Kudlow – a 35,000 Dow and Post-Recession Growth

Since I had a few posts about Kudlow lately, and since one the Dow 36,000 oafchucks recently got named something or other by GW (and why not – with his record, why wouldn’t he fit in with this crowd?), I was thinking of what I like to think of Kudlow’s Klassic – the interview in the March 2001 issue of American Spectator.

First, the reason I thought of Kudlow:

Kudlow: …The companies that lead that change will lead the NASDAQ to 10,000.
TAS: In this decade?
Kudlow: By 2010 it should reach 10,000. The Dow Jones–which is really an old-economy value index–should keep rising, because the old dogs are learning new tricks.
TAS: The NASDAQ at 10,000 will please my wife. But what about my mother? Where do you expect the Dow to be at the end of the decade?
Kudlow: I’ve been on the record for 35,000 for awhile.

Clearly a pessimist compared to Glassman. But, in 2010, the Dow should be at 35,000 and the Nasdaq at 10,000. Two years, baby. But to be honest, I hope he’s wrong. See… unless the economy performs magically when GW leaves office, the only way I see Dow 35,000 one hundred and five weeks from today is if the dollar collapses in value. And in that case, we really won’t be happy with a 35,000 Dow.

And as to Kudlow’s partisanship… another quote from the interview:

The economy didn’t grow worth a shake in the early ’90s. Two tax hikes in 1990 and ’93 kept growth down to barely three percent. Coming out of a recession, that is nothing. We should be seeing 5 or 6 percent growth early in a recovery. The economy did start growing after the Republicans took Congress in 1994, because that put an end to the threat of more tax hikes and over-regulation.

So… in English… coming out of a recent, we should be seeing 5 or 6 percent growth early on. Kudlow always switches a too easily between nominal and real figures, but I assume he means nominal growth. Still, let’s show both… here’s the annual percentage change in real and nominal GDP, straight from the BEA:

First, let’s start with what happened after the Republicans took control of Congress in 1994… hmmm… real growth was down from 1994 to 1995. And it was lower in 1996 than in 1994 too. Not what you’d expect to see in the data if you listened to Kudlow, is it? Not an outright lie, but certainly misdirection at a minimum.

But that’s a quibble. Let’s look at his main point: In terms of nominal GDP, we were seeing “5 or 6 percent growth early” in the recovery. If he was talking real, sure, real growth was kept down to three percent early for the first two years following the recovery. But look at the period after the 2001 recession. Complete with Kudlow’s beloved tax cuts. And plenty of help from the Fed. And yet… the recovery in 2001 certainly doesn’t outshine the one in the early 1990s, despite the fact that Clinton did everything wrong. I wonder if Kudlow will explain that one while being clear and precise with the data. Actually, I don’t.