The Boom… Before the Bust?

Larry Kudlow suggests that Republicans shouldn’t let political enthusiasm lead them to deny economic reality, especially an economic reality that benefits the United States:

Sometimes you have to take out your political lenses and look at the actual statistics to get a true picture of the health of the American economy. Right now, those statistics are saying a modest cyclical rebound following a very deep downturn could actually be turning into a full-fledged, V-shaped, recovery boom between now and year-end. Conservatives shouldn’t trash it.

The problem for conservatives, rhetorically and politically, is that we’re correct about the effects of the policies being forced into law by Obama and the Democrats (on skids that Bush and the Republicans greased, to be sure). But:

… most of that is in the future. The current reality is that a strong rebound in corporate profits (the greatest and truest stimulus of all), ultra-easy money from the Fed, and some small stimuli from government spending are working to generate a stronger-than-expected recovery in a basically free-market economy that is a lot more resilient than capitalist critics think.

Ultimately, what shouldn’t be forgotten is that the United States is made up of millions of people determined to improve their lives, and they’ll make the economy as resilient as they can for themselves, given the playing field that they’re given. The challenge is in getting America to plan ahead — to look down the road and anticipate the effects that changes to that field will have a year to a decade in the future.
Of course, Kudlow thinks that might be precisely the incentive to which economic actors are currently responding:

At this point it’s impossible to project a long-lived economic boom, such as we had following the deep recession of the early 1980s. For one thing, tax rates will rise in 2011 for successful earners and investors, quite unlike the Reagan cuts of the 1980s. So it’s possible that entrepreneurs and investors are bringing income, activity, and investment forward into 2010 in order to beat the tax man in 2011. This would artificially boost this year’s economy, stealing from next year’s economy.

Indeed, that’s precisely what we’ve all been arguing: that stimulus spending has only borrowed money from the future and obviated the repair of economic problems in the present, that low interest rates and high government borrowing will yield inflation and a decrease in economic stability based on U.S. fiscal reliability, and that economy killers like the healthcare legislation will vaporize future growth opportunity. Week-by-week trends aren’t but so useful, but I do wonder whether this result is evidence that the boomlet that Kudlow predicts represents an investment decision, rather than true economic growth:

The number of newly laid-off workers seeking unemployment benefits rose last week, a sign that jobs remain scarce even as the economy recovers. The Labor Department said Thursday that first-time claims increased 18,000 to 460,000 in the week ended April 3.

For those thousands of people, and tens of thousands more, what’s needed is an increase in opportunity as soon as possible. It would certainly be unfortunate, for the long-term health of the nation, if the Democrats managed a bit of luck in a temporary upswing just before an election, but talking down the economy in the present will accomplish nothing positive.
What’s needed is clarity.

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12 years ago

Ah, I see!
Obama and Bush and all saved us from ruin and the stim and TARP worked pretty well at avoiding a complete meltdown, but NOW…..after they took all those actions, which the far-right opposed, things are looking up and the GOP was right, as usual!
Amazing logic!
One would only think that the Grand Ole Party and Conservatives want to be able to bet on the lottery after the winning number is already picked.
But it doesn’t work that way!
All praise the stim and the tarp!
BTW- Ludlow is really not the kind of man you want to quote or follow! He was telling people to buy in BIG as the ship went down. He pimped and ho’ed until the end.
In short, he has been WRONG on the economy for most of the past couple of years…and that is a bad record.

Warrington Faust
Warrington Faust
12 years ago

I have complete faith in the “business cycle” and am sure that a turn around will come.
I am not 100% confident in the predictions madein this article, except for the note on increasing taxes.
Here are a few things I haveobserved. I know a number of people busily reworking their estate plans because of the probable re-imposition of death taxes in 2011. Most of the changes I know of will not be particularly beneficial to the economy, if millions of people make similar changes it will turn into real money going into hiding.
I know a number of salespeople who service large companies. Their customers tend to feel that they have cut employees to the bone and productivity has not been that adversely effected. They may not rush to hire more people. I think this may leave a lot of older, skilled people looking for employment quite a while longer.

12 years ago

Well, Faust, I guess you hang with many multi-millionaires – since Estate taxes are only likely to increase only for those with net worths of 5-7 million dollars or more….of course, the issue has not yet been addressed by Congress, so I guess these folks want to be safe, rather than sorry. I’d be completely amazed if the level is not set in the range of 3-7 million.
I agree this is likely to be a jobless recovery – now and maybe forever. Our economy is so efficient that it just may have to change completely for total employment.

Warrington Faust
Warrington Faust
12 years ago

Among the last reported figures I saw before the bust, about 1 American in 85 had an asset value of over a million. That did include real estate. So, peole worth 5 to 7 times that are not uncommon.
Often, these people are not recognized because they choose not live the life of a “millionaire” as portrayed in popular culture. You may know more of then than you think. It is reported that their favorite clothing store is J.C. Penny, because Consumer Reports gives it the highest rating. Try hanging out there.
A hint, relatively few are professionals. Most are small businessmen.

12 years ago

Faust, I am privileged to be in that class myself – so I know of what you speak very well. A million bucks ain’t what it used to be – in fact, it’s not enough for a couple to retire on these days! Those unfamiliar might laugh at that, but the math proves it out….when you consider that a couple is likely to have 300K of that (at least) tied up in their real estate. That leaves 700K, which at current interest rates gives them about 30K per year, hardly enough for health insurance and medical care, let alone the Good Life!
Still, the estimates are that the Congress will exempt estates of less than 5 million – and some say as high as 10 million!
I don’t know many people with estates over 10 million… least first hand..
Estates of over 5 million these days are in the top 1%.
So all I am saying is that you are hanging with the top 1% if they have concerns about Estate tax! Hopefully, some of that green is rubbing off on youl

12 years ago

Warrington Faust,
You are welcome to visit Hawaii any time because as a state we have the highest average price $600,000 in the nation for our single family home (my neighborhood is poor only up to a high of $10.5 million so far for a single family home) and also highest average condominiums $400,000 in the nation.
Also as a state, we have the highest number per total state population bases (about 7%) in the nations of residents that has access to $1 million dollars in readily disposable funds at any given moment in the day.
The weather averages 78 degrees year round every day and is mostly sunny.
The Hawaiian ladies wear grass skirts and gracefully move (but keep your eyes on the hands because they tell the story).
We have a GOP Governor and executive branch and a Democratic GA. and my island is 60% size of RI like cutting off the East Bay (seat of state government) but we are 47th state in total size with minimal state and local government (1 Gov. with 17 departments, 1 school department and school superintendent, GA, Judicial, 4 county governments with 4 mayors; 4 city councils, 4 police departments, 4 fire departments and 4 EMAs) covering over 120 islands stretching almost 1,600 miles).
Come visit Warrington Faust!
Since I left RI for HI I’m enjoying the laid back life with greater than 50% tax savings!

Warrington Faust
Warrington Faust
12 years ago

Stuart writes:
“Estates of over 5 million these days are in the top 1%.”
1% equals 1 in 100. Did you ever think that much of that results from careful estate planning, and that without it there might be a larger number? I think that highly likely.

12 years ago

You have to be more clear, Faust!
No, I have no inherited wealth and don’t expect much. I would think VERY few people have millions in inherited wealth, but then again maybe I hang with the wrong crowd.
Say hi to the boys at the NY Yacht Club for me!
Folks with very large estates have always had trusts and other stuff to make sure they didn’t pay a dime they didn’t have to. These days you can give LOTS of free “gifts” per year to your heirs while they are alive also… whittle down that wealth.
But, heck, I’m with you. I’m going to do every legal and ethical thing possible to not be subject to excess taxation. Problem is, I’m not worth that much so I doubt it will hit me anyway!
Ah, the problems of the upper class! Good thing we have all those peons fighting for our betterment! We could have never imagined that all these poor and middle class folks would be protesting so WE could keep more (and they end up with less).
Ah, politics….is funny.

Warrington Faust
Warrington Faust
12 years ago

Sturat writes:
“You have to be more clear, Faust!”
Didn’t mean to obfuscate. If 1 estate in 100 pays a death tax, it seems very clear that there were many moreabove that number who managed to lower their liabilty by estate planning or insurance purchases. Worse, a majority of it will probably go to the wife. So, when see fies there will be another liability.
“Say hi to the boys at the NY Yacht Club for me!”
Sorry, don’t go there. I row. But, its existence is proof of what I am saying. Most of those boats are “corporations” in themselves to lower tax liability and offset operating costs.

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