Question: What do Neil Cavuto and most of the folks over at Fox News; Steve Forbes, Rich Karlgaard, and much of the intellectual inventory over at Forbes magazine; Larry Kudlow, Art Laffer, Don Luskin, Brian Wesbury, and most of the other money types who pop up around 5 p.m. EST each weekday on CNBC; the crowd over at the Wall Street Journal editorial page; and the full complement of writers right here on NRO Financial have in common?
Answer: They stuck to their models when the financial world was awash in pessimistic hysterics, and reminded all who would listen that the underlying economy was strong, that the 2003 tax cuts would do their magic, and that smart investors and entrepreneurs would act accordingly and put their money to work. They were ridiculed. They were shouted down. They were attacked. And they were ignored by the vast hoard of pundits and talking heads. But in the end they were right.
If you thought like the members of the optimistic club, you made a lot of money. And if you thought like their detractors, you got crushed.
That’s how it’s supposed to work: Markets are leadership evaluators. They assess the pronouncements of presidents and Fed chairmen. They appraise the decisions of CEOs. They prove or disprove the predictive power of financial forecasting models: Keynesian, Rubinomic, populist, Marxist, supply-side. Each model guessed at what was in store for investors and the economy all across the 2000-07 period. And only one model, the supply-side one that links growth and prosperity with low taxation and low regulation and free markets and a general environment of entrepreneurship and opportunity, consistently outperformed the rest.
I understand how hard it was for the optimists to hang in there. Four years ago, the received wisdom was so gloomy, that I had to take out a second mortgage in order to publish a book (The Bush Boom) that linked the fiscal policies of the current president with economic prosperity. But my optimism was borne of supply-side fundamentals, so I could take it to the bank.
I was on a panel recently with Herb Greenberg from MarketWatch. He asked the panelists, “How is anyone supposed to know what’s going to happen? You guys all have a different opinion.”
“Track record,” I answered.
And I didn’t mean individual track records; I meant the model’s track record.
The classical model now known as supply-side economics has consistently explained events in ways that other models have not. The stagflation of the 1970s was a mystery to establishment economists, but not to supply-siders Art Laffer and Bob Mundell. The turnaround of the 1980s was “impossible” according to many, but it happened anyway. And the 1990s proved that Reaganomics works even when it’s employed by a centrist, Southern Democrat.
And then there’s the Bush boom: maligned, denied, attacked. But, in the end, it was predictable.