Why Not Optimism?
"The Kudlow Report" Anchor
And by the way: Who you calling Hoover?
What exactly is wrong with an optimistic president who has confidence in the long-run future of the American economy?
President Bush took this stance in a recent interview with me and at the Economic Club of New York. He told me, “Like any free market, there’s also downturns, and we’re in one. But I am confident in the long-term strength of our economy.”
Optimism, after all, is one of the few levers our chief executive can use every day. By remaining optimistic, Bush is borrowing a page from Ronald Reagan, and rejecting a whole book of malaise from Jimmy Carter.
Bush is dealing with the housing and mortgage credit virus. But he will avoid anything that will doom future economic growth. He wants to stop overzealous regulatory legislation that will turn the U.S. back thirty years. And he won’t bow to tax hikes and trade protectionism. While the rest of the world is embracing free-market American-style capitalism, he won’t lurch left with big-government programs.
Home prices must adjust lower to end the housing downturn. And it’s precisely these lower prices that will allow young families to afford new homes. Prices may fall, but homes don’t go away. Markets, not government, are the best way to sort this out.
Bush gets all this. And yet he’s attacked for his free-market moorings. Liberal columnist Maureen Dowd says he’s “plum loco.” She and Sen. Charles Schumer call him the new Herbert Hoover.
But let’s take a closer look.
It was Hoover who signed the Smoot-Hawley trade-protectionism act and overturned the Coolidge-Mellon tax cuts. These disastrous measures — along with monetary contraction from a fledgling Federal Reserve — turned a recession into a depression. FDR didn’t help matters, either. His misbegotten tax hikes on successful earners and businesses, and his alphabet agencies to control the industrial and farming sectors, extended the depression and held unemployment near 20 percent.
Today, it’s the Hill-Bama Democrats who want to raise taxes on successful producers. And they want to turn protectionist by reopening NAFTA and stopping any new open-trade treaties. Schumer himself has spent years bashing China, threatening the nation with huge tariffs if its currency policies don’t conform to demands.
If anyone has resurrected the party of Hoover, it’s today’s Democrats. They’ve adopted pessimism as their national pastime, and want us to believe we’re already in a long and deep recession.
But not so fast.
The growing export sector is showing considerable strength. So are agriculture, energy, industrials, and international infrastructure. The e-forecasting economic service says GDP had a small gain in February and a positive reading of 1.5 percent over the past six months. The economy isn’t collapsing. And while it may be flat, there’s no deep recession.
Hooveresque monetary contraction? It’s not there, either. After numerous Fed easing moves, the three-month growth of the monetary base has shifted from minus-4 percent last December to plus-6 percent in mid-March. The broader M2 money supply has registered an 11 percent annual gain over the past three months.
Inflation remains a worry. And despite dissenting votes by Reserve Bank presidents in Dallas and Philadelphia, the Fed slashed its target rate by 75 basis points this week. But the Fed’s statement put a greater emphasis on inflation — which has risen to 4.5 percent — and the inflation-sensitive gold price dropped $65 on the news.
Big inflations cause deep recessions, and hopefully the central bank is moving back toward price stability. In fact, now would be a perfect time for the Treasury to publicly support a stronger dollar, and to conduct some dollar diplomacy with the G7 nations to defend the greenback.
On the housing-credit front, University of Michigan economist Mark Perry, using data from the Mortgage Bankers Association, points out that of the 46 million mortgages outstanding, only 2.04 percent were in the foreclosure process in last year’s fourth quarter. And most of those were confined to Nevada, Florida, Michigan, and Indiana.
Meanwhile, commercial mortgage delinquencies ended 2007 near record lows. And get this: Over the past year bank loans to businesses have grown by $250 billion. During the credit crunch of the early 1990s, these loans fell by $60 billion. Believe it or not, credit is still available, even to small businesses.
In the stock market, the best-performing sectors since the January 22 bottom have been transports (trucking and railroads), basic materials, energy, and industrials. These economic-sensitive areas point to a solid near-term pickup in economic growth.
Even John McCain is picking up. New polls from Zogby and Rasmussen give him a 6 to 8 point lead over Hill-Bama — a nod to Reagan-Bush pro-growth policies instead of high-tax, protectionist big-government from the Democrats.
So I’m glad President Bush is taking an optimistic view. That’s called leadership.