Conservatives do not trust the president in his role as commander in chief. They want more than a shot across the bow, but they’re not hearing clear strategies and intentions.» Read More
No matter how you slice the Obama budget pie, the inescapable fact is that the president wants to get rid of the roughly $1 trillion budget-cutting sequester and substitute in a $1 trillion-plus tax hike. In other words, more spending, more taxing. Growth-busting. The GOP should just say no.
And let me provide some counsel to my Republican friends in Washington, in particular in the House. Balanced budgets don't create growth. This mantra is wrong. It's growth that creates balanced budgets.
Many profound and detailed admiration pieces will be written about the late Margaret Thatcher, and they'll be much deeper than this one. But I want to get on record with my own esteem for Thatcher, whose character, philosophy, and achievements made her one of Britain's greatest prime ministers.
Way back in the early 1990s, at a National Review conference on the eastern shore of Maryland, I had the great honor to serve on an economics panel that Thatcher moderated. (Craig Roberts was also on that panel, although I can't remember the name of the third panelist.)
The topic was free markets and freedom, areas in which Margaret Thatcher made huge contributions, so I had a lot to live up to. And how did it go? Well, following the discussion, I got to sit next to Thatcher during the luncheon. And she told me, "You know, Kudlow, you did rather well in that talk." Naturally, I was thrilled.
Apropos of my column of a week ago, "Has Bernanke Gotten the Story Right?", this week's paltry gross domestic product revision again backs up the actions of Federal Reserve Chairman Ben Bernanke and his market-monetarist supporters.
Real GDP was a miniscule 0.4 percent at an annual rate for last year's fourth quarter, up from an earlier estimate of 0.1 percent. Perhaps more to the point, the year-on-year GDP change is only 1.7 percent, less than the 2 percent average growth of the Obama recovery, which is still the weakest in modern times going back to 1947.
(Read More: Not-So-Great News for Jobless Claims and GDP)
Inside the report, there was good strength in housing investment (17.6 percent), business equipment (11.8 percent), and business structures like factories and warehouses (16.7 percent), all in annual rates for last year's fourth quarter. Consumer spending, however, was a rather soft 1.8 percent.
You might not know it from the acrimonious political debate on cable and broadcast TV, or on talk radio, or on websites and blogs. But here's a counterintuitive observation: Amid all the negativism out there, I believe optimism is in the air.
That's right. Optimism.
Sometimes you have to search for it, or read it in the fine print. But I believe the political economy is getting better, not worse.
Let me make a few points to defend what most folks believe is an indefensible position.
President Barack Obama may be backing away from his doomsday spending-cut predictions as the sequester goes into place. But the new party line is that while there will be no impact in the first few days, there'll be a slow, downward slump after that.
What, are we to believe that lower spending and smaller government damage the economy? Doesn't that run counter to virtually every reasonably objective study in recent years—including ones from a number of U.S. academics and the OECD in Europe—that describe how countries with lower government spending grow more, and how countries with higher government spending grow less?
The Obama administration is whipping up hysteria over the sequester budget cuts and their impact on the economy, the military, first providers, and so forth and so on. Armageddon. But if you climb into the Congressional Budget Office numbers for 2013, you see a much lighter and easier picture than all the worst-case scenarios being conjured up by the administration.
For example, the $85 billion so-called spending cut is actually budget authority, not budget outlays. According to the CBO, budget outlays will come down by $44 billion, or one-quarter of 1 percent of GDP (GDP is $15.8 trillion). What's more, that $44 billion outlay reduction is only 1.25 percent of the $3.6 trillion government budget.
By far the best line from this week's duel on the State of the Union came from Sen. Marco Rubio, R-Fla. Nice and simple, and right to the point:
"Presidents in both parties—from John F. Kennedy to Ronald Reagan—have known that our free-enterprise economy is the source of our middle-class prosperity."
(Read More: The Price Tag on Obama's State of the Union)
That's a brilliant summary of pro-growth policies, on the supply-side and in a free-market context.
In Tuesday's State of the Union Address, President Obama claimed that he and Mitt Romney actually agree on raising the minimum wage. (Read More: Obama's State of the Union the Best Chance to Sway Public: Axelrod)
Here's the line from the speech:
"Tonight, let's declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. …so here's an idea that Governor Romney and I actually agreed on last year: Let's tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on."
There's only one problem with that claim, Romney backed away from it about a year ago during a live interview on CNBC's "Kudlow Report." The key exchange is below, watch it and judge for yourself:
All this chatter about a so-called global currency war is utter nonsense.
All that is happening is the Japanese are wisely taking steps to increase liquidity and depreciate their vastly overpriced yen. They are doing this in order to avoid deeper and deeper deflation. That deflation will sink the Japanese economy for years to come if remedial actions are not taken.
Among all the big economies, none needs quantitative easing more than Japan's. All the Japanese have done so far is make cheap loans to banks, but with no concerted quantitative easing. But QE is coming this spring, when Prime Minster Abe appoints a new Bank of Japan head man.
Wednesday's report of a 0.1 percent gross domestic product decline for the fourth quarter came as a surprise to most forecasters. But it actually masks considerable strength in the private economy.
Namely, housing investment in the fourth quarter jumped 15.3 percent annually, business equipment and software spiked 12.4 percent, and real private final sales rose 2.6 percent. All in, the domestic private sector of the economy increased 3.4 percent annually—a very respectable gain.
(Read More: The 'Best-Looking' GDP Drop You'll Ever See.)