Larry Kudlow
Why President Bush seemingly gets no credit for the strong economy is one of the enduring political mysteries of our time. Some call it the “Goldilocks economy” -- a term widely used to describe the low-inflation growth of the second half of the 1990s. More accurately, it’s a non-inflationary boom where the economy is hitting on all cylinders and the outlook for the coming years is bright. In view of the ravages of the 2000-02 stock market plunge, the 9/11 terrorist attacks, and skyrocketing energy prices, the Bush boom stands as even more of a great achievement.

But still he gets no credit. Most polls show the president’s economic approval rating around 40 percent or even less. Scott Rasmussen, who does extensive consumer and investor polling, shows that the confidence ratings of both are about 15 percent lower than in late 2003.

Meanwhile, a splendid group of economic data points show clearly the effectiveness of the president’s marginal tax-rate reductions of two years ago. The tax-cut package was in large part directed at stock market and business capital formation, both hard hit a few years back. This was the correct target. Share prices have recovered about 70 percent in recent years, with a number of widely tracked indexes, like the NYSE and the S&P small- and mid-cap indexes, now trading at all-time highs. The economy itself is growing at about 4 percent per annum since the tax cuts, with business investment leading the surge.

Breaking down the major components of the economy, business spending on equipment and software is now contributing close to 30 percent of the increase in gross domestic product. (Prior to the Bush tax cuts on capital gains, dividends, and personal incomes, cap-ex was a net drag on economic growth.) The business surge has caused industrial production to rise by nearly 9 percent in the past couple of years, or 4.1 percent annually.

In this supply-side model, it is investment and production that create jobs. Not surprisingly, the total U.S. employment of 142 million workers stands at an all-time high. Since May 2003, non-farm payrolls have grown by 4 million, while the Labor Department’s household survey (which includes the self-employed) has surged by 4.5 million. The unemployment rate is 5 percent with real worker compensation growing by nearly 4 percent. Interest rates and core inflation are running at four-decade lows.


Larry Kudlow

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