Larry Kudlow

Despite the historic expansion of the federal government’s involvement in, intervention in, and control of the economy -- including Bailout Nation; takeovers of banks, car companies, insurance firms, Fannie, Freddie, AIG, GM, Chrysler, and GMAC; large-scale tax threats; overregulation; an attempted takeover of the health-care sector; ultra-easy money; a declining dollar; and unprecedented spending and debt creation -- despite all the things that would be expected to destroy the economy -- all this socialism lite and the degrading of incentives and rewards for success -- despite all this, the U.S. economy has not been destroyed.

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In fact, it is coming back. In 2009, the stock market had one of its greatest rebounds in history. And in 2010, we’re likely to witness a mini boom in economic growth.

If you believe in miracles, as I do, this looks like a miracle. If you have faith in free-market capitalism, as I do, then somehow this faith is being rewarded by a more durable and resilient free-enterprise capitalism than many of us thought possible only one year ago.

If you believe in the supply-side model of growth, including low marginal tax rates, a reliable King Dollar, and limited government, yes, you have very little to cheer about. Yet market-based forecasting variables are all pointing to a stronger-than-expected economic rebound in the new year.

Stocks are signaling better economic growth. So is the steeply upward-sloping Treasury yield curve. So is the worldwide rebound in commodity markets. So is the collapse of credit-risk spreads in the bond market. Each of these market-based forecasting tools points to a significant recovery in 2010.

I’m calling it a “mini boom” because we’re likely headed toward 4 to 5 percent real economic growth. That’s not as good as the 7 to 8 percent boom that followed the similarly deep recession of the early 1980s. Then again, Reagan slashed tax rates and Volcker stabilized the dollar. That’s not happening now. Gold has jumped from around $700 to $1,100, signaling higher inflation in 2010 and even more price increases in 2011.

But we know from recent data on retail sales, personal income, corporate profits, industrial production, business investment, and jobless claims that the economic patient is healing.


Larry Kudlow

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