Bull-Market Cheers for Bush

Larry Kudlow
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Posted: Feb 02, 2007 4:20 PM
Bull-Market Cheers for Bush

On a day when the GDP report came in strong and the Federal Reserve proclaimed a balanced economy marked by healthy growth and contained prices, President George W. Bush became only the second sitting American president to visit the floor of the New York Stock Exchange. As he moved from trading post to trading post, floor brokers and assistants stopped their work and started to cheer.

Huge cheers. Loud applause.

This is the same guy the mainstream media loves to kick around -- the same guy who suffers sinking polls while standing resolute on the subject of Iraqi freedom, and who gets virtually no credit for the Goldilocks economy and unprecedented four-year stock market boom. He’s also the same guy who continues to prove he has more character than most anyone serving in public office today.

The last time Bush was in downtown New York was just after September 11, 2001. Back then, everything was devastated, including the NYSE and the U.S. economy. But this week the president returned to a much different scene: Huge cheers. Loud applause. A stock market that continues to set record highs. An economic recovery that defies media pessimism and doomsday Democratic carping.

Prior to this triumphant return, Bush delivered a major economic speech that touted his plan for a balanced budget at the prevailing low tax rates -- a plan geared to extend the economic boom that began in 2003. He also pushed hard for free trade, a message he echoed in a visit to Caterpillar, Inc., in Peoria, Illinois. The tractor maker, and American icon, has seen sales and employment boom in recent years. And much like those floor brokers, Caterpillar CEO Jim Owens knew where to aim the praise. Bush, he said, is owed “much credit for the American and global economies enjoying the best three years of growth since World War II.”

It’s about time more people start giving Bush credit for today’s strong economy. That’s right -- it’s the greatest story never told.

Just look at some of the latest numbers:

Real GDP for the fourth quarter of 2006 came in at 3.5 percent at an annual rate. Price inflation inside the report was very low, around 2 percent, with one major price gauge actually dropping its greatest amount in fifty-two years. For the whole of 2006, GDP advanced 3.4 percent. This followed increases of 3.2 percent in 2005, 3.4 percent in 2004, and 3.7 percent in 2003.

The latest jobs numbers tell the same story. The most accurate employment gauge, called “adjusted households” (which the Bureau of Labor Statistics created in order to combine the non-farm payroll survey with the civilian-employment household survey), shows nearly 3 million new jobs annually over the past three years -- all since Mr. Bush’s supply-side tax cuts of 2003.

And the president (or anybody else) shouldn’t fret about so-called wage stagnation, or inequality. Hourly earnings for non-supervisory wage earners averaged $16.76 in 2006, a near 20 percent gain from the last business-cycle peak in 2000 and a 64 percent increase from the $10.20 cycle peak in 1990.

Comparing the first five years of the Bush economic expansion with the first five years of the Papa Bush/Clinton cycle, average hourly earnings are 44 percent higher today in nominal terms and 9 percent higher in inflation-adjusted terms. Washington economist Alan Reynolds has written voluminously on the absence of wage inequality since the tax-reform bill of 1986. This is a faux issue.

There are two important economic principles at work here. First, low tax rates on capital investment have fostered a corporate-profits boom that is translating into a jobs and wage boom. Second, significant gains to economic growth -- principally from a pickup in the aggregate supply of investment, production, and exports -- are helping keep inflation down.

Both the late Milton Friedman and supply-side guru Arthur Laffer have taught us that inflation occurs when too much money chases too few goods. However, as the Fed has throttled back money-supply growth, the continuing gain from the production of more goods and services has actually reduced inflation. More output chasing slower money growth is a prescription for contained inflation.

It’s a classic Reaganesque supply-side formula. Once again, the so-called Phillips-curve tradeoff between unemployment and inflation has been trumped by reality.

The president deserves a better fate for his economic-policy achievements. But Goldilocks is defeating the doomsday forecasts. Just take your cue from Mr. Bush’s visit to the stock exchange: Huge cheers. Loud applause.