New York, New York: 10/12/11:
Larry Kudlow is a huge name in business. From his current post as host of CNBC’s “Kudlow Report,” to his nationally syndicated weekly radio show on WABC in New York, to his former post in the Reagan White House as Associate Director for Economics and Planning in the Office of Management and Budget, Larry Kudlow knows a thing or two about business. His repeated mantra is pro-growth, pro-business, and he is a champion of free market capitalism. However the economics of America today are not all that they could be. I got to sit down with Kudlow over the phone and talk about all things economic and political in American and elsewhere in the world.
JESSE SCHMITT: Every day it seems that we wake up and see “Dow Jones Industrial Average up 400 points” or “down 400 points.” Obviously we need pro-business policies in Washington and employment around the country to calm businesses and people’s nerves about their investments, but what else is it going to take to get the markets to calm down for a sustained period of growth?
LARRY KUDLOW: Well you hit the nail. Unfortunately we’ve got all this left-wing, class-warfare populism coming from Obama: tax millionaires, tax billionaires, tax corporations. It’s a triumph of redistribution over growth. He seems intent on penalizing success. The economy is fundamentally weak; we’ve never seen a serious recovery. The combination of a faltering economy and anti-growth policies in Washington makes the stock market very nervous. Stocks are a barometer of the health and wealth of a country. So you have a nervous market; I don’t know if it’s a bear market or not…we really haven’t moved in 10 years. We had a peak in 2000 and a second peak which was a little bit higher in 2007 and now we’re just languishing. So the volatility, to me, if it doesn’t signal a bear market it signals a highly nervous market; a market without confidence.
JS: What do you think about the chances for a double dip recession?
LK: I wouldn’t rule it out. My take is that we’re on the front end of a recession; we’re not in a recession. Jobs are virtually nonexistent, incomes are falling after inflation. Businesses on the other hand are healthier and they are doing some investments; that may keep us out of a recession but we’re very vulnerable to a banking shock from Europe. Those are risks and you can see that with the nervousness in the market; any bad news from Europe and stocks crater; any good news from Europe and stocks rise. So I would say we’re on the front end of a recession in the worst economic recovery in the post WWII period.
JS: On the John Batchelor show last night you and another gentleman (Steve Moore) were comparing the presidential trajectory of Obama and Reagan; saying Reagan was in a similar bad spot in his 3rd year and he really turned things around. Obviously they’re different presidents but Obama has eyes and ears; what is stopping him from flipping the switch and taking some pro-growth action?
LK: I don’t think Obama shares the free enterprise beliefs that Ronald Reagan had. I don’t know if he gets it. Reagan wanted limited government, lower tax rate incentives, deregulation. Reagan wanted free enterprise to prosper; he did not bash businesses. The point that Steve Moore was making was that at this stage in the Reagan recovery cycle; September 1983; the monthly September jobs report was over a million; Obama’s was barely 100,000
JS: -Fifty thousand if you count those Verizon workers who came off strike
LK: -Absolutely right. So my point is that the Reagan model; which was a free enterprise incentive model; is not shared by Obama. Obama has a big govt redistribution model. “Fairness.” He calls it “Fairness.”
JS: Can we reach the same end with Obama’s policy?
LK: Obama’s philosophy is like a ball and chain around the economy. People are afraid to take risks; they’re afraid to invest for the long term; they’re really afraid to invest for the future. That will change after the election; Obama will be defeated handily.
JS: That was another question of mine; are you calling that for sure?
LK: For sure.
JS: The other day on Kudlow Report you said “I don’t know that there is a long term investment anymore.” That’s got to present a big hurdle for the small time investor to even want to get into the markets at all.
LK: I agree.
JS: So what can you say to investors who want to get into the markets and survive and thrive?
LK: My advice for investors is that if you’re in the market stay in the market for the long term. Because it is true that in the long run stocks proposer. But we’re talking bout 30-40 years. It’s interesting to me; professor Richard Sylla from NYU; he said we’ve been through a bad 10 years but, he said, that happens in history and he said that the next 10 years will make up for the lost time in the stock market. And he felt that the Dow will double to about 20,000 in the next 10 years or so. And that’s a very hopeful point of view; I basically share that view. 50 % of Americans own stock; the investor class is a very powerful political force; I think they’re just going to vote Obama out of office; the way they voted Carter out of office.
JS: I heard your interview with Newt Gingrich on October 1; what do you think about some of his ideas for a flat tax?
LK: I think they’re pretty good; I think Gingrich is a brilliant guy
JS: Do you think a flat tax is possible in the United States?
LK: I think we have to move in the direction of a flat tax. Do we ever get there? That’s a good question. But i think the principle for tax policy in the economy should be: flatten the tax rates, simplify the code, broaden the base, get rid of the deductions; do as much of that as you can. Most important restore incentives to work, save, invest and take risks. Incentives drive the economy; if it pays more after tax people will work more, they will invest more. If it pays less then they will pull back. But I don’t think tax is the only issue; we’ve got to save the budget with entitlement reform; we’ve got to save business with regulatory reform. I’m very concerned that over-regulation is posing a huge cost to businesses large and small; it’s a job destroyer; particularly Obamacare, which I think has been extremely harmful.
JS: How do we unwind all these years of bureaucracy?
LK: I think the banking regulation has gone too far; I think energy regulation has gone way too far. I think the EPA is a menace; we should liberate the US energy business it’s a fabulous business. We could outproduce Saudi Arabia if the EPA would let us. We know that we can outproduce them in oil and natural gas. You’ve got to pull back on regulations; you’ve go to take strong measures to get the budget back into some kind of better balance, Medicare is bankrupting us; that’s got to be fixed. Free trade has to be continued.
JS: How about Obama saying banks shouldn’t be able to make money?
LK: I was astonished at that. Why would anybody be in business if they can’t make money? That’s why I say he can’t change his stripes. He’s not a capitalist; he doesn’t believe in incentives; he has this class-warfare, big-government view. When he said banks have no inherent right to make profits that was a slip of the tongue that was extraordinary. The combination in that 24 hour period with the millionaire surtax, with all the harsh rhetoric, plus that statement; that really said it all. That’s the kind of thing that can freeze up an economy.
JS:.What do you think of Herman Cain’s 9-9-9?
LK: I like Herman Cain; I have some reservations about 9-9-9 but I think he’s moving in the right direction; I think he’s a great man. I really like him a lot and I wonder whether he won’t be on the ticket.
JS: I’m curious about your feelings for Occupy Wall Street. They began as a group of miscreants who were against capitalism and against corporations but I recently heard them fine tune their message to say that they are not anti-capitalism; they’re against the unfair distribution of wealth. I don’t understand how that’s not anti-capitalist but maybe you could shed some light.
LK: I can’t explain that. I think there’s a hardcore left that’s at the base of that and I think they are against the free enterpirse system. I think you’ve got a hardcore labor movement there; you’ve got Moveon.org. But I think you’ve got a lot of hangers on who; and I get this; express frustration about what’s not going on in the economy. The absence of prosperity, the absence of job creation, has put people in a bad mood; it’s put me in a bad mood and I’m the optimist. You see some of that and I think it’s legitimate, but the base seems pretty hardcore left; that’s what I’ve gathered.
JS: Do you think part of the impetus for Occupy Wall Street was a plant from the Obama administration like some of your contemporaries including Joe Crummey from WABC have possibly implicated?
LK: I think some elements of that are tied in with Obama. But not all.
JS: What do you think of the prospects for gold going forward?
LK: Gold is pretty high. If the Federal Reserve keeps devaluing and depreciating the value of the dollar, that would be bullish for gold. I worry that the Fed has mismanaged the money supply with all this quantitative easing. The only thing that happens is gold goes up, commodities go up, inflation goes up and consumers get hurt; businesses get hurt. So a lot of the gold story rests on the Fed. It rests on the fears of a serious European banking catastrophe; I think that’s part of it.
JS: What do you think of the prospects of water for the future?
LK: Water’s always been a pretty hot commodity at least in the last 10 years. I’m no expert on that stuff.
JS: One of the things I’ve always liked about you is your straight on delivery and the way you ask the questions you want answered; even if your guest will squirm. Is that just your personality or do you owe that tactic to some mentor?
LK: Well you know I’ve gotten better as a broadcaster; I think even my critics would agree. I try to be blunt and straightforward. If there’s a conservative on who I may tend to be sympathetic towards that doesn’t mean I won’t ask him or her the tough questions. I look for inconsistencies, I look for contradictions, and I look for sense; I think people should be sensible.
