Kudlow: Help Is On the Way
By Lawrence Kudlow
Contributing Editor
Dec 22, 2000 04:05 PM
For those observers of the political-economic scene who want to get the pure, unadulterated and unscripted
opinions of senior public officials, the best source is always the news conference transcript. No
teleprompters, no handlers, no one whispering in their ears. In the political game, news conference answers
are as pure as it gets.
So I recommend a careful reading of the question-and-answer portion of President-elect Bush's news
conference announcing Alcoa CEO Paul O'Neill as Secretary of the Treasury. I pulled it off the MSNBC
Website. It's a great read.
For Mr. O'Neill, there are two illuminating sections. First: "It is true that I'm one who believes that we can
operate at higher levels than most economists would have told you 20 years ago were possible; that is to
say, with higher real rates of growth without inflation, which means stability and job growth and all the other
things that are important."
In other words, the Treasury secretary designate is pro-growth. He's not a standard Phillips curver who sees
a trade-off between strong growth, low unemployment and higher inflation. He believes that growth is not
inflationary. This is good. Very good.
Here's a second revealing O'Neill answer. "I've made it my business, at his request, to come by on a fairly
regular basis and tell him what I thought he was doing wrong and what I thought he was doing right, which I
felt I had the privilege to do being long-time friends and associates."
The "him" is Sir Alan Greenspan. The point is that O'Neill has been accustomed to giving him advice down
through the years. He's not bashful. And as Treasury Secretary, O'Neill is likely to be even less bashful about
giving advice to the Fed, however privately, but forcefully.
Paul O'Neill is not a shrinking violet. He's a veteran bureaucratic player in the senior reaches of the federal
government (deputy OMB director under President Ford) and corporate America (International Paper and
Alcoa). He will not be afraid of Greenspan or anyone else.
Actually, I look for O'Neill to become the economic and domestic policy czar in the Bush Administration. He
will be every bit as strong as Robert Rubin was for Clinton. Larry Lindsey will be a key thinker, but O'Neill is
likely to be the economic CEO.
O'Neill is also a much more dedicated tax reformer than some of my supply-side brethren believe. On
numerous occasions, he has written and spoken on the need for broad-based tax reform, with hints that the
corporate income tax should be abolished altogether, since the compliance costs of conforming to corporate
tax rules, rates and regulations exceed the actual corporate tax revenue yield to the government.
And of course, Bush would never have agreed to O'Neill unless the latter was clearly on board to implement
the plan to lower marginal tax rates. Since the economy appears to be sinking at an unexpectedly rapid pace,
the supply-side tax-cut policy will take front and center in the Bush administration's first months. This will be
O'Neill's job. With considerable credibility as a major corporate CEO, O'Neill should be a good salesman on
Capitol Hill. Not only do we need new tax incentives to reinvigorate the economy, those incentives should be
made retroactive effective to January 1, 2001.
Then Mr. O'Neill must persuade the Fed to provide ample liquidity so people can put the new growth
incentives to work. Hopefully, Bush and O'Neill will fill the three open seats on the Federal Reserve Board
with independent thinkers who believe that market price indicators are better guides to policy than Phillips
curves or other NAIRU-ist econometric concoctions from the People's Republic of Cambridge, Mass., et al.
The Fed needs fresh air and new blood.
Also in the Bush-O'Neill news conference, the president-elect made some excellent economic policy
statements. Such as, "I think it is so important for members of the Hill to understand that tax relief is all about
economic growth and cash flow and accumulation of capital, and so is Social Security reform.
"Part of the reforms we outlined in the campaign
on Social Security, as you may remember, talked
about personal savings accounts. That not only
encourages people to manage their own money
and trust people with their own money, that policy
encourages the accumulation of capital in the
private sector. Capital is what fuels
entrepreneurial growth.
"Thirdly, we must review regulations that hamper
the accumulation of capital, regulations that
make it harder for the entrepreneur to start a
business."
You go, W. Stick to your guns.
The president-elect also covered some ground
on energy.
"I strongly believe that we must work in concert to increase the amount of supply available for American
consumers -- supply of natural gas, supply of coal, supply of plant and equipment. I believe we need to review
all federal land policy, to make sure that we're not missing an opportunity to explore for natural gas in the
country. There are supplies of gas to be discovered in America."
Capital formation and growth are bedrock economic principles. Reducing high marginal tax rates and
regulatory burdens are exactly the right policies. Promoting a more market-oriented Fed policy will lead to
lower interest rates and more plentiful liquidity conditions, all in the context of domestic price stability and a
stable dollar.
Recent news on inflation again shows price stability. In the revised Q3 GDP report, the chain-price index
came in at 1.6% at an annual rate. The core consumer spending deflator registered 1.7% over the past 12
months. But the growth indicators are falling everywhere, and that is where economic policy must focus.
In the earliest moments of the new administration, George Bush and Paul O'Neill have laid out an economic
growth agenda. These are strong players who will stick to their guns. Unless I'm badly mistaken, this will be
the most free enterprise administration in a long, long time. That's the good news. Help is on the way.
Lawrence Kudlow can be reached at larry.kudlow@ing-barings.com. |
