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Thursday, October 10, 2002
Larry Kudlow :: Townhall.com Columnist
End the stag party
by Larry Kudlow
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In Cincinnati this week, President Bush delivered a successful speech on Iraq. It was clear and concise. His reasoning hit hard. The speech bolstered support for strong resolutions in the U.S. Congress and the U.N. by going around the media and directly to the country. It was a very Reagan-like moment for Bush. But isn't it time he gave a similar talk on the economy? A month before the midterm election, you almost need a microscope to distinguish between recession and recovery. Take, for example, the recent jobs loss in September. There is no recovery yet for business employment. Total jobs are 1.7 million below the peak of March 2001. The number of total unemployed throughout the country has increased from 5.5 million two years ago to 8 million today. Industrial production, perhaps the best coincident economic indicator, remains nearly 5 percent below its June 2000 peak. There is very little evidence of any recovery at all in business-capital investment, a key economic driver during the 1990s. While consumers are still spending, the supply-side of the economy is dormant. Oh, and then there's the stock market. In the bear market of the mid-1970s, the Dow Jones used to sell off 10 points a day. Now it plummets 150 points a day. Then the problem was stagflation. Now it's just stag, with a mild dose of price deflation mixed in. Still, whether the ailment is inflation or deflation, no growth or slow growth, there are proven cures. More than 20 years ago, a tighter Federal Reserve money policy curbed inflation, and lower tax rates strengthened incentives and re-ignited growth. In today's deflating economy, an easier Fed policy of increased money growth would stabilize prices, and lower tax rates for individuals and businesses (including an end to the double taxation of dividends) would stimulate investment, employment and production. At this point of the so-called recovery, with productivity rising at 5 percent, real GDP should be expanding at 6 percent or more. But instead, we are clinging to a 3 percent GDP growth trend that may or may not last. This is really a growth pause -- or even a growth recession. In absolute terms the economy is rising, but the rate of that rise is unsatisfactory. That's what Washington seems to be missing. This economy was built for speed. Airplanes designed to take off at 165 mph won't get airborne at 50 mph. President Bush has been Reagan-like in his prosecution of the war on terror. But he has a long way to go on the economy if he is to meet the Gipper's domestic-leadership test. More than likely, it is the Bush economic team that is not developing the necessary pro-growth formula. There are some bright heads in the group, but they are offset by the meatheads. No good deed goes unpunished in this gang. But economic victory can still be rescued from the jaws of defeat. Rumors abound that the White House is now engaged in a job search to completely revamp its economic team. Market-savvy New Yorkers like Blackstone's Steve Schwartzman and the New York Stock Exchange's Richard Grasso might be on the list to replace the ineffective Paul O'Neill at Treasury. There are also some welcome plans for the post-Greenspan era at the Fed. With new leadership blood in place, a vigorous effort to bring significant growth back to this economy can begin. So far, Bush has had a Teflon coating when it comes to the domestic situation. Polls suggest that downtrodden 401(k) holders understand he inherited a market plunge and recession that began in mid-2000. Corporate corruption is being blamed on the CEOs, not the president. But that Teflon will quickly wear thin if this growth recession continues much longer. Recently, former Vice President Al Gore and Senate Majority Leader Tom Daschle blamed Bush for the economy and the stock market, even though former Clinton economic advisors like Nobelist Joe Steiglitz have said the downturn began on the Clinton-Gore watch. But President Bush can seize the high ground with a strong pre-election speech rebutting this Democratic attack. He should give a Reaganesque address to the country, not unlike his Cincinnati speech, where he lays out his future vision for economic growth. Included in this talk, he can make good on his August pledge for an investor-tax-cut package. In clear and simple terms, he can tell America what economic problems he inherited, and what economic policies he truly believes in. He can plainly describe how lower taxes and tighter spending will deliver a strong economy at home and bolster the war effort abroad. In doing so, he will also provide a nationwide Republican platform for the elections and give people a clear reason to pull the GOP lever on Nov. 5. Who knows? If Bush takes the economic helm, stocks might start rising 150 points a day.
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Lawrence Kudlow is host of CNBC's Kudlow & Company

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