The Question of Larry Kudlow...


There has long been discussion of whether Larry Kudlow believes what he says. (1) Is he one of the professional Republican commentators like Stephen Moore, James Glassman, and Kevin Hassett who knows that what he says is wrong, but says it because it is just a game—that feeding one's readers and viewers something that is not bullshit is simply not a goal, and telling the truth will serve when it does not conflict with one's goals? Or (2) is he just not aware of the world outside him, in the sense in which people are usually oriented toward reality?

Well, why not both? Being unaware both that FICA is not a household-level but an earner-level tax and of the approximate size of the federal workforce when there is no upside to the falsehood seems to me conclusive evidence that there is a good deal of (2) going on. And maybe that gives him the freedom to be a more effective version of (1) than people who are more often clued in to how what they are saying is simply not true.

I do see a sharp contrast between the Kudlow of the 1980s and the Kudlow I have run across since, say, 1992: the later Kudlow seems to know much less, and to have a much more difficult time figuring out that he needs to alter his range and rhythm whenever he is speaking to an audience that is neither Fox News viewers nor right-wing investors who are easy prey to affinity fraud...

Jonat.han Chait: New Trump Economist Kudlow Has Been Wrong About Everything: "The Republican Party... supply-side economics... not merely a generalized preference for small government with low taxes...

...but a commitment to the cause of low taxes, particularly for high earners, that borders on theological. In the time that has passed since then, that grip has not weakened.... The appointment of Lawrence Kudlow as head of the National Economic Council indicates how firmly supply-siders control Republican economic policy, and how little impact years of failed analysis have had.... They likewise believe tax cuts are the necessary tonic for every economic circumstance. The purest supply-siders, like Kudlow, go further and deeper in their commitment. Kudlow attributes every positive economic indicator to lower taxes, and every piece of negative news to higher taxes. While that sounds absurd, it is the consistent theme he has maintained throughout his career as a prognosticator. It’s not even a complex form of kookery, if you recognize the pattern. It’s a very simple and blunt kind of kookery.

In 1993, when Bill Clinton proposed an increase in the top tax rate from 31 percent to 39.6 percent, Kudlow wrote:

There is no question that President Clinton’s across-the-board tax increases… will throw a wet blanket over the recovery and depress the economy’s long-run potential to grow...

This was wrong. Instead, a boom ensued. Rather than question his analysis, Kudlow switched to crediting the results to the great tax-cutter, Ronald Reagan:

The politician most responsible for laying the groundwork for this prosperous era is not Bill Clinton, but Ronald Reagan...

he argued in February, 2000. By December 2000, the expansion had begun to slow. What had happened? According to Kudlow, it meant Reagan’s tax-cutting genius was no longer responsible for the economy’s performance:

The Clinton policies of rising tax burdens, high interest rates and re-regulation is responsible for the sinking stock market and the slumping economy...

he mourned, though no taxes or re-regulation had taken place since he had credited Reagan for the boom earlier that same year. By the time George W. Bush took office, Kudlow was plumping for his tax-cut plan. Kudlow not only endorsed Bush’s argument that the budget surplus he inherited from Clinton—the one Kudlow and his allies had insisted in 1993 could never happen, because the tax hikes would strangle the economy—would turn out to be even larger than forecast:

Faster economic growth and more profitable productivity returns will generate higher tax revenues at the new lower tax-rate levels. Future budget surpluses will rise, not fall...

This was wrong, too.... Kudlow then began to relentlessly tout Bush’s economic program.... insist that the housing bubble that was forming was a hallucination.... He made this case over and over (“There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. (The Bush boom is alive and well.”) and over (“The Media Are Missing the Housing Bottom,” he wrote in July 2008). All of this was wrong. It was historically, massively wrong.

When Obama took office, Kudlow was detecting an “inflationary bubble.” That was wrong. He warned in 2009 that the administration “is waging war on investors. He’s waging war against businesses. He’s waging war against bondholders. These are very bad things.” That was also wrong, and when the recovery proceeded, by 2011, he credited the Bush tax cuts for the recovery. (Kudlow, April 2011: “March unemployment rate drop proof lower taxes work.”) By 2012, Kudlow found new grounds to test out his theories: Kansas, where he advised Republican governor Sam Brownback to implement a sweeping tax-cut plan that would produce faster growth. This was wrong. Alas, Brownback’s program has proven a comprehensive failure, falling short of all its promises and leaving the state in fiscal turmoil...

Belle Waring (2007): John & Belle Have A Blog: Shameless: "I know logically that Larry Kudlow has no shame, because... Larry Kudlow!...

...Nonetheless I can't help but wonder if he might feel a faint touch of a related emotion when he considers this 2005 offering, "The Housing Bears Are Wrong Again":

Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.

None of this has happened. The Federal Reserve has effectively mopped up excess cash and calmed inflation expectations. That’s why bond rates are hovering around 4 percent, with most mortgage rates about a point higher.

Meanwhile, the homebuilders index has increased 76 percent over the past year, with particularly well-run companies like Toll Brothers up about twice as much. The bubbleheads missed all this because they haven’t done their homework. If they had put a little elbow grease into their analysis, they would have learned that new-housing starts for private homes and apartments haven’t changed much during the past three and a half decades....

Since 1997 home prices have been increasing at a 6.5 percent pace on a yearly basis, with a 12 percent gain over the past year. In contrast, stock prices have gained only 3 percent yearly during the same period. Simply, real estate has had the tax-advantage over stocks as an investment vehicle. There is no $500,000 per family tax-free capital gain for shares, nor are the borrowing costs for the purchase of stocks tax-deductible....

Which leads to a final thought: Why not apply the same tax laws that have benefited home owners to stock market investors and home buyers? If this were to come about, even more wealth would be created in America, leading to even more new business and job creation.

Tax reform to create a level playing field could boost our economy’s potential to grow beyond almost anyone’s wildest dreams. Homeownership, stock ownership, and small business ownership should be taxed at the same minimal rates as they are all key components of economic growth and wealth creation.

Duncan Black (2008): Fixing the Internets: Larry Kudlow:

Uncapping the payroll tax reveals still another cultural misstep by Sen. Obama. He apparently has a difficult time understanding that nowadays, a veteran fireman or a veteran cop, married to a veteran schoolteacher, will make well over 100,000. In fact, they can make close to 200,000. Yet Obama still wants to go ahead and tax both the first and last payroll dollar of this group at a very high marginal tax rate by uncapping the Social Security (FICA) tax.

The FICA cap is an individual cap, unaffected by income earned/payroll taxes paid by your spouse.

David From: (2010)**: Simple Answers to Troubling Questions: "Kudlow’s Math...

...I appeared on Larry Kudlow’s show last night and we had a bit of a tussle about how much deficit reduction could be achieved by cutting federal salaries. Larry argued that a 5-10% pay cut for federal civilian employees like that imposed by Ireland could have a major impact on the federal budget deficit. (Larry was greatly influenced by this WSJ oped.) I had come prepared to talk about a different subject, and so didn’t have the relevant figures at hand, but I suggested that his math sounded incredible. Looking it up this morning, it IS incredible.... Even if we fired every single federal civil servant and shuttered the entire non-defense federal government, three-fourths of the budget deficit would still be with us. Does this really come as news to Larry Kudlow, a very smart man and a former deputy to David Stockman at the Office of Management and Budget?

Ezra Klein (2011): Inside the Mind of Larry Kudlow...: "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.

(2011): Inside the Mind of Larry Kudlow...: " 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.

(2007): Anti-Discourse Situations...: "I can think of seven wedges between the national net savings-investment rate... 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 dollar 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... 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 anti-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.