Either President Obama needs a new speech writer, or he needs a new set of economic policies. Actually, he needs both.
Can anyone think of a more boring, banal, irrelevant, or stale speech than the one he gave this Thursday in Washington D.C.? The speech was allegedly on the economy, but more likely it was to divert attention from the Obamacare catastrophe. Whatever the motive, his idea that the defining challenge of our time is to reduce income inequality is completely wrong. In truth, the defining challenge is to restore more rapid economic growth, create substantially more jobs, and significantly reduce unemployment.
The greatest central banker in my professional lifetime was Paul Volcker. His signal achievement was bringing down the inflation rate from roughly 15 percent to about 3 percent more than three decades ago. The simplest way to look at the economic evils of runaway prices is to think of inflation as a tax hike — on consumers, savers, investors, corporate profits, capital gains, and so on. One humongous tax hike. And it was the myriad tax-hike effects of high inflation that wrecked the American economy in the 1970s.
But Volcker turned that around, and he did so using a rules-based approach to slaying price hikes. He was an old fashioned central banker who still believed the dollar should be as good as gold. And he carefully watched market-based signals like gold, commodities, and the exchange value of the dollar to let him know if he was going down the right road.
I reflect on this as Janet Yellen gets ready to take over at the Federal Reserve.
Following is the video and transcript of my Tuesday night interview with Wisconsin governor Scott Walker. In addition to discussing Walker’s new book, Unintimidated, and his heroic stand against the unions in Wisconsin, we talk Obamacare, Obama’s polls, and prospects for the 2016 presidential race:
LARRY KUDLOW: We’re honored to be joined now by Wisconsin governor Scott Walker. He’s out with a new book, Unintimidated: A Governor’s Story and a Nation’s Challenge. I wanna talk about everything and– and including your heroic stand against the unions in Wisconsin. But let me just start. The polls are crashing and Obama is caught in essentially his third falsehood on this subject. What’s your take on this?
GOV. SCOTT WALKER: Well, I think that’s part of the problem of you have someone who didn’t have executive experience and they let p– the political shop in the White House run everything. Political shops, as you know– you and I know in White House, is Republican/Democrat alike have major impact on policy but they’re not the sole force of policy here.
And I think that’s part of the problem is, they made a promise that nobody could actually deliver on– not just in terms of a website but on the overall policy of ObamaCare, which is an abysmal failure. And you and I’ve talked about it on this show. It’s not only a fail for ObamaCare, it is continuing to be– a wet blanket on the recovery and the nation’s economy.
LARRY KUDLOW: Right. It’s anti-growth. But it just– it just– it sort of blows my mind, okay? This guy’s a lawyer. I– I’ve never had any personal criticism to him. I don’t deal in that currency. But my point is, he’s a well-trained lawyer who taught law. He’s making these assertions which are blatantly false, we fi– does he not think in the age of information and– and Facebook and tweeters and electronic– this is gonna come out?
GOV. SCOTT WALKER: Oh, it’s shocking. I mean, to me, the fact–
LARRY KUDLOW: And I think people– and — I think people are just as angry at his falsehoods–
GOV. SCOTT WALKER: Uh-huh.
LARRY KUDLOW: –as they are at the breakdown of ObamaCare. I really do.
GOV. SCOTT WALKER: Oh, and I think it– it only gets worse as day b– by day goes by and more and more of these promises, we find out, you know, were not only not right– it’d be one thing if they were wrong and you were told they’re wrong– and you actually believe that people believed that. But the more we find out that– that that were– business– or as you said, firm after firm actually telling the White House and the Administration this wasn’t gonna work, it– it’s either one of those things where they’re not listening to the facts or they’re not being informed. In either case, it’s rather troubling.
There’s no question that the catastrophic debut of Obamacare — including the website breakdown and the millions of pink-slip cancellations — will be a great card for Republicans to play on the way to the 2014 midterm elections. No question.
The president lied about his lies about keeping your health plans and doctors. And when he did finally apologize, he didn’t really say he was sorry. It’s also possible that we’ll see 10 million more insurance cancellations, leading to much higher premiums, bigger deductibilities, and more cutoffs between patients and their doctors. And employer-based cancellations will compound this disaster, with the whole process stretching across most of next year. It will be a killer for the Obama Democrats.
But while my conservative-pundit colleagues are out thrashing Obamacare, I want to raise a critical point: Don’t forget economic growth.
May I ask this question? Why is it that Americans don’t have the freedom to choose their own health insurance? I just don’t get it. Why must the liberal nanny state make decisions for us? We can make them ourselves, thank you very much. It’s like choosing a car, buying a home, or investing in a stock. We can handle it.
So why must the government tell me and everyone else what we can and cannot buy?
Charles Krauthammer and the Wall Street Journal’s Dan Henninger noted in excellent recent columns that this whole Obamacare business represents the greatest-ever expansion of the liberal entitlement-state dream. But I don’t want that dream. And you shouldn’t either.
Here’s what else I don’t want: As a 60-something, relatively healthy person, I don’t want lactation and maternity services, abortion services, speech therapy, mammograms, fertility treatments, or Viagra. I don’t want it. So why should I have to tear up my existing health-care plan, and then buy a plan with far more expensive premiums and deductibilities and with services I don’t need or want?
Why? Because Team Obama says I have to. And that’s not much of a reason. It’s not freedom.
House Budget Committee chairman Paul Ryan says Obamacare’s glitches are here to stay. In an exclusive interview set to air on tonight’s Kudlow Report, Ryan said the problems with the Affordable Care Act extend far beyond website malfunctions.
“It’s more than the website,” Ryan said. “It’s because this law itself is built from an architecture, a foundation, that’s just not workable.”
Ryan said he sat through several House Committee Oversight meetings in which the administration failed to answer fundamental questions on the rollout of the Affordable Care Act. “The point is, they said, ‘Everything is fine, the law is going to be okay. We are ready to roll it out. We won’t have any problems.’” But House Republicans knew better, Ryan said.
“People should know that we tried to prevent this from happening in the first place by fighting a law we did not intend,” Ryan said, referring to the Republican-led House’s 46 attempts to repeal the law. “Then we tried giving people relief from the law by delaying it until 2013. That was rejected and now we are living with this law.”
Frustrated with the Senate’s rejection of attempts to defund and delay the law, Ryan shifted to the GOP’s most plausible tactic to end the Affordable Care Act: winning elections.
“We owe the American people an alternative,” Ryan said. “We want to win elections by saying this is not working for you and there are better ways in keeping with the country’s principles that puts you in charge of your heath-care future.”
Ryan dismissed criticism that the Republican party is in a “civil war” following failed attempts to delay Obamacare as part of the government shutdown and debt-ceiling negotiations. “We’ve had disagreements with each other on tactics,” he said. “These aren’t principles. I don’t know a Republican that doesn’t support comprehensive reforms to replace Obamacare with patient-centered health care.”
The Wisconsin congressman said the GOP will have a chance to showcase its common principles in budget negotiations set to begin Wednesday. He rejected hopes for a “grand bargain” deal, which he said would include pro-growth tax reform, a balanced budget, and entitlement reform.
“I don’t think we’ll get a grand bargain, and we’re not talking about getting a grand bargain,” he said. “Because then, one party will require that the other compromise their core principles, and we won’t get anything done.”
The GOP’s key bargaining chip, Ryan said, is the sequestration, the automatic spending cuts Democrats are seeking to repeal. “If we can’t get anything better than the sequester, then we’ll keep the sequester,” Ryan said. “That’s our base case to begin with.”
Ryan insisted that increased tax revenue was out of the question, calling Keynesian stimulus programs “sugar-high economics.” He said, “We’re not in this business to raise taxes. We’ll take the spending cuts we have and work with those.”
Instead, he said he was willing to negotiate on the “smarter” cuts to replace sequestration. “If we get a down payment on this debt and deficit in exchange for short-term relief, we’ll take it,” he said. “But it has to be on net a positive, meaning we will take the spending cuts right now.”
Ryan said substituting entitlement reform in place of broad spending cuts under sequestration would enable long-term growth in the U.S. economy. “If smart entitlement reforms could replace this crude across-the-board sequester, it would do a couple things,” Ryan said. “It would show the world that America is getting ahead of its problems. We’re not just going to be victims of circumstances. We’re not just going to fall into a debt crisis like Europe, but we’re going to get out of it.”
Entitlement should be at the top of the budget agenda, Ryan said.
“The question is not if we deal with entitlements,” Ryan said. “The question is if we are going to do it before the debt crisis or after the debt crisis. We would like to do it before so that we can shape events in this country instead of having events shape us.”
The congressman said that, ultimately, his job is to find common ground in budget negotiations among Republicans and Democrats. “I would argue that in this very difficult time that we are in, wouldn’t it be nice to show that this American divided government can at least govern?”
One huge political question surrounds the catastrophic launch of Obamacare: Will the administration double-talk, cancelled insurance contracts for millions, terminated doctor-patient relationships, sticker shock from higher premiums and deductibility, and damage to job hiring and economic growth get the GOP off the shutdown hook for the 2014 midterm elections?
That is the question. Donald Rumsfeld would call it a known unknown. And right now nobody knows the answer.
Judging from the speech Obama gave following the deal to end the government shutdown, Republicans better get wise to the president’s next fiscal gambit when the three-month stop-gap budget and debt measures come due. As was the case with his hard-line defense of Obamacare, the president likely will be inflexible on ending sequestration budget caps, pushing for massive tax hikes, and permitting only the most inconsequential entitlement reforms.
Obama is interested in busting the GOP in 2014. He’s not interested in true budget restraint or other economic-growth measures.
Never before has an American president threatened and risked the U.S. economy and financial markets the way Barack Obama has in recent days. For his own narrow political ends, Obama and his minions have actually accused the Republican party of deliberately provoking a Treasury debt default because they don’t agree with the Obama position on the continuing budget resolution and the debt ceiling.
“As reckless as a government shutdown is . . . an economic shutdown that results from default would be dramatically worse,” Obama said on Thursday. Clearly targeting Republicans, he said a default would be “the height of irresponsibility.”
Then, on the same day, Obama’s Treasury Department released a brutal statement that said a default would prove catastrophic, causing credit markets to freeze and leading to “a financial crisis and recession that could echo the events of 2008 or worse.”
So who exactly in the Republican ranks is calling for a Treasury debt default? Who? The GOP disagrees with Obama on the budget and health care, but no Republicans have ever said they favor defaulting on the nation’s debt.
I interviewed Senate Minority Leader Mitch McConnell on Wednesday night’s Kudlow Report. When I asked him about that day’s shutdown meeting at the White House, McConnell described it as “unproductive.” Here’s a report on the interview by CNBC desk producer Elizabeth Schulze, and the video, too:
Washington is still far from resolving its differences over the fight to reopen the U.S. government.
That’s according to Senate Minority Leader Mitch McConnell in an interview on CNBC’s “The Kudlow Report” following a meeting at the White House Wednesday night.
“It was cordial but unproductive,” McConnell said. “The President continues to maintain privately the position that he has had publicly, which is he doesn’t want to negotiate about the continuing resolution to operate the government or over raising the debt ceiling.”
After a two-hour meeting with President Obama, House Speaker John Boehner, House Minority Leader Nancy Pelosi, and Senate Majority Leader Harry Reid, Sen. McConnell offered no timeline for Congress to pass legislation to end the government shutdown.
“Obama can’t get his way exactly the way he likes it,” McConnell said. “The American people expect us to come together and figure out how to solve this problem and sooner or later, we’re going to do that.”
“The shutdown will end,” he added. “Nobody is in favor of a government shutdown, but these are important principles that we are fighting for, for the American people. We obviously want to continue the operation of the government, but we want to keep it within constraints with the Budget Control Act.”
McConnell insisted on maintaining spending levels under the Budget Control Act, the 2011 law which created sequestration. Tax increases to reopen the government, he said, are off the table.
“We don’t want to walk away from the spending reductions we have already promised the American people for the next two years,” he said. “Ninety-nine percent of the Bush tax cuts are now permanent law. We don’t want to walk away from the permanent tax relief that we achieved New Year’s Eve. “
McConnell shifted the debate to the debt ceiling, saying “America is not going to default on its debts.”
Treasury Secretary Jack Lew has said that the government’s flexibility to continue to fund itself without additional debt will end around Oct. 17.
“Our view is it’s time to talk to eliminate the government shutdown, to find out what conditions need to be attached to raise the debt ceiling so the full faith and credit of the United States continues to be honored,” McConnell said. “But we also need to do something about this enormous debt that has been accumulated during the Obama years.”
In response to President Obama’s insistence on a “clean” budget proposal in an interview on CNBC earlier Wednesday, McConnell said the President’s position is “unacceptable.”
“The President’s position so far is that he wants it clean no matter what,” McConnell said. “I think that’s an unacceptable position for Senate and House Republicans. It should be an unacceptable position for the American people.”
McConnell said the President fails to recognize that the American people elected a divided government under the assumption that both parties would negotiate.
“There will have to be a compromise no matter what the President says today because his party doesn’t control the entire government,” he said. “The American people have frequently elected a divided government. When they do that, they don’t expect us to do nothing, to not talk to each other.”
Senate Democrats, McConnell said, are reinforcing the stalemate in their refusal to negotiate with House Republicans.
“The House has sent over a number of different proposals, including the last one to go to conference and have a discussion about this,” he said. “Senate Democrats voted that down, too. Who’s being unreasonable here?”
The defeat of Senator Ted Cruz’s defunding strategy may not be the end of the fight to overturn Obamacare. In some sense, for free-market conservatives who want consumer choice and private-sector competition, this whole debate is about good versus evil. It’s a point that the brave and courageous Cruz grasps all too well. If Obamacare becomes permanent, it will crowd out the private health-care sector, including insurers and providers, and over time will create a single-payer, government-statist health-care sector.
Stopping this will be hard. But Senator Joe Manchin, Democrat from West Virginia, has given conservatives a ray of hope. Manchin is prepared to vote for a one-year delay of the individual mandate, the very heart of Obamacare. That means the GOP would need only four more votes to get that delay. Maybe red-state Democratic senators like Mary Landrieu (Louisiana), Mark Begich (Alaska), Kay Hagan (North Carolina), and Mark Pryor (Arkansas) will join 46 Republicans and vote for delay.
One of the biggest mistakes President Obama is making in the current debate over the threat of a government shutdown and the failure to raise the debt ceiling is his repeated and stubborn refusal to negotiate. In speech after speech, Obama crusades against negotiation. Has anyone ever seen anything like this? He’s the president. Supposedly, he’s the chief executive. But Obama doesn’t want to dirty his hands by talking to Republican congressional leaders.
Now, this is an odd paradigm given the fact that the president and his lieutenants are willing to negotiate with Russia’s Vladimir Putin, Syria’s Bashar Assad, and most recently Iranian president Rouhani Hassan. A motley crew at best, and a bunch of dictatorial mass-killing thugs in truth.
What does this say about the president’s strategy for the economic health and wealth of his own country, the United States of America?
Fed chairmen have to be independent, ready to make tough decisions. So what would have President Obama said to Larry Summers about higher interest rates and slower money growth in the next couple of years? Would Summers have had the independence to pull it off?
We’ll never know. But we do know that stocks markets rallied big time on the Summers withdrawal. Markets think Janet Yellen will be an easy-money dove and that Summers would have been the tight-money hawk. But stocks have no way of knowing this, because neither Yellen nor Summers have suggested a rules-based monetary policy that will prevent serious financial crises while stabilizing inflation and maximizing growth.
President Obama, speaking at the G-20 meeting in St. Petersburg on Friday, reminded me of an investment banker trying to sell a deal he doesn’t believe in. And the customer knows it.
Halting. Hesitant. Uncertain. Uncomfortable. That’s what Obama’s statement and body language had to say.
On the verge of a potentially huge defeat on the Syrian question in Congress, President Obama is in a box. He’s looking for a way out, but he can’t find one. He’s losing supporters in the legislature at home, and he didn’t gain any at the G-20 summit abroad.
When it comes to Fed policy, one of the hottest topics on Wall Street is the next Fed chair. Who will replace Ben Bernanke? And believe it or not, Timothy Geithner’s name may be resurfacing. Is it possible that the former Treasury secretary will come to the rescue of a leaderless and hopelessly divided central bank that has no real clue where it’s going or how fast it should get there?
Wait a second . . . Geithner? Did someone say Geithner? We thought he retired from government to go home to New York.
Speaking in Galesburg, Ill., this summer, Obama served up a convenient historical fairy tale: “In the period after world War II,” he said, “a growing middle class was the engine of our prosperity.” Presumably he was thinking of a time when high taxes on the rich and industrial-union rule had the middle class soaring. The trouble is, Obama’s history is wrong.
The Federal Reserve made news this past week in two separate events. The first came with the Fed’s policy meeting on Wednesday, when the central bank gave no hint that it would taper or slow its QE bond purchases any time soon. Wall Street believes the Fed will taper in September. My thought is that tapering is likely to come in December, or perhaps not until the new year. (More on that logic in a moment.)
The other big Fed event occurred when President Obama gave a strong defense of his former top economic advisor, Larry Summers. In front of a full caucus of House Democrats, Obama offered a full-throated rebuttal to the attacks of left-wing and feminist groups who have been coalescing around current Fed vice chair Janet Yellen. Obama told the Democrats “not to believe everything you read in the Huffington Post.”
Of course, with Ben Bernanke’s term ending in January, this all about the debate over a successor to the Fed chair. It’s a timely topic. But here’s the problem for Mr. Summers: Even though Obama has yet to make a choice on the matter, the president’s strong defense of Summers reduces the likelihood that Summers will be appointed. Why? Because Summers now looks like Obama’s man, even if the president hasn’t yet said so.
On June 9, 2013, Larry Kudlow was awarded an Honorary Doctor of Laws Degree from the University of Rochester and delivered the 2013 commencement speech for the University of Rochester Simon School of Business. Below is the full text of that speech.
Thank you . . . Thank you everyone.
It is an honor to be with you all, to be here with your distinguished leaders, with the Class of 2013 and, for me, returning to my alma mater is an emotional moment.
It has been quite a while, too long, frankly, since I have been back. But I’m honored to be here, with all of you, our graduates, and to have this opportunity to give back to a university that has meant a lot to me. Today, I would like to speak to you about two men, two leaders, who had an important impact on my life and on the life of this nation: Bill Simon, our country’s 43rd Treasury Secretary, and Ronald Reagan, our 40th President of the United States. And I am going to speak to you, briefly, about them within the context of two ideas, which are freedom and liberty. It is often said that commencement speakers are all liberals. Not true. I am offering you a conservative prospective and I hope you will listen and reflect on my remarks.
Let me begin with this point. This is the William E. Simon School of Business. I knew Bill Simon. I knew him very well. I enjoyed a lifelong connection with him before he passed away in 2000, and it leads me to say how proud you should be to have your degree with his name at the bottom. Bill Simon was a great Treasury Secretary within an administration full of, forgive me, too many dopes and economic illiterates. If they had listened to Bill, we would not have had to endure all the bloody, damn hell of stagflation within the early and middle 1970s, when I first started out in the workforce. That is how good Bill Simon was.
After he stepped down as Secretary of the Treasury, Bill wrote two best sellers: A Time for Truth and A Time for Action, and those ideas of freedom and liberty that he championed became synonymous with his legacy. Now, my first memory of Bill began with a phone call at 6:00 a.m. in 1977, when I was staying in a hotel in Denver.
It was Bill and I heard a voice bark into the phone, “Is this Larry Kudlow?” I said, “Yeah.” I mean I’m sorry but it was 6 a.m. in the morning. Well, he was calling from New York, and he said to me, “I just read something you wrote. A friend of mine passed it on. You’re a voice in the wilderness, and I want you to get back here so we can have lunch. I have work for you to do.” Now, mind you, I already had a job at the time. But, again, it was Bill Simon. So, we had lunch, and I got to know him. We played a lot of tennis and paddle tennis together, but here is the key: I got to spend hours with Bill as one of his principal speechwriters when he was out of office.
With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming. Cutbacks of out-of-control government spending, pensions, and health benefits. Major cutbacks. We know that.
We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed. Unions just loot the benefit lock box at taxpayer expense. That was the message of Governor Scott Walker’s victorious crusade in Wisconsin. If any good comes out of the Detroit debacle, it will be the spread of that message across the country.
But there’s another important point here. If Detroit is to truly recover, a growth program of tax-free investment incentives must be part of the process. Specifically, Detroit should be made a tax-free enterprise zone, along lines proposed years ago by the late Jack Kemp.
No matter how many monetary officials try to sugarcoat it with damage control, the fact remains that the Ben Bernanke Fed wants to end its quantitative-easing bond-buying operations over the next year. That was Bernanke’s statement at his last press conference, and I’ve seen nothing to contradict it.
As everyone knows, stocks and bonds collapsed right after Bernanke let the cat out of the hat. Fortunately, markets have stabilized since then. But my hunch is that unless the economy really falls back into a quasi-recession, the Fed is going to go ahead and end its bond purchases.
The central bank will more than likely begin to taper in September. And it will do so based on roughly 175,000 new jobs each month, which is consistent with a 2 to 2.5 percent economy.
But as the Fed implements this policy, there’s going to be a lot more volatility in the financial markets, with significant downside risks for stock prices and upside potential for longer-term interest rates.