Larry Kudlow

Are conservatives underestimating the significance of Arnold Schwarzenegger's election to the California governorship? I think they are.

The Austrian-born actor's stunning victory could be as path-breaking as the Proposition 13 ballot initiative of 1978. That property-tax-hike recall set the stage for a nationwide taxpayer revolt. It emboldened Ronald Reagan to firmly embrace supply-side tax cuts that had been proposed to him by economist Arthur Laffer, Rep. Jack Kemp and others. Post Proposition-13, broad-based tax cuts became a staple of federal and state political life, lasting right up to the tax cut signed by President George W. Bush in May.

No two historical episodes are ever completely alike. But, like Proposition 13, Schwarzenegger's campaign victory is an overthrow of the old-liberal order in Sacramento -- a political regime that decimated California's businesses and economy with high-tax, high-spend and overregulation policies.

On the campaign trail, Schwarzenegger was fond of saying, "The problem is not California, the problem is Sacramento." Schwarzenegger's statehouse victory represents the re-emergence of an important idea: It is time to set statewide policies that will promote the creation of new businesses in increasingly left-wing California.

Ever since he announced his candidacy on Jay Leno's late-night TV show, Schwarzenegger has been consistent that low-tax conservative fiscal policies are the key to solving the California economic problem. Such policies would stem the outflow of smart money, smart people and small businesses. Schwarzenegger's pro-business stance is a startling change -- not only for the Golden State, but for the nation.

Politicians in both parties ran from supporting business in the aftermath of the highly publicized corporate scandals. But the essential Schwarzenegger fact is this: He believes that business creates jobs. He also understands that rising incomes from job growth will create a stable revenue base for the state budget.

Democratic presidential candidates, with the occasional exception of Sen. John Kerry (my fellow Democrats like jobs, they just don't like the businesses that create them), are all trashing business in the hope of riding a populist revolution against the Enrons of the world. That Schwarzenegger is unafraid to defend business in this political climate is quite remarkable. It's just as remarkable that a majority of California voters (if you include Tom McClintock's totals) agreed with Schwarzenegger's point of view.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.