Lawrence Kudlow / January 31, 2015

After Mitt: A GOP Message of Incentives, Sound Money and Growth

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.

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.

If there’s anything the GOP needs – besides a winner – it’s a confident, incentive-based, pro-growth message. The party didn’t have one last year, but it won the midterms thanks to President Obama’s ineptness. That won’t be enough in 2016.

The fourth-quarter GDP report, just out, illustrates the importance of a growth message. GDP came in at a disappointing 2.6 percent, way below expectations. For the year, only 2.5 percent growth.

For the 22 quarters of so-called economic recovery, real GDP has increased by a meager 2.3 percent annually. Historically, since World War II, we’ve grown by nearly 3.5 percent yearly. And according to experts, alarmingly low labor-force participation and sinking productivity has reduced America’s potential to grow to well below 2 percent. This must be fixed.

All is not lost. The job numbers are better and there’s welcome relief from crumbling energy prices and a strong dollar. Consumer confidence has improved. Our resilient free-market economy is trying to plow ahead.

But my guess is this: If the economy were unshackled of rising taxes and regulations, and if there was a new long-run commitment to sound money and free trade, we could unleash a new American prosperity. Negativism would turn into optimism, and America’s global leadership position would be restored.

Unfortunately, while Romney was great at rescuing companies, he ran a poor political campaign. There was no clear growth message. As John Tamny reminds in a recent column, Obamacare was modeled on Romneycare; Romney talked of a trade war with China, throwing off strong signals of a weaker dollar; Romney never made clear how he would limit government spending; and while he had a reasonably good tax-cut plan, he rarely discussed it.

Ultimately, Romney’s highly flawed message was unpersuasive to voters. Now, the 2016 GOP candidate must have a strong growth message.

Somebody on the campaign trail should also talk about money. New York Sun editor Seth Lipsky points out that the GOP platform last time around called for a monetary commission to look at a metallic standard, yet Romney never mentioned sound money.

The Fed ran completely amok with its QE program. It ballooned its balance sheet by more than $4 trillion, yet there was no sustainable pickup in real or nominal GDP. Actually, this monetarist failure was a good thing: If the turnover, or velocity, of money had been stable, instead of crashing, today’s inflation rate would be 15 percent rather than practically zero.

So the next Republican candidate should state a desire for the Fed to return to a market-based discipline using gold, commodities, dollar-exchange value and bond-market indicators. Contrary to conventional wisdom, the King Dollar comeback, along with falling energy prices, has not only delivered a tax-cut effect to consumers, it’s reduced all business production costs, making the economy more competitive. GOP candidates should not be afraid to talk sound money. It’s pro-growth.

They also must focus laser-like on the importance of incentives to grow the economy. For instance, rather than propose spending roughly $1.6 trillion on child tax credits (according to the Tax Policy Center), Senator Marco Rubio, an otherwise sound thinker, would be better advised to propose a flattening of marginal tax rates to perhaps 15 and 28 percent. This would give everyone in the middle class larger tax savings and stronger incentives to keep more of the extra dollar they earn.

President Obama doesn’t understand that taxing capital is a negative for new businesses, jobs, incomes and family spending. But Republicans should make darn sure they have a completely different vision.

And the GOP must recognize it can’t outbid the Democrats on lower- or middle-class benefits. Instead, they can talk incentives: If it pays more to work than to collect food stamps, or unemployment insurance, more people will work. The incentive model carries over to education and health care, where choice should be maximized. And Romney is right about this: Marriage is a key answer to poverty.

We’re about a year away from the first Republican primaries. The GOP has a solid bench. But the wannabes must get cracking on the central growth message of incentives, freedom of choice and sound money to unleash a new wave of American prosperity.

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