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THE CONSERVATIVE REVIEW - December 7, 2010
Shock Therapy for Jobs
by: Larry Kudlow
Pro-growth incentives will fix this dismal unemployment
picture.
Unemployment jumped to 9.8 percent in a very disappointing
November jobs report. Nonfarm payrolls increased by only
39,000 and private jobs expanded by just 50,000. This
is way below what the economy needs. Most discouraging,
the smaller-business household employment number fell for
the second time in a row, down 173,000 in November after
a 330,000 drop in October. This is the nineteenth straight
month with unemployment above 9 percent.
Now, after the severe financial panic of two years ago,
it seems clear that too many tax and regulatory obstacles
are blocking satisfactory job creation. And it also seems
clear that a number of fresh new incentives will be
necessary to spur the kind of prosperity that Americans
desire. Following the deep recession, we need shock-
therapy, pro-growth, tax-cut and deregulatory incentives.
Post-election, is the Washington war on business really
over? Has the war on successful earners and investors
truly ended? Is the class war against capital still being
waged by the White House?
Will Obama bring senior business people into his inner
circle? Are we going to get pro-growth tax reform for
individuals and corporations? Are we truly going to limit
government spending in order to reduce the onerous budget
deficit? Is King Dollar currency stability on the table?
These are all key questions for the economy's future and
the murky unemployment outlook.
Perhaps the only saving grace from the poor jobs report
is that it will spur a quick resolution to extend all the
Bush tax cuts.
Democrats keep shilly-shallying with all these silly class-
warfare amendments, like a $250,000 limit, or a $1 million
limit. This has everything to do with left-wing redistri-
butionist social policy and nothing to do with economic
growth. The fact is, passing the bill to freeze the tax
rates will help business confidence. Why don't Democrats
understand this?
But there's more.
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Large and small companies remain worried about the high
regulatory and tax costs of Obamacare, which is the number-
one jobs-stopper. How expensive will it be over the next
five to ten years for the new hire? Companies also have to
deal with a crazy quilt of new financial regulations that
may block access to new bank loans when private credit
demand kicks up.
But the Bush tax cuts will not do the job alone. Full-
fledged flat-tax reform -- of the sort embodied in the
best of the Bowles-Simpson fiscal recommendations --
will be necessary for full-fledged economic recovery.
Lowering the top personal and corporate tax rates will
increase after-tax returns for work and investment.
That's the kind of strong new incentive that will be
necessary to ignite rapid economic growth in the post-
meltdown period. Broaden the tax base and lower marginal
rates across-the-board.
And full-throated spending reduction will be necessary to
drive deficits lower, and reduce the threat that future
taxes may have to go up if the bond vigilantes come after
the U.S. Treasury market the way they have attacked
various countries in Europe.
Meanwhile, the Fed can produce money, but we are learning
again that it cannot produce jobs. It also can produce
inflation and a devalued dollar.
In other words, the basic building blocks for growth must
be restored: limited government, lower tax rates, and a
steady currency.
However, all is not doom and gloom on the economy. There
is some optimism. In fact, there's a mystery to Friday's
jobs report, since it just doesn't tally with all the
other good economic news.
Retail sales are up four straight months, and chain-store
sales for the early holidays surprised on the upside.
Manufacturing reports have been solid. Even for November,
the Institute for Supply Management's surveys for manu-
facturing and services were solid. The ISMs are basically
real-time economic indicators. And oddly enough, the
employment component of each looks fairly strong.
Meanwhile, core business investment is rising at a double-
digit pace. Profits are at a record high. Commodity indexes
are rising at a better than 10 percent rate, year-on-year.
The M2 money supply is growing around 8 percent annually.
Business loans from commercial banks are finally bottoming.
The Treasury yield curve is positively sloped. Oil prices,
closing in on $90 a barrel, are too strong. And the stock
market's strong run continues.
In sum, the economy is actually rising at a roughly 3
percent rate. But economic growth should be double that.
There is so much work to be done by the new Republicans in
Washington. Let's hope the Tea Party message is alive and
well in the GOP. Smaller government, lower tax rates,
deregulation, and free-market economic freedom. We need it
now more than ever.
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