Kudlow’s Supply-Side Stupidity: Less Savings = More Investment!

Lawrence Kudlow endorses John McCain by pretending that Ronald Reagan and George W. Bush cut taxes:

The Republican candidate for president embraced low-tax-rate incentives to grow the economy, promising a combination of pro-growth tax reform and simplification along with significant spending restraint. He has called himself a foot soldier in the Reagan revolution … McCain pledged to keep taxes low for families and employers, putting himself squarely in Ronald Reagan’s camp and offering to extend the long prosperity wave started by the Gipper over twenty-five years ago. In contrast, McCain charged Obama — who gave his economic speech on Monday — with proposing the single-biggest tax hike in the entire post-WWII period. McCain asserted that “no matter which of us wins in November, there will be change in Washington. The question is what kind of change?” Obama says a McCain victory will hand Bush a third term. McCain says an Obama victory gives Jimmy Carter a second term. I think McCain gets it right. Getting down to specifics, McCain said he will maintain the low income and investment tax rates put in place by President Bush. He singled out the need to keep the capital-gains tax rate at a low 15 percent, so that businesses will have the investment necessary to expand jobs, productivity, and real wages. Completely unlike Obama, McCain is saying you can’t have capitalism without capital. And he recognizes that investors must have high after-tax returns in order to take risks and fuel entrepreneurial activity. On this point, think high-risk energy technologies for clean coal, natural gas, oil shale, and nuclear and cellulosic power. McCain repeated his plan to reduce the corporate tax rate to 25 percent from 35 percent. This could be his single-most-important tax reform. Not only will it enhance America’s global competitiveness, since we have the second highest corporate tax among large countries. But a number of studies show that roughly 70 percent of the benefits from a lower corporate tax will flow to the workforce in the form of higher real wages and more jobs.

How many times do we have to remind these National Review nitwits about the economic record of the 1980’s? Reagan did not cut taxes – he deferred them. I say this because we did not have reductions in government spending “Reagan style” as Kudlow once declared. We did have deficits – which some rightwingers falsely attribute to some alleged explosion in government spending. The truth is that Federal spending as a share of GDP neither rose nor fell. But people did consume more, which means national savings fell and real interest rates rose which led to less investment and slower long-term growth. Incidentally, this is all well explained in the first textbook that Greg Mankiw published. But I guess Kudlow never read this book or anything else on macroeconomics outside Kudlow’s own babbling.

George W. Bush also pretended to cut taxes but we all know government spending has increased as a share of GDP. So we did not have tax cuts in 2001 and 2003 – only tax deferrals. And yes – national savings and investment are lower than they were in those allegedly high tax Clinton years. I guess Kudlow is not aware that real GDP grew by 3.7% per year under Clinton while it grew by only 3.0% during the Reagan-Bush41 years. But even 3% would seem high compared to the anemic growth of GDP under George W. Bush. And Kudlow is stupid enough to think that a continuation of Bush43’s fiscal irresponsibility is the path to more investment and growth? No wonder he writes for the National Review!