Pres­i­dent Bush is right about eco­nomic strength

The Washington Times Weekly - - Commentary - LAWRENCE KUD­LOW

Pres­i­dent Ge­orge W. Bush may turn out to be the top eco­nomic fore­caster in the coun­try. About a month ago, he told re­porters, “We’re not in a re­ces­sion — we’re in a slow­down.” At a White House news con­fer­ence a few weeks later, de­spite the fact that re­porters pressed him to use the “R” word, Bush re­fused.

And on May 2, af­ter the most re­cent jobs re­port — which pro­duced a much-smaller-than-ex­pected de­cline in cor­po­rate pay­rolls, a huge 362,000 in­crease in the more en­tre­pre­neur­ial house­hold sur­vey (the best gain in five months) and a his­tor­i­cally low 5 per­cent un­em­ploy­ment rate (4.95 per­cent, to be pre­cise) — the pres­i­dent told re­porters: “This econ­omy is go­ing to come on. I’m con­fi­dent it will.”

We’re in the midst of the most widely pre­dicted and her­alded re­ces­sion in his­tory. Prob­lem is, so far it’s a non-re­ces­sion re­ces­sion. Score one for Pres­i­dent Bush. In an elec­tion year, it could be a big one.

First-quar­ter GDP growth came in at 0.6 per­cent. It wasn’t the widely pre­dicted de­cline, and economists ex­pect that num­ber to be re­vised up. Gross do­mes­tic prod­uct growth for the fourth quar­ter of 2007 was also up slightly, while the prior two quar­ters av­er­aged over 4 per­cent growth.

My pal Jimmy Pethok­oukis quotes Stan­ford pro­fes­sor Robert Hall, who heads the re­ces­sion­dat­ing com­mit­tee at the Na­tional Bureau of Eco­nomic Re­search: “It seems un­likely that we would ever de­clare a peak-date when real GDP con­tin­ued to rise.”

In­ter­est­ing — isn’t it? — just how durable and re­silient our low-tax, free-mar­ket cap­i­tal­ist econ­omy truly is. Hit by soar­ing food and en­ergy prices, a bad hous­ing down­turn and a Wall Street credit crunch, the econ­omy con­tin­ues to ex­pand, al­beit slowly.

The bad news bears al­ways fo­cus on ar­eas of eco­nomic weak­ness. But parts of the econ­omy are do­ing splen­didly. This in­cludes agri­cul­ture, en­ergy, ex­port firms op­er­at­ing in the global boom, and all man­ner of pri­vate­sec­tor busi­ness, pro­fes­sional, health and ed­u­ca­tion ser­vices. In­ci­den­tally, th­ese are the ex­act sec­tors pro­duc­ing the high­est­pay­ing jobs. What’s more, at 154 mil­lion em­ployed, the civil­ian la­bor force just hit a new all-time high.

An­other sig­nif­i­cant data point: Cor­po­rate prof­its are out­per­form­ing all ex­pec­ta­tions. With three-quar­ters of the S&P 500 com­pa­nies re­port­ing, prof­its out­side the bank­ing sys­tem have in­creased 10 per­cent over a year ago.

Prof­its are a dirty word on the cam­paign trail. Hil­lary and Obama, who blame Amer­i­can cor­po­ra­tions for most ev­ery prob­lem un­der the sun, want to tax prof­its heav­ily. With ExxonMo­bil and other oil com­pa­nies re­port­ing strong earn­ings, Democrats are now call­ing for a wind­fall prof­its tax. Last time we tried that — un­der Jimmy Carter — for­eign en­ergy im­ports rose 8 per­cent to 16 per­cent and do­mes­tic en­ergy pro­duc­tion fell 3 per­cent to 6 per­cent. (This ac­cord­ing to a study by the Con­gres­sional Re­search Ser­vice.)

A Se­nate Repub­li­can group led by Pete Domenici of New Mex­ico has a much bet­ter idea: Ex­pand drilling and pro­duc­tion both off­shore and in Alaska. Mr. Domenici’s group es­ti­mates this would pro­duce up to 24 bil­lion bar­rels of oil, enough to cover five years of U.S. en­ergy use with­out a sin­gle im­port.

It’s a vastly bet­ter plan than pe­nal­iz­ing Amer­i­can busi­nesses and their prof­its, which are the mother’s milk of stocks, jobs and the econ­omy. Sen. John McCain gets this. His plan to slash the cor­po­rate tax rate is the sin­gle best pro­posal on the cam­paign trail. McCain also un­der­stands that you don’t raise taxes dur­ing a slow­down. Nor do you raise taxes when the econ­omy is bounc­ing back.

Right now, op­ti­mism seems to be re­turn­ing to the stock mar­ket. None other than The New York Times ran a front-page story stat­ing, “Wall Street Sees Signs of Sun­shine.” That’s like the Daily Worker an­nounc­ing the end of so­cial­ism. But let’s credit the Old Gray Lady with read­ing the tea leaves right.

As a re­sult of mighty ef­forts by the Fed­eral Re­serve, the credit crunch is eas­ing and bond-mar­ket risk spreads are fall­ing. The stock mar­ket just fin­ished its best April since 2003, with the Dow run­ning above 13,000. The Fed has come to the end of its rate­cut­ting cy­cle, and the U.S. green­back is start­ing to gain strength. With the dol­lar turn­ing stronger, gold and other in­fla­tion sig­nals are com­ing down.

Even tax re­bates for work­ing peo­ple will help a bit, al­though I’m no fan of tem­po­rary tax cuts. The much bet­ter idea is to make Mr. Bush’s in­vest­ment tax cuts per­ma­nent. Mr. McCain is for it. Hill-Bama is against it. Whose call is it go­ing to be? Re­ces­sions and slow­downs come and go in the free-mar­ket econ­omy. But even so, it looks like Mr. Bush — against all odds — may have the last laugh. If he’s right on his no-re­ces­sion pre­dic­tion, Mr. McCain and Repub­li­cans down the elec­toral lad­der are likely to ben­e­fit.

Lawrence Kud­low is a na­tion­ally syn­di­cated colum­nist.

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