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Strategies & Market Trends : Market Gems-Trading Strong Earnings Growth and Momentum
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To: lee kramer who wrote (5741)3/6/2001 12:51:33 PM
From: Lane Hall-Witt  Read Replies (2) of 6445
 
Lee -- Kudlow was ahead of the curve in tossing out the Phillips Curve, and I think he's done well to try to hold the Fed accountable to the opportunities of post-Phillips policymaking.

But I can't let Kudlow get away with this partisan slander about the "Clinton" decline: we all know that what's hurting us right now is a "Greenspan" decline. The Fed essentially induced a capital-investment panic, and this sudden halt in capex is reverberating through the entire U.S. economy. The Fed -- Greenspan -- has changed the psychology of the U.S. economy from growth to retrenchment, and that is having a huge impact on our economic outlook.

Kudlow has never shown even the slightest understanding of the government's role in the American economy during the past 20 years. In particular, he has never understood the impact of the Federal debt on the financial markets and on business investment. The Reagan-Bush debt drained trillions of dollars from the equity and corporate-bond markets and from the borrowing-power of individual consumers. For all the Reagan-Bush talk about keeping the federal government out of people's lives, the fact is that they put the federal government into a head-to-head contest with businesses and with individual borrowers -- fighting it out for the scarce dollars needed to finance consumption and investments. The federal government literally took trillions of dollars out of our pockets during the 1980s and early 1990s.

The Clinton economic plan of 1993 started the process of putting that money back into the private sector. It put restraints on the overall growth rate of government and inaugurated a new fiscal discipline that focused like a laser beam on deficit reduction. The ironic result of the 1993 tax increase was that it reduced federal reliance on the capital markets. Today, whenever the federal government buys back T-Bills, it actually pumps cash into the capital markets. Our tax dollars at work--.

What's so dispiriting right now is to see Bush throw away the fiscal program that brought us to this point. Clinton and the Democrats paid a huge price for the 1993 tax hike, although it was long overdue and necessary to give the U.S. bond market confidence in the deficit-reduction program. (Bob Woodward's account of the 1993 budget battle in _The Agenda_ is an intriguing read.) To see Bush score easy, unearned political points by giving the tax increase back, radically departing from the existing course that has been so successful in paying down debt, is a betrayal of the difficult choices of 1993 and 1997. Honor and dignity--?
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