Lawrence Kudlow / November 2, 2014

A Return to the JFK-Reagan Economic Model

Election Day will produce a new Republican Congress, or so the latest polls tell us. If so, the huge losses for the Obama Democrats – both in 2010 and this year – will have come in large measure from the economic failures of a party that has moved radically left over the past 20 years. Hillary Clinton just argued that corporations and businesses don’t create jobs, and that a higher minimum wage and other government actions do. It showcases just how far the Democrats have moved left since her husband, working with a Republican Congress, launched pro-growth supply-side policies like free trade, welfare reform, lower investment tax rates, limited spending and a strong dollar.

Election Day will produce a new Republican Congress, or so the latest polls tell us. If so, the huge losses for the Obama Democrats – both in 2010 and this year – will have come in large measure from the economic failures of a party that has moved radically left over the past 20 years.

Hillary Clinton just argued that corporations and businesses don’t create jobs, and that a higher minimum wage and other government actions do. It showcases just how far the Democrats have moved left since her husband, working with a Republican Congress, launched pro-growth supply-side policies like free trade, welfare reform, lower investment tax rates, limited spending and a strong dollar.

I’ve always believed the 1990s were Ronald Reagan’s third term. And while mistakes were made over the years, the U.S. created about 50 million new jobs between 1981 and the onset of the Great Recession in 2007.

Unfortunately, the free-market model has largely been discarded in recent years – not only in the U.S., but around the world – as Keynesian spending, over-regulating, tax-the-rich redistribution, and berserk money have come into vogue.

It’s all wrong. The poor results show it.

A Republican victory on Tuesday won’t change this. But the GOP can make an early start on free-market energy reforms, lower corporate tax rates, holding back the regulatory tide, and knocking down some Obamacare tax hikes. Republicans can also continue the war on overspending. Since the GOP landslide in 2010, government spending as a share of GDP plunged from 24.4 percent to 20.3 percent. This has had something of a tax-cut effect, and shows what Congress can do if it has a mind to do it.

But the bigger theme is the need for the U.S. and the world to return to the free-market, free-trade, entrepreneurial, supply-side, tax-incentive model of growth with stable money. That model worked during the Coolidge-Mellon 1920s, the JFK 1960s, the Reagan 1980s and the Clinton 1990s.

If nothing else, a new Republican Congress must message clearly that the U.S. will stop the recent leftward economic lurch. It’s not hard to pinpoint what’s gone wrong, propose positive solutions and argue that the economic ship can be righted fast.

And here’s a good start at pinpointing what’s gone wrong: There’s not one whiff of evidence that the Federal Reserve’s quantitative-easing process helped the economy.

Over the last eight quarters, which roughly spans QE3, the real economy grew by only 2.3 percent at an annual rate – the same rate since the recovery began in 2009. Job creation has barely increased. Of the $1.7 trillion the Fed added to its balance sheet, $1.25 trillion came back to the Fed in the form of excess bank reserves. Nominal GDP grew only 3.8 percent annually during QE3, nearly matching the 3.9 percent annual growth during QE2.

The M2 money supply grew at 6.5 percent during QE3, actually less than the 8.2 percent of QE2. But the important point here is that velocity (the rate at which money changes hands) has been falling by roughly 3 percent during the whole recovery.

Yes, the S&P climbed 43 percent. But that’s mostly from record profits and expanding multiples.

And long-term rates haven’t really changed: 10-year Treasuries yield nearly 70 basis points more than at the beginning of QE3, and believe it or not stand at nearly the same level as the beginning of QE1.

In other words, the Fed doesn’t control long-term rates, it hasn’t boosted the economy, and job creation only got slightly better during QE. And the drop in money velocity neutered the monetarist argument that more reserves create more money, which grows the economy faster.

At least Janet Yellen ended QE. She gets credit for that. Berserk money may be over.

And the good news is that because the monetarist model failed, the Fed really wasn’t all that loose. Inflation has been running only about 1.5 percent for years, a good thing (though some at the Fed want it higher).

But let me ask you this: Are folks weeping at the gas pump because they pay $3 a gallon rather than $4? No. In fact, the fracking boom has had a far more powerful effect on stimulating growth and holding down inflation than the Fed. With QE over, King Dollar is rising, and gold is falling. Good signs.

So let me optimistically argue that the slow-growth economy can be rescued and the fiscal and monetary mistakes can be reversed. Lower tax rates, less spending, deregulation, and a sound dollar will do it. The GOP can make this case – and right away.

And if the Sandinista Democrats would read a little history, they’d see I’m arguing for the JFK model of growth – which was the forebear of Ronald Reagan’s supply-side revolution.

It can be done.

COPYRIGHT 2014 CREATORS.COM

Start a conversation using these share links:

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2022 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.