’t build that” and contrasted that idea with his own free-enterprise, reward-success philosophy.

Watch the full interview here:

Reagan Praised Entrepreneurs into Recovery



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Does anybody remember, back in the depths of the recession of 1981’82, how President Ronald Reagan kept his chin up and exhorted American businesses to work hard and produce an economic recovery?

Reagan had a program of tax cuts, limited domestic spending, deregulation, and a strong defense aimed at overturning Soviet Communism. He argued in speech after speech that his domestic plan would produce higher economic growth and lower unemployment, and that prosperity would generate the resources to fund a strong national security.

Cynics proliferated. But Reagan stayed with it, praising free enterprise and entrepreneurs. And eventually, sunny skies replaced gloomy clouds. “Morning in America” appeared in 1983’84.

But here’s the key point: When Reagan praised our capitalist system and the businesses inside it, he provided a psychological lift to accompany his fiscal program. That was leadership.

Now contrast President Reagan’s performance with President Obama’s recent attack on business. Instead of exhorting entrepreneurship, Obama demonized it. Here’s the money quote: “If you’ve got a business, you didn’t build that. Somebody else made that happen.”

That’s a put down to business recovery, not an exhortation. Reagan praised entrepreneurs into recovery. Why must Obama trash them into recession?

Read my full column here

One-on-One with Alan Greenspan



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Here’s my Wednesday night interview with Alan Greenspan, in which we discuss the U.S. economy, Fed stimulus, and Obamacare:

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An Interview with Eric Cantor



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Here’s my Wednesday night interview with Rep. Eric Cantor (R., Va.):

Obama’s Goose Is Cooked



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Obama needed a filet mignon in the June employment report. Instead he got a rubber chicken.

Only 80,000 new jobs were created last month, way below Wall Street expectations. It’s the fourth consecutive monthly disappointment. For a few months last winter, jobs were rising at an average of 225,000 a month. But that has sloped way down to only 75,000. The unemployment rate continues at 8.2 percent, which is the forty-first straight month above 8 percent. The U6 unemployment rate, which includes discouraged workers, is just under 15 percent.

As voters finalize their election impressions this summer, all of this is bad news for the Chicago incumbent. 

Read my full column here

John Roberts Is a Super-Taxer



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In the hours following the Supreme Court’s decision to ratify Obamacare, Romney got $4.6 million in donations from 47,000 individuals. The tide is with him. The Supreme’s are a game changer.

But Romney has to make the case. He needs to link the anemic jobs and economic situation to the Obamacare tax, spend, and regulate fiscal drag. And he has to add to that mix the dangers to our freedoms embodied in Justice John Roberts’s expansion of the power to tax our personal behavior.

Read my full column here

A Tax Is a Tax Is a Tax



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Of course the stock market dropped about 130 points. Twenty new or higher taxes across-the-board are bad for economic growth, bad for job hiring, bad for for investors, and bad for families.

A tax is a tax is a tax, according to Judge Roberts. But he forgot to say that if you tax something more, you get less of it.

Presumably Mitt Romney will make this case in a major way. Hopefully he won’t forget that Obamacare is not just a huge tax hike. It’s also a major new spending entitlement that’s already pegged at $2.5 trillion and will increase the federal debt burden much faster than the GDP expands.

In other words, tax, spend, regulate, borrow. The Obama mantra. Romney must go after it — time and time and time again.

Bankrupting the economy is not exactly a job-creator.

No Economic Miracle if Obamacare’s Overturned



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It may well be that the complex tax-and-regulatory mandates embodied in Obamacare have proven to be a deterrent for business job creation. You hear it all the time from men and women in business — especially smaller businesses, but large companies too.

However, color me skeptical that business will embark on a hiring binge if the Supremes overturn the Obamacare mandate tomorrow. Why? Because the uncertainty premium about future health-care policy is still going to be high, and it won’t be resolved until well after the election. Businesses will have almost no idea what Congress will propose if the Supreme’s strike down Obamacare.

For example, it’s going to take money and high insurance premiums to cover preexisting conditions. There also are the stay-at-home 26 year olds and the so-called health-care market exchanges among the states. There are many other issues to be resolved, but the big question is: How will they be financed?

Will there be a tax? Will there be regulations?

One thing’s for sure. A pure free-market health-care system is not going to happen. Many Republicans talk about a patient-centered consumer-choice system, which would be great. Give consumers tax credits for the same deductions that businesses now have. That also would be great. Include interstate insurance competition. Another winner. Tort reform. Another plus.

But the fiscal reality for health-care insurance and payouts to doctors in hospitals is going to be up in the air for quite some time. It’s a known unknown. And because of that, I think businesses are still going to sit on their hands until they know with greater certainty what the costs of hiring the extra worker is really going to be.

For the foreseeable future, there’s no economic miracle if the Supremes strike down Obamacare (as I believe they will).

One-on-One with Marco Rubio



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The run-up to the presidential election is really a debate about growth and taxes, Senator Marco Rubio of Florida told me on Monday’s Kudlow Report.

“Growth helps the debt be more manageable, unemployment, all of these things,” he said. “Tax increases do not lead to growth. The reason why I oppose increases in taxes is not some religious objection, or even an ideological one. It is the knowledge that increasing taxes discourages growth.”

Rubio said that taxes remove money that was going to be spent into the economy. “When the government spends that dollar, they’re going to be a lot less efficient, a lot less stimulative,” he said.

Rubio, who is being considered for the vice-presidential slot by Mitt Romney, also spoke about the debt crisis, health care, and Arizona’s controversial immigration law, on which the U.S. Supreme Court ruled Monday.

I asked him whether there could be a compromise like the one former Florida governor Jeb Bush mentioned in an earlier appearance — $10 of spending cuts for every $1 of revenue increases. Rubio held firm: “I’ve always believed that was a false choice. The goal is not to give each side what they want. The goal is to solve the problem.”

Hours after the nation’s highest court upheld one of the most controversial parts of Arizona’s immigration law — that police can make checks for immigration status — Rubio agreed with the decision. “I’ve always believed the Arizona immigration law was constitutional,” he said. Rubio, the son of Cuban immigrants, also admitted that he had “mixed feelings” about it initially.

Rubio said, “I understand why Arizona did it. I understand why the people of Arizona are frustrated. I believe they have the 10th Amendment right to pass that law.”

Part of the law that was upheld instructs law-enforcement officials to verify the immigration status of anyone they detain. But Rubio said the federal government needs to fix the problem with several steps: “Secure the border, have an electronic verification system in place, and modernize our legal immigration so it reflects the 21st century needs of our country.”

Weighing in on health care, Rubio said he would like to see Obamacare replaced with a free-market system in which insurance companies compete for consumers’ dollars.

“I think once there’s more choice, once the consumer is in charge of their health-care dollars, the market’s going to meet that demand,” he said. “Now, all of a sudden, companies are going to try to figure out how to make themselves more attractive so that you choose them over somebody else. Right now they don’t have to do that.”

Rubio added, “From the point of view of the marketplace, insurance companies, if they want my business, if I control my health-care dollars, and I get to choose from any insurance company I want, I’ll go to you and say, ‘Hey guys, I would love to buy your insurance, but I have a kid who is sick. Will you cover them as well? Because this other guy will cover them, and I’ll go with them if you don’t do the same.’ I think that now the consumer is empowered to make that argument.”

Rubio said that for chronically ill Americans, state governments could create high-risk pools to provide insurance. “I think that’s the one focused, narrow place where government — state government — can be helpful to folks,” he said.

Watch the full video here:

A Global Recession?



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Is it possible that we are already in a global recession but just don’t know it yet? And is the U.S. itself — still the epicenter of the world economy — standing on the front edge of another recession?

I sincerely hope I’m wrong. But warning signs are everywhere.

Read my full column here

Why Stocks Love Scott Walker



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You didn’t see it in the mainstream financial media Wednesday morning. But stocks loved Governor Scott Walker’s spanking of public-sector unions and Democrats in Wisconsin. The Dow jumped about 165 points right at the opening on Wednesday, and was up over 200 points later in the day. There really was no other news. There was some speculation about central bank stimulus in Europe and the United States. Blah, blah, blah. But there was nothing specific or concrete.

So it’s an easy point to make: Markets love the Scott Walker landslide.

Tuesday night on The Kudlow Report, two investment gurus predicted a bullish market if Walker won. Art Hogan of Lazard Capital and Mike Ozanian of Forbes both forecasted a Walker rally. And that’s just what we got Wednesday morning.

The logic? Well, mainly, a big Walker win opens the door to a Wisconsin victory for Mitt Romney this fall. Think of Walker as the leading indicator for November.

Noteworthy in the Walker victory was a huge GOP get-out-the-vote ground game, set up by Reince Priebus, the Wisconsin native and Republican National Committee chairman. Priebus said he was confident that the superior ground game will be there in November for Romney. And if Romney takes Wisconsin, it could by Katy bar the door for a national GOP landslide.

But the other bullish point is that stock market investors prefer low taxes to high entitlement spending. The grassroots taxpayer tea-party revolt that carried Scott Walker to victory is alive and well around the country. (By the way, in California, San Diego and San Jose just voted in government-union pension cuts.) Collective-bargaining restraint, higher co-pays for pension and health-care benefits, and an end to mandatory dues-paying for Big Labor’s political slush funds are all bullish policies that come out of the Scott Walker win. So is a huge drop in government-union membership in Wisconsin.

Public-sector unions are in retreat.

The stock market is a gauge of future economic growth. Balanced budgets without income-tax hikes in Wisconsin, plus lower property taxes as a result of Scott Walker’s leadership in curbing government-union excesses, is a national message for economic growth.

And at the national level it seems clear that Mitt Romney gets all this. He gets smaller government, Social Security and Medicare reform without tax hikes, and quite possibly pro-growth tax reform. In other words, Romney understands the game-changing nature of the Scott Walker victory.

Remember this: Stock owners who make up the massive investor class — roughly 100 million people — are among those most likely to vote in the November election. That’s what history shows. So a union-rollback, low-tax, limited-government, pro-growth message is just what the investor class wants. That is a Romney message, not an Obama one.

Romney is almost universally regarded as the market-friendly, pro-business candidate. He got a big leg up Tuesday night with Scott Walker’s dramatic win. That’s why stocks surged on Wednesday.

A Grim Jobs Report for America



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You would think $1 trillion in spending stimulus and $2.5 trillion of Fed pump-priming would produce an economy a whole lot stronger than 1.9 percent GDP, which was the revised first-quarter number. And you’d think all that government spending would deliver a whole lot more jobs than 69,000 in May.

But it hasn’t happened.

The Keynesian government-spending model has proven a complete failure. It’s the Obama model. And it has produced such an anemic recovery that frankly, at 2 percent growth, we’re back on the front end of a potential recession. If anything goes wrong — like another blow-up in Europe — there’s no safety margin to stop a new recession.

Read my full column here

Extend the Bush Tax Cuts Now



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House Speaker John Boehner is playing a heroic role right now. In his efforts to prevent the Bush tax cuts from expiring, Boehner is aggressively taking on President Obama’s leadership ineptitude on the economy. In essence, Boehner is pushing a Republican policy to wrap up a debt-limitation bill and extend the Bush tax cuts in one fell swoop before the election — and before all the last-minute, crisis-oriented, political machinations that would come in a lame-duck Congress, threatening another credit downgrade and leading to a business-hiring freeze and plunging stock market, all of which happened last year.

Tax-cut certainty is so vital right now because the anemic economic recovery may be moving towards deflation. That’s the message of a gold price that has collapsed by near 20 percent, falling from around $1,900 an ounce to the mid-$1,500s. With a risk-averse economy at home, and with the Greek and European financial crises abroad, the demand for dollars seems to exceed the dollar supply printed by the Fed. This could be solved by more quantitative easing. But a better approach for a system already oversupplied with unused liquidity would be the extension of tax-rate growth incentives, not more monetary pump-priming.  

Read my full column here

Investor-Class Dead Heat



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While President Obama is out on the campaign trail talking about how bad things were four years ago, and how we have to go “forward” to his second term to see just how great things are going to be in the next four years, the biggest problem he’s got is the here and now.

Real GDP in the second quarter stalled at 2.2 percent. There were a paltry 115,000 new jobs in April. The labor force shrank by 342,000 for the month, and the 63.6 percent labor-force participation rate is now the lowest since 1981. There are roughly 23 million people classified as either unemployed, underemployed, or no-longer-looking. And median household income has dropped by $4,300 during Obama’s time in office. This all adds up to a tough indictment of the administration’s economic policies. 

Read my full column here

Shiller Backs Away from ‘Late Great Depression’ Remark



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After declaring that the world is in a state of “late Great Depression” on Tuesday, renowned Yale economist Robert Shiller hedged his words on that evening’s Kudlow Report. “Did I say that?” he remarked. Well, I think there are a lot of analogies to what we’ve been going through to that of the Great Depression, but I don’t really think we’re in a depression, so I might have said it slightly wrong.”

Shiller, co-developer of the Case-Shiller index on housing trends and author of Finance and the Great Society, told me that while the U.S. is not in recession, certain elements of the economy resemble one. “The persistence of high unemployment is a problem,” he said, along with interest rates at “depression levels.”

On Monday, in an interview with Squawk Box Europe, Shiller said the world is in a “new age of austerity.”  He said, “Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now.”

And when I asked him on Tuesday whether the economy is in a recovery, Shiller said “not quite.”

“Depends on how you define these things. In some ways, we are not in a recovery. Look at the employment-population ratio. It’s stuck at 58.5 percent. That’s kind of close to the lowest it’s been in this whole debacle,” he said. “We haven’t recovered jobs. Unemployment rate is down, but that is because people have left the labor force.”

Shiller also reiterated his support for Keynesian stimulus. “I’ve been advocating raising taxes and expenditures as a temporary measure to get us out of the weak economy,” he said. “That’s the balanced-budget multiplier first proposed by William Salant and Paul Samuelson in the 1940s. Now’s the time to use it.”

And when I challenged him on the idea that President Obama’s stimulus hasn’t worked, Shiller defended it. “We’ve had a worse recession than anybody expected,” he said. “I don’t think it proves that the principle is wrong. I think we need to do that. We can’t give up on the economy.” Shiller claimed that the Obama stimulus has had “no impact on the natural debt.”

He did, however, say that he still believes in market forces. “I would like to see financial markets expanded,” he said, adding that he had faith that the stock market was still a good bet.

Asked to weigh in on Jeremy Siegel’s prediction that the Dow would hit 17,000 by the end of 2013, Shiller took a more modest outlook. “I agree with [Siegel] that stocks are a good investment,” he said. “I’m just not as high and gung-ho as Jeremy is.” 

Why Businesses Aren’t Investing in the U.S.



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Businesses aren’t investing in the U.S. because of a lack of consumer demand, International Paper CEO John Faraci told me on Friday’s Kudlow Report. “I think this was all about consumer spending and demand,” he said. “You know, the problem we have is there’s inadequate demand to create jobs. We know how to respond when there is demand.”

The U.S. Commerce Department estimated that gross domestic product expanded at a 2.2 percent annual rate in the first quarter, falling short of analyst expectations for 2.5 percent growth and coming in well below the fourth quarter’s 3 percent rate.

Faraci said consumer spending has been dampened partly because the nationwide housing market has yet to recover. “Until it does,” he said, “we’re not going to see the kind of consumer spending you would expect coming out of a recovery.”

When I asked Faraci why companies are not investing, he once more pointed to demand that has not materialized. “Productivity has obviously been very good, so we’re creating more capacity with less resources,” he said. “But at the end of the day, this is really about responding to demand, whether its automobiles or packaging products we make for a whole variety of industries and end users.”

“We’re investing in India. We’re investing in Russia. We’re investing in Brazil,” Faraci added. “Not to ship products back here, but because demand exists in those markets. At the end of the day, this is really about responding to demand. We’re not going to go out and invest unless there’s demand.”

Don Peebles, CEO of Peebles Corp., a real-estate developer, agreed with Faraci that housing remains a drag on the economy. Where a strong market, cheap money, and high leverage fueled growth before the financial crisis, Peebles said “the housing market is not [now] able to carry the economy.” According to Peebles, “Americans’ wealth has been decimated as a result of the lost value in their homes.”

Peebles also acknowledged that rising health-care costs and uncertainty over taxes are a challenge. But he added that the number-one issue is access to capital.

Rounding out Friday’s business panel was Mort Zuckerman, founder of real-estate investment trust Boston Properties and publisher of the New York Daily News and U.S. News & World Report. Zuckerman blamed the housing-market collapse, as well as health-care costs and an “inadequate, badly structured stimulus program,” for today’s lackluster growth picture.  

“Clearly,” Zuckerman said, “you should’ve had a GDP growth now of somewhere between 6 and 8 percent, with the degree of monetary and fiscal stimulus.”

Watch the full segment here:

Geithner Goes Over the Edge



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Is Tim Geithner the most politically partisan treasury secretary in history? Certainly sounds like it these days. As the government’s chief financial officer, he’s spending a lot of time firing campaign barbs at various Republicans and their policies.

Geithner has blasted Mitt Romney by name on several occasions. He frequently attacks Representative Paul Ryan and the GOP budget. And he recently fired a broadside at top-Romney economist Glenn Hubbard, who is presently dean of the Colombia Business School.

Responding to a Hubbard op-ed in the Wall Street Journal — which calculated that the president’s spending plans would require an 11 percent tax increase on people earning less than $200,000 a year — Geithner said, “That’s a completely made-up, remarkably hackish observation for an economist.”

Hubbard a hack?

Read my full column here.

Obama’s 2.5 Percent Stall



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Wall Street headlines are full of fears of a springtime stall for the already subpar economic recovery. And if that weren’t bad enough for Obama’s reelection chances, a spate of new polls show Mitt Romney’s economic-approval ratings are far outdistancing the president’s.

Even while the headline surveys basically show an Obama-Romney tossup, it will be very difficult for Obama to pull out a victory this fall. Traditionally, incumbents who poll below 50 percent are in trouble. And with Obama consistently in the mid-40s, he has a tough uphill climb ahead.

Read my full column here

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