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.