Kudlow's Corner

Democrats have the wrong growth plan


The Democratic presidential debate ironically took place the same week that a Princeton University professor was awarded the Nobel Prize for economics. Why ironic? Because Professor Angus Deaton is a strong advocate of economic growth. Today's Democrats are not.

Democratic presidential candidate U.S. Senator Bernie Sanders (L) debates former Secretary of State Hillary Clinton during the first official Democratic candidates debate of the 2016 presidential campaign in Las Vegas, Nevada October 13, 2015.
Lucy Nicholson | Reuters

Here are some words from Professor Deaton, with a very big hat tip to my pal Jim Pethokoukis, the AEI economics columnist: "Economic growth is the engine of the escape from poverty and material depravation. Yet growth is faltering in the rich world ... Almost everywhere, the faltering of growth has come with expansions of inequality."

Deaton also said this: "Slower growth makes distributional conflict inevitable, because the only way forward for me is at your expense. It is easy to imagine a world with little growth but endless distributional conflict between rich and poor, between old and young, between Wall Street and Main Street, between medical providers and their patients, and between the political parties that represent them."

And yet, the professor said, "Even so, I am cautiously optimistic. The desire to escape is deeply engrained ... People may block the tunnels behind them, but they cannot block the knowledge of how the tunnels were dug."

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The class warfare Deaton describes (endless distributional conflict) fits today's political climate to a tee. Now, I am not familiar with all of Deaton's growth-policy solutions. But thanks to Cato economist Alan Reynolds, I dialed up several videos of Deaton's presentations. One thing that stands out is his strong support of free trade and his strong opposition to trade restrictions. He is also very much against government-to-government foreign aid or World Bank subsidies. In one talk, he says the World Bank should be turned into a McKinsey-like consulting firm.

Deaton also stresses that economic growth is very important for health and happiness, and that it is absolutely essential to solving poverty.

Let me add this: Over roughly the past three decades, according to numerous international studies, the rise of free trade and free markets has reduced dollar-a-day abject poverty by 80 percent as nearly 1 billion people have moved into the middle class. This is mostly in Asia, but includes parts of Latin America and Africa. I have to believe Professor Deaton would cite this to back up his theories.

So now it's time to ask: Did the Democratic debaters mention growth? If they did, it wasn't all that much.

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The Wall Street Journal estimates that the price tag on the proposals from Vermont Sen. Bernie Sanders of Vermont, an avowed "democratic socialist," would cost $18 trillion and Sanders has said he supports a top tax rate above 50 percent. Hillary Clinton wants to double the capital-gains tax. She wants middle-class jobs, but wants to tax the businesses that create them.

Whenever middle-class taxpayers hear this kind of nonsense, they worry that big middle-class tax hikes are on the way.

And, while all the Democratic presidential contenders hate the Obama recovery, they all want to enlarge Obama policies with more spending, greater tax burdens, and new regulations.

Professor Deaton sees an "endless distributional conflict between rich and poor." Well, Hillary and Bernie had a field day on the debate stage bashing rich people and vowing to tax the top 1 percent and Wall Street in order to finance free education, free debt, free tuition, free health care, and free everything. It never works.

Sanders wants to turn America into Denmark. But as the National Review's Kevin Williamson has written, Denmark has moved towards freer markets and is today just as competitive globally as the United States. Sanders can't even find a good socialist example these days.

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And Hillary Clinton deserves an anti-Nobel economics prize for coming out against the Trans-Pacific Partnership trade deal, which she once praised as the gold standard of trade.

If Professor Deaton is correct — that growth helps solve poverty — it's clear after the Tuesday-night debate that the Democrats don't have an anti-poverty program. Punishing success will not create the growth that lowers poverty. Nor will wild-eyed spending. Nor will massive costly new regulations.

The last great super-growth Democrat was John F. Kennedy. He targeted 5-percent economic growth rather than 2 percent secular stagnation. He slashed tax rates for the rich, the middle brackets, and the lower brackets, and on corporations, capital gains, and elsewhere. He was a free-trader. And he insisted on a stable and reliable dollar (in those days, linked to gold).

And I bet JFK would have agreed heartily with many of the words of newfound Nobelist Angus Deaton.

But today's Democratic party is basically erasing JFK's economic legacy. What a pity.

Commentary by Larry Kudlow, a senior contributor at CNBC and economics editor of the National Review. Follow him on Twitter @Larry_Kudlow.