In 1993, when Bill Clinton proposed an increase in the top tax rate from 31 percent to 39.6 percent, Kudlow wrote, “There is no question that President Clinton’s across-the-board tax increases … will throw a wet blanket over the recovery and depress the economy’s long-run potential to grow.” This was wrong. Instead, a boom ensued.So there's one massive error.
Rather than question his analysis, Kudlow switched to crediting the results to the great tax-cutter, Ronald Reagan. “The politician most responsible for laying the groundwork for this prosperous era is not Bill Clinton, but Ronald Reagan,” he argued in February, 2000.I don't think this is completely absurd, I mean, who knows what the time lag is between actions taken by the government and economic results? But on the other hand it completely contradicts what he had been saying just a few years before.
By December 2000, the expansion had begun to slow. What had happened? According to Kudlow, it meant Reagan’s tax-cutting genius was no longer responsible for the economy’s performance. “The Clinton policies of rising tax burdens, high interest rates and re-regulation is responsible for the sinking stock market and the slumping economy,” he mourned, though no taxes or re-regulation had taken place since he had credited Reagan for the boom earlier that same year.You see the pattern.
By the time George W. Bush took office, Kudlow was plumping for his tax-cut plan. Kudlow not only endorsed Bush’s argument that the budget surplus he inherited from Clinton — the one Kudlow and his allies had insisted in 1993 could never happen, because the tax hikes would strangle the economy — would turn out to be even larger than forecast. “Faster economic growth and more profitable productivity returns will generate higher tax revenues at the new lower tax-rate levels. Future budget surpluses will rise, not fall.” This was wrong, too.Was it ever. I remember these debates well. Kudlow and company were vehement that the CBO's economic forecast was not nearly rosy enough, and that people saying "but what if we have a recession?" were foolish Cassandras. Instead, that forecast proved far too rosy, we got a recession, and the deficit soared.
Kudlow then denied we were in a housing bubble and denied that mortgage bonds posed any risk to the economy. When Obama came in he joined the chorus arguing that the stimulus plus the Fed's "quantitative easing" would lead to high inflation, and in fact he spent the next eight years arguing that high inflation was just around the corner, that the CPC was somehow underestimating real inflation, and so on.
It is pretty hard to imagine how any mainstream pundit could end up with a worse record. So of course he is due for a high profile job in the government. . . .
We need to get away from treating economic questions as matters of faith – tax cuts always increase revenue, a higher minimum wage is always better – and use some data to figure out what is really going on.
Trump put into office someone utterly incompetant who ignores facts in favor of a blindly sycophantic party allegiance? I'm shocked! Shocked, I tell you!
ReplyDeleteSometimes I wonder if chaos theory doesn't apply to our economy. It's huge with many separate components swirling around, interacting with one another, and some of the interaction is non-linear. Small errors don't change short-term outcomes (background noise), but those same errors can create havoc in the long-term, making long-term predictions 1, 2, 3 years out guess work.
ReplyDeleteOther times I think of the economy as a huge, laden-down freight train packing tremendous momentum, even at slow speeds. Press on the brakes at location X and you stop an hour later 20 miles down the track, 5 miles past where you wanted to stop. For example, do we raise interest rates later than we should because the first visible signs of inflation don't reveal themselves until it's too late?
Larry Kudlow at least admits when he was wrong. If you can be really honest to yourself, no one can really predict what the future will be. Sadly, these days, people are more influenced by anecdotal evidences, rather looking at the context behind the anecdotes. Let me ask this question. Why do people still give credibility to the media when they were wrong about Trump’s election?
ReplyDeleteIt just goes to say that people are generally motivated by their bias. They choose to believe one over the other when both have a history of being wrong.
@Anonymous: sure, everybody has been wrong. But Kudlow and others like him have been consistently wrong for decades because they deeply believe that tax cuts are always good in every way, and that any government attempt to stimulate the economy on behalf of poor people will end disastrously. Neither of these things is true. This is a simplistic ideology posing as wisdom.
ReplyDeletePollsters were wrong about 2016 but they got the eight presidential elections before that right, and eight out of nine is not a bad record. So far as I can tell Kudlow is more like one our of nine.
@John
ReplyDeleteIt seems that certain people would rather have a clock that's right twice a day which they never have to put effort into maintaining, than one which runs slow and needs adjusting once every few weeks.