Greed Is Good

Lawrence Kudlow will use any excuse to falsely claim that Reagan’s fiscal stimulus increased long-term growth. His latest uses the convictions of Ken Lay and Jeff Skilling as the backdrop to write:

Capitalism in this country has been under assault ever since FDR’s New Deal 1930s, a time when a number of alphabet agencies attempted to control America’s industrial and farming sectors. The experiment soon proved a dismal failure, with unemployment running 20 to 25 percent up until WWII. It was only when Roosevelt started unleashing businesses to produce wartime goods that the economy ultimately resurrected. Still, the American welfare state would grow. In the 1960s and 1970s, the murderer’s row of economic morons – LBJ, Nixon, Ford, and Carter – in allegiance with their liberal Keynesian advisors, concocted a socialist policy mix that ultimately led to wealth-destroying big-government stagflation. Providentially, Ronald Reagan changed all that in the 1980s. The Gipper slashed tax rates, deregulated industries, and rescued the dollar, unleashing the forces of entrepreneurial capitalism. As a result, for the first time since the post-Civil War period (but for the brief Coolidge-Melon period in the 1920s), the American economic system became the envy of the world. Since the early 1980s, more than 46 million new jobs have been created, with inflation-adjusted GDP increasing $6.2 trillion, or 120 percent.

Where to begin? Real GDP in 2005 was 115% higher than it was in 1980, which translates into an average annual growth of only 3.12%. Kudlow forgets to mention that real GDP growth during Clinton’s tenure – where tax rates were increased – was 3.7%. Real GDP growth under Reagan, Bush41, and Bush43 has averaged less than 3% per year. He also fails to mention that real GDP in 1980 was 133% higher than it was in 1955 – another time span of 25 years. In other words, real GDP growth averaged 3.45% per year during a period that included those “economic morons”. And when Kudlow criticizes LBJ’s Keynesian advisors for the acceleration of inflation, he should be criticizing Norman Ture – the mentor of all free lunch supply-siders.

Kudlow should also be careful tossing around the term economic morons given his spin on whether we should go back to the “Coolidge-Melon period” that predated SEC type regulations. Kudlow would have his readers believe that the only corporate crooks in the history of time were the executives of Enron. Excuse me for saying this – but even the readers of the National Review are not that ignorant. Finally, Kudlow fails to mention the Republican President who took office in 1929 as he tries to blame the Great Depression on FDR. Ah Larry, the stock market crashed in 1929 – not 1933.

Update: Brad DeLong has more criticism of Kudlow’s insanity noting that the unemployment rate increased to 33% under Hoover’s Administration and declined during FDR’s first two terms in office. Over the 12 years that FDR served as President, real GDP increased by over 180%. Compare that to the 115% increase over the past 25 years. To be fair, we shuold really be comparing real GDP in 1954 v. real GDP in 1929 as 1933 was the bottom of the Great Depression and 1945 was the tail end of World War II. OK, real GDP grew by 139% over this 25-year period.

Brad adds:

As I’ve said before, the country is full with lots of excellent, thoughtful right-wing economists who would love to write for National Review.

Thoughtful economists might be better described as conservative rather than right-wing. With that said, John Stuart Mill’s March 1866 letter to Sir John Pakington may apply:

I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it.

No one can deny two propositions: (1) there are many smart conservative economists; and (2) not one of them write for the National Review – at least on a regular basis.