Columnist.
GDP for the first quarter of 2016 came in at a paltry 0.5 percent. That sorry showing follows growth of 1.4 percent and 2 percent in the previous two quarters. If such a thing is possible, the already-anemic economy is actually getting worse. But even worse than that, the latest GDP numbers reveal a collapse in business investment, the real driver of the economy.
The strong May jobs report — including a 280,000 jump in nonfarm payrolls — reminds me of the big debate over the harmful effects of a strong dollar and falling oil prices. But where's the harm? King Dollar, along with the supply benefits of the fracking revolution, may actually be propping up a subpar economy facing headwinds from heavy business taxes and overregulation. The entire cost structure of American business benefits from lower-cost imports and the cheaper purchase price of anything when the dollar is king and energy costs sink. American firms become more competitive. And consumers benefit from rising real incomes in response to the energy price collapse. And it's not only energy. King Dollar strengthens consumer purchasing power across the board.
First-quarter real GDP actually declined by 0.7 percent, according to revisions out this week, creating much new talk about recession. But there is no recession. Trouble is, there continues to be virtually no recovery. The economy has expanded about 1.5 percent over the past two quarters, 2.4 percent at an annual rate over the past two years and about 2.3 percent during this six-year, so-called recovery. That's the real problem. Not a one-quarter snowstorm or inaccurate seasonal adjustments. Following the deepest recession since World War II, a normal recovery should have featured an outsized rebound. The Reagan years exemplified that model. But it hasn't happened. Why?
Federal Reserve Chairwoman Janet Yellen told us recently that the target for the federal funds rate will be raised slightly later this year. But after that, future rate hikes will be small and gradual over the next several years. In fact, we may never have true normalization (4 percent). In my view, Yellen is offering a back-to-the-'50s approach to interest rates. And she's right, though for many wrong reasons. For average folks, what might this policy mean? I'll take a guess: No boom and no bust. No inflation and no recession. All the post-World War II recessions have been preceded by an inverted Treasury yield curve, in which short rates are higher than long rates. That won't happen for many years. Plus, we're now in a downward energy price cycle, and oil price spikes lead to recessions.
One of the interesting nuggets coming out of the conservative sweep in the British elections was the failure of bank-bashing by the Labour Party. Labour leader Miliband, who has since resigned, was anti-bank, anti-rich and anti-business. It failed. And while conservative leader David Cameron didn't necessarily defend banks, he didn't attack them either. Now, the case for Tory economic management wasn't bad. The London Stock Exchange has been hot as a pistol. And the British economy is growing about 2.5 to 3 percent. Not great, not awful. It was enough for a handsome Tory victory. And it may be a message to British pundits that tax-the-rich, redistributionist, bank-bashing talk is old hat. Been there. Won't work. But the question is, how will bank-bashing do in the U.S. election next year? It's already coming from both sides of the aisle.
If the GOP doesn't put together a sensible immigration policy, it will lose the 2016 presidential election. When Obama beat Romney in 2012, with the former Massachusetts governor attracting only 27 percent of the Hispanic vote with his self-deportation argument, Republicans across the map decided they must develop an immigration-reform policy with an outreach approach to minority groups. According to the Republican National Committee, the days of harsh language and punitive legislation must end. In its place, the GOP must reconstruct the Ronald Reagan/Jack Kemp "big tent" theory of politics, where there is plenty of room for all groups — blacks, Hispanics, Asians, Millennials, women and gays. As Reagan put it, if you and I agree 80 percent of the time and disagree 20 percent, we are not enemies. A lot of clear-headed Republicans have a strong dislike for identity-group politics. Me too. Instead, I prefer a program of economic growth, strong national defense, deregulation, low flat-tax-rate reform, free trade and sound money to unleash American prosperity and bolster national security. If this positive message is sold — to everyone and all groups — it will work politically.
Don't expect any miracles from the economy. But don't expect a collapse, either. In political terms, it's kind of a Mexican standoff. Team Obama says they saved us from another Great Depression. And they point out that 3.1 million jobs have been created in the last 12 months. Republicans counter that this is the slowest post-WWII recovery on record and that real GDP is roughly $2 trillion below potential. They add that the labor-force participation rate is 62.7 percent, a 39-year low, and that there are at least 15 million people who work but can't get jobs. Yet both sides may actually come together for a major pro-growth initiative: an Asia-Pacific free-trade deal that will lower tariffs and other barriers. Lower tariffs are lower taxes.
A number of GOP candidates are engaging in Hillary-bashing over allegations that she used her office as secretary of state to help her husband's business dealings, prop up speech-making fees and grease the path for foreign governments to donate massive amounts of money to the Clinton Foundation. But here's a warning to my friends on the presidential campaign trail: Bashing Hillary is only going to make the Republican Party look mean-spirited and snarky. It's no road to the White House. I would suggest laying off Hillary and instead showing us what you got in the way of economic-growth policies that will foster 4 to 5 percent growth and maybe another 12 million jobs. The GOP needs a positive growth message, along with a strong national-security message, because the party needs a positive rebranding and a positive vision. But Hillary-bashing will drown that out.
When John F. Kennedy was elected president he surprised both Democrats and Republicans with a bold tax-cutting plan to solve the problem of a moribund economy. He had campaigned on "getting the country moving again," and had set a 5 percent economic-growth target, but he never specified how he was going to do it. Then he opened everyone's eyes with a plan to lower marginal tax rates across-the-board. JFK's advisors proposed a traditional Democratic approach: temporary targeted tax cuts. But Kennedy insisted on lower tax rates that would create much higher rewards for work, saving, and investment. And Kennedy argued that his lower tax-rate incentives would so expand the economy that after a few years his tax cuts would pay for themselves. He was right.
If recent news accounts are to be believed, the framework of agreement between the U.S. and Iran is on the rocks. Iran's top officials, Supreme Leader Ali Khamenei and President Hassan Rouhani, are saying economic sanctions must end immediately and that U.N. inspectors will not be granted unfettered access to military installations and nuclear construction sites. But this may be nothing more than Iranian domestic political spin. And as long as there's a potential deal, a critical point needs to be made: There is no provision for, or even discussion of, putting political restraints on Iran. That is, there is nothing in this deal that would force Iran to change its terrorist ways. Iran will continue to be the No. 1 state sponsor of terrorism in the Middle East, no matter what the deal. How can this be?
The economy has been in a tepid, soft, slow recovery for the past five-and-a-half years. It's the weakest rebound in generations. The Commerce Department's revision of fourth-quarter GDP shows that nothing much has changed. Over the past year, real economic growth registered 2.4 percent, slightly higher than the recovery average. It ain't much. Meanwhile, winter economic reports for retail sales, manufacturing and capital investment point to a weaker first quarter, perhaps around 1 percent. And Wall Street is talking about a possible profits recession, with expectations of a 2 or 3 percent drop in corporate earnings for the first half of 2015. So the market bears are out in full force. Now, let's acknowledge that coming off a deep recession, the rebound should have been 4 or 5 percent, not 2 percent. By some calculations, GDP is 10 percent -- or nearly $2 trillion -- below its long-term trend, and jobs may be lagging by 8 to 10 million.
Don't just rely on Benjamin Netanyahu's passionate advice to Congress on his way to reelection that Iran is our archenemy. Now we have the counsel of retired general David Petraeus, who gave a remarkable interview this week to the Washington Post. Petraeus agrees with Netanhayhu: Iran, not ISIS, is the real enemy. His message: "I would argue that the foremost threat to Iraq's long-term stability and the broader regional equilibrium is not the Islamic State; rather, it is Shiite militias, many backed by -- and some guided by -- Iran." The general adds, "Longer-term, Iranian-backed Shia militia could emerge as the preeminent power in the country, one that is outside the control of the government and instead answerable to Tehran."
Despite the conventional criticisms of the financial commentariat, both theory and evidence argue for a strong, stable and reliable currency as a crucial channel to prosperity. Just think of the reverse: If you could devalue your way into prosperity, Argentina would be the center of the world economy. But lately, a loud and growing chorus is blaming the rising U.S. greenback for just about everything. "Multinational profits will suffer." "Imports and trade deficits will hammer the economy." "Stocks will fall." "Recession looms." Wall Street insists that King Dollar is bad. It is wrong. This falsehood is a near cousin to the idea that falling energy prices will wreck the economy. Also wrong. Energy will slow, but the rest of the economy will benefit.
Hillary acknowledging that it would have been better to use two email accounts is about as close to an apology from the Clintons you'll ever get. But the matter of "convenience" is just nonsense, as everyone knows. Even a tech dinosaur like myself has two email accounts, which I now access on my spiffy new iPhone 6 Plus. (By the way, instead of that old Blackberry, Hillary should have had an iPhone.) So Hillary says she didn't break any White House or State Department rules. I don't think that defense will fly. And the homemade server, created for messages between Bill and Hillary, is an absolute non-starter. Apparently Bill has only sent two emails in his life -- and neither of them to Hillary.
"More than any election since 1980," ace pollster Kellyanne Conway tells me, "2016 will be a national-security contest." And she says former Gov. Rick Perry may have the best chance to convince voters that he can be commander-in-chief. Let's think on that. With the world in turmoil, who do you really want sitting across the negotiating table from Vladimir Putin, the Iranian mullahs or the Chinese? How about a military man to command the war to destroy radical-Islamic jihadism? Very few people know that between 1972 and 1977, Perry served in the U.S. Air Force, flying C-130 tactical aircraft in Europe and the Middle East. He is the only current GOP candidate to have worn the military uniform. And he rarely talks about it.
Fed chair Janet Yellen testified this week on the state of the economy. The only interesting thing to come of it was some sharp-edged criticism by Republican members of the House Financial Services Committee. That includes committee chair Jeb Hensarling, who said, "Fed reforms are needed ... Fed reforms are coming." Senator Rand Paul, for one, is pushing a bill to audit the Fed, by which he means auditing the Fed's policies and discussions. But Yellen and other Fed big shots fiercely oppose any rules that might be imposed on the central bank by Congress. Now, down through the years, the Fed has always resisted rules in the name of independence from political pressure. But there's an interesting backstory here.
Yes, believe it or not, Wisconsin governor Scott Walker actually spoke at some length at the dinner this past week where Rudy Giuliani charged that President Obama doesn't love America. All the hullabaloo went to Giuliani, but in terms of the Republican presidential race, a number of Scott Walker's pointed comments about policy and politicians are not to be missed. First a word about the dinner itself, which was generously backed by John Catsimatidis. It was the second event sponsored by the Committee to Unleash American Prosperity, a new group founded by Arthur Laffer, Steve Moore, Steve Forbes and myself. Just as the Committee on the Present Danger -- formed by Midge Decter, Norman Podhoretz, and Irving Kristol -- worried about the decline in American foreign policy in the late 1970s, we are worried about the decline in American economic growth over the past 15 years.
Let me begin with Presidents' Day. It's a nice long weekend. But it says nothing about the greatness of certain American presidents. Whatever happened to Washington's Birthday? Or Lincoln's Birthday? Of course, I could go for Reagan's Birthday. And I'll bet my pal Amity Shlaes would pull for Coolidge's Birthday. Whatever your favorite president's birthday might be, you must admit that not all presidents were made the same. I still believe Founding Father George Washington was our greatest president, with Lincoln a close second. But Millard Fillmore, James Buchanan, James Garfield and Jimmy Carter aren't in the running. I knew Millard Fillmore, and Millard Fillmore was no Abe Lincoln.
Mitt Romney showed once again that he is truly a class act. In his announcement that he will not be running for president in 2016, he stated, "I believe that one of our next generation of Republican leaders, one who may not be as well known as I am today, one who has not yet taken their message across the country, one who is just getting started, may well emerge as being better able to defeat the Democrat nominee." This was unusual political humility. But let me highlight this specific phrase: "one who has not yet taken their message across the country." Message.
