It was a different time, long ago – before everyone’s life was supposed to be laser-focused on this goal or that. It was September 1965 and it was off to college, with no particular major in mind, yet. The family expected an eventual doctor or lawyer, but the family was fine with a fine liberal arts college. Learn a little bit of everything, or a lot about everything. Become well-rounded. Choose a major – decide on the final goal – after you know a bit more about everything. That’s why liberal arts colleges used to have distribution requirements. Math and science majors had to take literature and history classes. Literature and history majors had to take math and science courses. Many would find that what they really wanted to do – and what they were actually good at doing – wasn’t what they had thought at all. And everyone had to take Economics 101 – because everyone should know how the economy works.
There was a problem with that. No one seemed to know how the economy works, and Economics 101 was taught by a strange little chubby man fresh from the University of Chicago, where he had studied under Milton Freidman, the Supply-Side guru – and this strange little man was perpetually hung over, with his yappy little dachshund by his side – and the class was at eight in the morning. The talk of the importance of controlling the money supply and the velocity of money – an odd concept – was stultifying. And the supply-side stuff was odd. Lower taxes and keep wages as low as possible so corporations will be able to make lots of stuff and the economy will soar. What about demand? With low wages no one will be able to buy all that stuff. The economy will tank. No, corporations will be rolling in cash and the wealth will trickle down somehow. The wealthy will spend that loot. That will employ a ton of people. Everyone will thrive.
We all rolled our eyes – and the yappy little dog didn’t help – but we all took notes and passed the tests – and moved on. We had been well-rounded, but most of us decided that economics was a bit of a joke. Like sociology – another distribution requirement – economics wasn’t a science. It was just people talking.
Let them talk. Years later it would be that Laffer Curve – describing how things really work, in a counterintuitive way. It may make no sense, but against all odds, lowering if not eliminating taxes, at least many of them, results in a sudden dramatic and then sustained massive increase in tax revenues for the government. Everyone pays less, but as the economy grows, lots more people will now pay something, and government revenues will soar. Tax cuts more than pay for themselves. That’s the fact the supply-side guys say you cannot ignore – or you’ll find yourself billions of dollars short and you’ve blown up the deficit because you have to borrow to make ends meet.
That’s what usually happens. That’s what happened the first time this was tried – the deficit exploded under Reagan. Now there’s a general agreement that this might have been one of the all-time worst ideas in economics – see Five Critiques of Arthur Laffer’s Supply-Side Model Show Tax Cuts as Junk Economics for the dismal details. Ronald Reagan made supply-side economics a household phrase. He promised an across the board reduction in income tax rates and an even larger reduction in capital gains tax rates. When competing with Reagan for the Republican Party presidential nomination for the 1980 election, George H. W. Bush sneered at Reagan’s supply-side policies, calling them “voodoo economics” – but he gave in. He had to, to win the Republican nomination in 1988, and he lost in his re-election bid in 1992 when, after buying into the counterintuitive – Read my lips! No new taxes! – he then raised taxes. He had to raise taxes to keep the government running. Oops.
And see this:
On January 3, 2007, George W. Bush wrote an article claiming “It is also a fact that our tax cuts have fueled robust economic growth and record revenues.” Andrew Samwick, who was Chief Economist on Bush’s Council of Economic Advisers from 2003-2004 responded to the claim:
“You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.”
So there you have it. Reagan went for the counterintuitive and blew up the deficit. The first Bush gave it a go – and he had to back down and leave that alternative universe so that the government didn’t go broke. And the economists working for his son sat around and talked about how the whole thing was pretty much a farce – not one of them believed this cut-taxes-to-raise-revenue crap ever worked. That was just people talking, but that’s still orthodoxy on the Republican side. Sure, it’s a crazy idea, but it just might work.
Donald Trump thinks so:
President Trump loves big personalities, live television, the stock market and loyalty. In choosing Larry Kudlow, a CNBC television commentator, to serve as the next director of the National Economic Council, he has checked all those boxes.
Mr. Kudlow, often clad in a pinstripe suit and colorful tie, is a frequent pundit on the financial news channel where he opines about everything from the economy to the stock market to tax cuts and free trade. He is an unabashed prognosticator who relishes making the kinds of provocative statements that Mr. Trump has turned into an art form. He has lamented “growing government dependency,” touted tax cuts for the wealthy and lavished praise on high-flying corporate executives.
Mr. Kudlow will assume the role of Mr. Trump’s top economic adviser, replacing Gary D. Cohn, who said he would resign after losing a battle over the president’s longstanding desire to impose large tariffs on steel and aluminum imports.
And he’s a true supply-side guy:
Mr. Kudlow is a radio and television commentator and an economic consultant. He was a zealous convert to the supply-side economic policies that swept the Republican Party in the late 1970s. He is a protégé of the supply-side economist Arthur Laffer, with whom Mr. Kudlow worked on Ronald Reagan’s 1980 presidential campaign. Mr. Kudlow went on to serve in Mr. Reagan’s Office of Management and Budget.
Like many past National Economic Council directors, he is not an academically trained economist – he studied for a master’s degree at Princeton University but did not earn one – but he served as chief economist for Bear Stearns and made a name advising prominent conservative politicians. In the early 1990s, Mr. Kudlow took a leave from the firm to enter treatment for drug and alcohol addiction; his colleagues said he abused cocaine.
He says he’s clean now, and although he’s not a real economist, he has played one on television for years. Bear Stearns went belly-up in March 2008 – what was left of it was sold to JPMorgan Chase. That’s where he had been chief economist. This was an odd pick, but it’s more than that. He doesn’t like Trump’s tariffs, and now he’s tap-dancing a bit:
Mr. Kudlow, who has publicly criticized the president’s recently announced tariff plans, said Mr. Trump had a more nuanced view on trade than many people understood.
“He regards himself as a free trader,” Mr. Kudlow said. “He does not like to create obstacles, like tariffs. But he also has to protect the U.S. And he feels that many countries” have engaged in unfair trade practices. Mr. Kudlow cited China as a prominent example, expressing a view that is widely held within the administration. The White House has taken a series of steps to curb China and is expected to announce tariffs on certain Chinese products in the coming weeks.
Mr. Kudlow has long espoused a traditional conservative embrace of free trade, but it remains to be seen how vocally he will push back on the growing ascendance of West Wing advisers who are trade skeptics and have urged Mr. Trump to adopt protectionist measures to protect American industry.
But he is a Trump guy:
Mr. Kudlow was an early and enthusiastic supporter of Mr. Trump’s run for the presidency, advising the neophyte candidate on economic issues and pushing him to go big on cutting taxes. The men agreed on their desire for growth-goosing tax cuts but disagreed on trade, on which Mr. Trump ran as a populist and Mr. Kudlow preached free-market principles.
Mr. Kudlow criticized the president after the emergence of the “Access Hollywood” tape in October 2016. He later re-endorsed him, but Mr. Trump, who nurses grudges, was angry for some time, according to people close to him.
Trump got over that, because tax-cuts are wonderful:
After Republicans pushed a $1.5 trillion cut through Congress late last year, Mr. Kudlow praised it effusively, predicting it would usher in long-term annual growth of 3 percent to 4 percent – a more optimistic assessment than most independent economists have offered – and would help Republicans in this year’s midterm elections.
The voodoo is back, and Jared Bernstein, the former chief (real) economist to Vice President Biden, and now a senior fellow at the Center on Budget and Policy Priorities, adds this:
My old friend and longtime CNBC colleague Larry Kudlow is taking the helm of President Trump’s National Economic Council (it’s a political appointment; no congressional approval required). A few folks have asked me for my take on the appointment, so here it is.
First, however, let me point out that while we’ve been on opposing sides of many debates over the past 20-plus years that I’ve been arguing with Larry, we’re good colleagues and friends. In these divisive days, I think that says something fundamentally positive about him.
And the job is hard:
The NEC is basically command central for the administration’s economic policy. It sits atop and runs the White House economic policy process. The sway of the council and its leader varies with presidents and personalities. Kudlow’s predecessor, Gary Cohn, appeared to have some real heft in policy negotiations, at least until he didn’t (the tariffs), at which point, he left. Knowing Kudlow, he’ll be a powerful NEC chief who will have the president’s ear. Though, of course, Trump himself is always a wild card in every aspect of the presidency.
Bernstein feels for the guy. Kudlow is a nice guy and a good listener, but there’s this:
Kudlow is a die-hard, supply-side, trickle-down tax cutter. In fact, he played a behind-the-scenes role in crafting the Republican tax plan, which was, broadly speaking, much in his image. For as long as I’ve known him, we’ve had pretty much the same argument about the folly of this approach. I’d say he’s impervious to the clear, strong evidence that tax cuts come nowhere close to paying for themselves and that growth estimates from the recent tax plan that he and others have touted are wildly optimistic.
Simply put, anyone who’s ever heard Kudlow knows that like most adherents of this discredited school of Laffer-esque tax policy, he hugely overestimates the supply-side benefits – more labor supply, capital investment and productivity growth – of tax cuts.
And for some reason Kudlow believes in a strong dollar:
Another misguided concept of which I’ve been unable to disabuse Kudlow is his willing subjugation to his ruler, King Dollar. It’s always curious to hear these alleged free-market types assert that when it comes to the dollar, they’re not so comfortable with markets setting the exchange rate. They want a strong dollar, dammit, and that’s it. That doesn’t make economic sense, especially as a declining dollar can be an important, export-supporting adjustment in weak economies. But I’ve always thought Kudlow’s motivation here is that he believes the strong dollar boosts dollar-based assets, and the man loves little more than a rising stock market.
And then there’s the matter of the financial markets:
I’ve tried, with slight success, to get Kudlow to recognize that a rising stock market doesn’t do much for the middle class and poor. This was the substance of our last on-air argument, in fact, when he was trying to convince me that all those share buybacks generated by the tax plan – which, for the record, I warned him about – would help working-class people through their retirement accounts. But the best work on this question, by economist Ed Wolff, shows that even including retirement account holdings, the bottom half of households own almost no stock at all. Conversely, 84 percent of the value of the market is held by the richest 10 percent of households.
And there is this:
Kudlow is a big advocate of globalization. He hated Trump’s tariffs, though he eventually said something positive about sanctions on China for dumping steel. But any such conversions are new for Kudlow. In our arguments, I’ve long been the one to underscore justifications for targeted duties on trade partners who dump products or manage their currencies to get a trade edge on us. I suspect he’s trying to find his way vis-a-vis Trump in this space. Good luck with that.
But it may not matter:
At the end of the day, and especially given his trickle-down fantasies, it’s hard to imagine that Kudlow’s National Economic Council will alter the fundamental economic flaw of the Trump administration: the fact that they’ve consistently betrayed the working-class people who helped put them in the White House. That said, Kudlow is a grown-up and will hopefully be someone who can get between Trump’s worst instincts and the rest of us.
Dana Milbank doubts that is true:
It was the eve of the biggest economic collapse since the Great Depression. Many on Wall Street worried that a recession loomed and that the housing bubble was bursting.
And then there was Larry Kudlow, the man President Trump just tapped to be his top economic adviser.
“Despite all the doom and gloom from the economic pessimistas, the resilient U.S. economy continues moving ahead,” Kudlow wrote on Dec. 7, 2007, in National Review, predicting that gloomy forecasters would “wind up with egg on their faces.” Kudlow, who previously derided as “bubbleheads” those who warned about a housing bubble, now wrote that “very positive” news in housing should “cushion” falling home sales and prices.
“There’s no recession coming. The pessimistas were wrong. It’s not going to happen,” wrote Kudlow. “The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.”
Trump has just put the country’s economic fate in the hands of the man who has arguably been more publicly and consistently wrong about the economy than any person alive.
He has been wrong:
When the economy didn’t rebound and housing continued its collapse, Kudlow pronounced, in a CNBC column on July 24, 2008, that he saw in the data “an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.” Stocks lost nearly half their value in the coming months.
But this man will fit right in with Trump’s cabinet of curiosities:
This is the same president, after all, who tapped to be the chief scientist at the Agriculture Department a talk-radio host who is not a scientist, named a brain surgeon to run the Department of Housing and Urban Development and floated the idea of his personal pilot as head the Federal Aviation Administration. A party planner, a bartender, a Meineke Car Care branch manager and a cabana boy all found plum administration jobs.
And those were Trump’s first choices. With Kudlow now replacing Gary Cohn, the impeccably qualified former Goldman Sachs executive, the second-stringers could make their predecessors look like Camelot.
2001: Kudlow writes in National Review about the George W. Bush tax cuts: “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.” Tax revenue falls, and the budget goes from surplus into deep deficits.
2002: Kudlow, arguing for war in Iraq, writes in National Review: “The shock therapy of decisive war will elevate the stock market by a couple-thousand points.” The market falls and the Dow Jones doesn’t get that couple-thousand-point elevation for years.
2009: Kudlow says in an interview: “President Obama is waging war on investors. He’s waging war against businesses.” In a piece in the Washington Times he warns that inflation could “ratchet higher.” The stock market and corporate profits climb to records, while inflation remains historically low.
Now, history is repeating itself. Writing in National Review in December, Kudlow embraced the Trump tax cuts, dismissed “dreary mainstream” forecasts and predicted annual growth as high as 5 percent. Echoing almost word for word his failed 2002 prediction, he forecast that “faster economic growth will generate much higher tax revenues.”
What could possibly go wrong?
By the way, in 2012, out in Kansas, Kudlow advised Republican governor Sam Brownback to implement a sweeping tax-cut plan that would produce faster growth. It didn’t, Brownback’s program was a comprehensive failure and the state is now in fiscal ruin. Sam Brownback was sworn in as U.S. Ambassador at Large for International Religious Freedom on February 1, 2018 – he’s not in Kansas anymore – Trump found another place for him. Long ago, many of us decided that economics wasn’t a science. It was just people talking.
Jennifer Rubin sees a pattern here:
With the exception of Defense Secretary Jim Mattis, virtually every Cabinet secretary or Cabinet-level official in the Trump administration has had multiple missteps. Some have been repeat offenders on ethics rules, others “merely” incompetent. But just how bad are they? Could a case be made that President Trump assembled the worst Cabinet in modern American history?
She asked around about that, and got this answer:
“It is not even close! We have a contingent of corrupt kleptocrats, some sadists, a racist, utter ideologues, at least one utter incompetent, another who has made as his mission devastating our diplomatic corps,” says American Enterprise Institute resident scholar Norman Ornstein. “Other administrations have had occasional embarrassments or individuals brought down by scandal. None in our lifetimes like this. Maybe Warren Harding would be a contender.”
This is a cabinet of curiosities:
Tom Price was forced to resign from his post as secretary of health and human services after a scandal about his charter jet travel. Questions still remain about the travel of secretaries of interior, treasury and veterans affairs. VA Secretary David Shulkin seems to have lost it, accusing his staff of all manner of betrayal and posting a guard outside his office. Axios reported, “After the VA’s inspector general reported that Shulkin used taxpayer dollars to pay for his wife to go to Europe, the VA secretary has been telling anyone who will listen that Trump appointees in his agency are conspiring to undermine him. He started handling his own media relations because he doesn’t trust the agency’s communications staff.” (He does not, however, have a flag to designate his presence on site as does Interior Secretary Ryan Zinke, who is also under fire for his rollout of an offshore drilling plan.)
Education Secretary Betsy DeVos managed to alarm even the Trump White House with her jaw-dropping display of ignorance during a series of TV interviews. (White House advisers perhaps were not paying attention during her horrific performance at her confirmation hearing?)
Departing Secretary of State Rex Tillerson was poorly suited for the job, never was seen as speaking for the president and managed to fail at managing both up and down.
But wait, there’s more:
Next in the rogues’ gallery is Housing and Urban Development Secretary Ben Carson. His office is plagued with its own ethics scandals, wasteful spending and fierce criticism over his effort to depart from HUD’s traditional mission in enforcing nondiscrimination in housing.
Over at the Commerce Department, Wilbur Ross has advocated a mind-numbingly foolish protectionist policy that has been roundly criticized by most every reputable economist, business leaders and even GOP members of Congress. And he has had his own conflict-of-interest scandal.
Aside from his travels, Treasury Secretary Steven Mnuchin has become a poster boy, along with his wife, for clueless excess. His willingness to spin for the president’s tax plan at the expense of his department’s credibility undercuts his effectiveness on the Hill and has drawn searing criticism from economists. His advocacy for a weaker dollar brought international scorn…
And there’s more:
When you drop down to other top administration appointees, the picture is equally gloomy. Office of Budget and Management Director Mick Mulvaney has been routinely ridiculed for his budget predictions and outlandish spin. Environmental Protection Agency Administrator Scott Pruitt is a standout – combining climate-change denial, banishment of subject-matter experts, his objection to flying coach on “security grounds” (he later relented when “security” turned out to be the indignity of facing criticism from other passengers) and bizarre security concerns that prompted, among other things, construction of a soundproof booth.
Rubin now has her answer:
American University history professor (and accurate prognosticator of Trump’s win in 2016) Allan Lichtman tells me, “There is no question that this is the most unqualified and inexperienced cabinet in the modern history of the presidency. Several of the cabinet officials not only lack the most basic qualifications for their jobs, but are intent upon undermining the fundamental mission of their departments: DeVos at Education, Carson at HUD, and Zinke at Interior. You can also add in Pruitt at EPA.”
And now it’s Kudlow, and Rubin knows why:
Trump chose people like him – rich, contemptuous of government and skeptical of expert opinion. The number of millionaires and billionaires in the Cabinet was not by accident. Trump values the opinions of rich people and generals and few others.
Kudlow may be the man who has arguably been more publicly and consistently wrong about the economy than any person alive, but it’s all just talk:
President Trump boasted in a fundraising speech Wednesday that he made up information in a meeting with the leader of a top U.S. ally, saying he insisted to Canadian Prime Minister Justin Trudeau that the United States runs a trade deficit with its neighbor to the north without knowing whether that was the case…
The Office of the United States Trade Representative says the United States has a trade surplus with Canada…
Trump’s rare comments that laid bare his approach to arguing trade facts with foreign leaders show how he might try to engage with other heads of state in the coming weeks. Trump has said he will impose tariffs on steel and aluminum imports as soon as next week, a steep increase in duties that could affect some of the U.S. government’s biggest trading partners.
Trump said countries can request exemption from these tariffs but only after direct negotiations with him. And the audio from the fundraiser shows how difficult these discussions could prove.
Kudlow will fit right in.