This didn’t get as much attention as it deserved yesterday, but Donald Trump’s main economic adviser makes a point which might explain why Trump’s rebounding in polls. “I don’t think he’s right, with all due respect,” Larry Kudlow replied on Fox & Friends after Barack Obama took credit for the current economy. Kudlow notes that Obama’s stewardship of the recovery produced the weakest rebound since the Great Depression.
“Look at the confidence metric,” Kudlow advises. “It’s a ‘V’ recovery, and it continues!” Is Kudlow right? Via Gary Gross, here’s the argument:
“President Trump has cut tax rates on small businesses and corporations and individuals — and he wants to do some more. That’s a huge difference from President Obama,” Kudlow said.
He added that Trump has rolled back onerous regulations and stopped the war on fossil fuels.
“Look at the confidence metric. Obama had nothing like that,” Kudlow said. “Almost from the day of the election, consumer sentiment and small business confidence has soared.”
He warned, however, that if Democrats retake the House in the midterm elections, it would have an adverse effect on the economic recovery.
“The biggest threat, the thing I worry about the most, is a change in the House, which will overturn the tax cuts and the regulatory reduction. My biggest worry.”
The ‘V’ recovery in consumer confidence is indeed real, my friend and St. Cloud State economics professor King Banaian tells me. This chart from the University of Michigan clearly shows consumer confidence had trended downward in 2016 — until Election Night:
King commented to me that he’s never seen anything quite like it in his 35 years of economic analysis. “Sharp market moves follow unexpected news,” he wrote. “One can see how the market digested the information of Trump’s victory as being positive for economic growth versus what they had expected with the ‘sure’ Clinton victory.”
The National Federation of Independent Business’ report last month on small-business owner optimism shows a similarly dramatic rise in confidence at the same time, after mainly languishing during the recovery:
Note the dramatic jump at the end of 2016 — and the historically low results for the previous eight years. Optimism now exceeds anything charted for the last 32 years. The NFIB also says it’s never seen anything quite like it, and points out what’s actually changed — tax and regulatory policies:
The NFIB Small Business Optimism Index continued its historic 23-month positive trend, with a reading of 107.9 in September, the third highest reading in the survey’s 45-year history. In the small business half of the economy, 2018 has produced 45-year record high measures of job openings, hiring plans, actual job creation, compensation increases (actual and planned), profit growth, and inventory investment. …
“This is the longest streak of small business optimism in history, evidence that tax cuts and regulatory rollbacks are paying off for the economy as a whole,” said NFIB President and CEO Juanita D. Duggan. “Our members say that business is booming and prospects continue to look bright.”
That’s what Obama omitted in his “I built that” argument. It’s true that the economy recovered from the Great Recession, but only at mediocre growth levels. His policies choked off investment and overburdened small businesses. Trump took the brakes off of growth, as Kudlow rightly points out, leading to much greater confidence among investors, job creators, and consumers.
That’s the story Kudlow and Republicans need to be telling in the final fortnight of the midterms — and how Democrat control of Congress will end up slamming the brakes back on.
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