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Inside the Mind of Larry Kudlow...

Ezra Klein wonders about Larry Kudlow:

Is disagreement really so hard to explain?: I like going on “The Kudlow Report.” Larry Kudlow and I don’t agree about much, but I find him good-humored and courteous, and it’s always worth talking to people who aren’t already convinced of your point of view. And, to his credit, he makes it a point to have a lot of people who don’t agree with him on his show. What I don’t understand is how, given all his exposure to sincere people who think differently than he does, Kudlow’s mental model for disagreement ends up being so ideologically skewed.

I was on last night to talk about the Obama administration’s resistance to a tax holiday for the profits American corporations are holding overseas.... Michael Mundaca... [argues] our previous experiment with a corporate tax holiday didn’t pan out.... You can disagree with Mundaca’s take, but you don’t need to ask Dr. Strange to summon a demon in order to interpret it. Bloomberg Business Week — not exactly a publication known for its aggressively anti-business leanings — ran a cover story this week making almost exactly the same argument. In that cover story, a dozen respected tax economists provided support for the position. But that’s not how Kudlow saw it. “I believe they want to punish international business,” he said. A few minutes later: “I’m suspecting that Team Obama just doesn’t want to help the foreign earnings of companies.” And then: “I think they do have an ideological bias against business.”... [Y]ou see this a lot. Somehow, people find it preferable to think the president of the United States a socialist, Marxist or Kenyan anti-colonialist than a guy who agrees with Mitt Romney’s 2005 health-care opinions rather than Mitt Romney’s 2011 health-care opinions. I won’t even get into Glenn Beck’s take on the administration’s motivations, as even on the Internet, I don’t have the space. But you end up with these winding, esoteric theories to explain perfectly common policy preferences and political decisions. It’s really weird.

One oldtime Washington hand who has spent a lot of time working with James "Dow 36000" Glassman claims that for Glassman it is simply a game: Glassman thinks his job is not to say what he thinks is true but rather what the audience he is cultivating wants to hear from him. The two times I have been on the same stage as Kudlow have made me think that the same is true of Kudlow: he is too smart to have meant some of the things he said, or to have actually thought that the other people on the panel had said what Kudlow claimed they had said.

There is a bunch of evidence confirming this view. For example:

I Don't Think That Word Means What You Think It Means - Brad DeLong's Grasping Reality with All Ten Tentacles: Glenn Reynolds quotes Larry Kudlow, who he has "always found... reliable": - : LARRY KUDLOW:

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

It's news to me.

UPDATE: Reader Daniel Amerman says that Kudlow didn't include inflation, and that if you include inflation, the U.S. economic expansion was "only" 11.4 %. As Amerman says, "11.4% over 11 quarters is quite respectable in real terms, there is no need for misrepresentation and hyperbole."...

Hmm. I've always found Kudlow to be reliable.

And here's my take from the last time I was on the stage with Kudlow:

Un-Discourse Situations... - Brad DeLong's Grasping Reality with All Ten Tentacles: I can think of seven wedges between the national net savings-investment rate as estimated by the National Income and Product Accounts and statistical estimates of the change in total measured household net worth:

  1. There is a gap between the rate of return on the average investment made in a year and the cost of capital, which means that $1 of savings on average produces more than $1 of value.
  2. The NIPA may well understate corporate savings and investment by counting a bunch of investments in organizational form as corporate operating expenses.
  3. All of us free-ride on technological research and development, reaping where we do not sow, gathering where we do not scatter, and profiting where we do not save and invest.
  4. Shifts in the distribution of income away from labor and toward capital increase measured household net worth--which includes the increased expected future profits from capital--but not true household net worth--which also includes the decreased expected future wages of labor.
  5. Declines in interest rates make the future more valuable relative to the present and so raise measured household net worth today--which is measured in today's dollars--without any outward shift in the true consumption-possibilities frontier.
  6. Government deficits that raise the debt lower national savings but not measured household net worth.
  7. Good news about the future produces windfall gains and bad news windfall losses which alter this year's household net worth without telling us much about over-all long-run accumulation trends.

I was sitting on the right end of an nine-person panel at the New School Friday morning Bob Solow was sitting on the left end--Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation.

Larry Kudlow, in the middle of the panel, aggressively launched into a rant--about how the NIPA savings rate was wrong, about how the right savings rate was the change in household net worth, about how there was no potential problem with America saving too little, that the economy was strong, and that that day's employment report had been wonderful, and that Paul Krugman had predicted nine out of the last zero recessions, et cetera, et cetera, et cetera.

What is one to do? You watch a guy--Bob Solow--one of the smartest and most thoughtful people I know, having his intellectual impact neutralized by a guy--Kudlow--who really isn't in the intellectual inquiry business anymore. Kudlow clearly has not thought through the biases and gaps in the household net worth number: if he had, there is no way he could say what he is saying.

On paper, in print, on the screen, one can point out that the employment report was anemic--it was not a bloodletting by any means, but it was a bit disappointing. On paper, in print, on the screen, one can say that there is reason to worry about the decline in housing demand and the possibility that it might trigger a recession. On paper, in print, on the screen one can say that reasons (4), (5), and (6) pushing up measured household net worth are reasons to discount that statistic as misleading because they do not reflect any true increase in appropriately-defined wealth, that any increase in household net worth caused by (7) is a transitory phenomenon that tells us little about permanent saving and accumulation patterns, that (1) and (2) affect the level but not the trends of saving, and do not speak to Solow's worry about the savings-investment rate's decline, and thus that only reason (3)--the effects of the now decade-long computer-and-communications real investment boom on our total wealth--provides a reason to even begin to think about whether Bob Solow's worries about declining savings as measured by the NIPA are at all overblown.

But there are ninety minutes for a panel with nine people on it. To the audience it looks like two cocksure economists who disagree for incomprehensible reasons. And my ten minute share will come too late to try to referee Solow-Kudlow in any fair, balanced, and effective way.

It's an un-discourse situation: Kudlow doesn't acknowledge--may not know--the flaws in his chosen statistic. And I can't help wonder what Kudlow would be saying if a Democrat were president.

It's an intellectual Gresham's Law in action...

What can I do? I can blog about it.