Kudlow's Corner

Donald Trump is a disrupter—exactly what we need to fix the economy

Wilbur Ross: Why I’m backing Donald Trump
VIDEO3:0303:03
Wilbur Ross: Why I’m backing Donald Trump

Investor Wilbur Ross recently told CNBC that Donald Trump "represents a more radical new approach to government that the nation's economy desperately needs." He's right. Trump seeks an overthrow of the establishment. He's a disrupter. Just what we need to fix the economy.

The situation is that desperate.

The last 15 years of economic policy, especially the last eight years, represent a relapse that harks back to the 1970s. Now, like then, we have a high-tax, high-spend, high-regulation, Fed-pump-priming, standard-less dollar-manipulation policy mix. In general, it's a government-planning approach in the U.S. and around the world.

We've not experienced high inflation in recent years, but that's not because the Federal Reserve hasn't tried hard enough. Meanwhile, all the quantitative easing, bond buying, and interest-rate fixing did not succeed.

It's been a Keynesian mishmash. Gigantic federal spending and infrastructure building (remember "shovel ready jobs"?). Overtaxed investors, successful earners, and large and small businesses. Overregulated banks, energy, businesses, and health care. None of it worked. Whatever happened to those government-spending multipliers? Never happened.

The economy has barely recovered from the so-called Great Recession, with a 2-percent annual rate of growth since mid-2009. Peak worker wages, business investment, and productivity all occurred around the year 2000.

If Trump follows through with his free-market-oriented policy direction the American economy will take off like a rocket.

The U.S. has the highest corporate tax system in the world, companies and their cash are fleeing overseas, welfare rolls are skyrocketing, employment participation rates are falling, and interest-rate markets have come under the spell of the Fed's misallocation of credit.

And in response to all that, the general electorate — and the middle class in particular — is angry and suffering high anxiety about the future.

As American Enterprise Institute president Arthur Brooks argues, people who earn their own income are happy campers, while people who live on government assistance are unhappy. So, at the margin, if you count more people living off government-welfare assistance, and even those working who are earning less in real inflation-adjusted terms, it's a very unhappy country.

Putting aside the growing threat from Islamic jihadist terrorism, most of America's problems are home grown. So when I say overthrow the establishment to fix the economy, and the brilliant businessman Wilbur Ross says we need radical new approaches to government, we're talking two sides of the same coin.

In the 1980s and 1990s, radical change in economic policies fostered by Ronald Reagan and Margaret Thatcher put the brakes on government planning and ushered in a new free-market supply-side era and a two-decade boom. That model has been abandoned in the new century. This must be reversed.

Who, exactly, do I mean by the establishment that needs overthrowing? Much of the blame must be placed on the high-pedigreed economists in and out of government who advise politicians, policy makers, the Fed, big corporate CEOs, and interest-group trade associations to pursue a cronyist corporate-welfare system that both creates and then relies on a government-driven economy. Not all economists — there still are a few free-marketeers out there.

And while Democratic policy planners are the vanguard of the new Bernie Sanders democratic socialism, with Hillary Clinton right in the pack, many Republican advisors are also to blame.

Now, Donald Trump may be an imperfect candidate in his rookie political season, but he gets the basic economic story right: Lower taxes, especially slashing large- and small-business taxes. Roll back regulations. Unleash all forms of energy. Take a market-oriented and consumer-choice approach to health care and education. A friendly attitude toward entrepreneurs.

If Trump follows through with his free-market-oriented policy direction the American economy will take off like a rocket.

Growth is the key, not inequality. Growth creates new businesses, new jobs, higher wages, and a stronger middle class. Growth eases the burdens of poverty. Growth makes everyone happier.

Republican U.S. Presidential candidate Donald Trump speaks at a campaign rally at Gilley's in Dallas, Texas, June 16, 2016.
Brandon Wade | Reuters

But today, not surprisingly, the business sector is slipping into recession. Profits, production, investment, core capital goods, and business equipment have gone negative. Since supply creates its own demand, the slump in business could spread to the consumer — unless policies are turned around.

Pre-election, that won't happen. Post-election, it just might. But that's at least six months away.

And irony of ironies: A bumbling Fed made the right decision to back off interest-rate hikes. In fact, the real message of rock-bottom rates around the world is stagnation and deflation.

But global central banks, much like their governments, are a long stone's throw away from sound money and currency stabilization. It's just like our errant fiscal policies.

To save the economy, things must change.

"You only get to vote for who's on the ballot paper, and your choices are between Hillary Clinton and Donald Trump, and I find that an easy choice to make," said Wilbur Ross.

By the way, business titan Wilbur Ross would make a very good Treasury secretary, wouldn't he?


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

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.