Larry Kudlow

You might not know it from the acrimonious political debate on cable and broadcast TV, or on talk radio, or on websites and blogs. But here's a counterintuitive observation: Amidst all the negativism out there, I believe  optimism is in the air.

That's right.  Optimism.

Sometimes you have to search for it, or read it in the fine print. But I believe the political economy is getting better, not worse.

Let me make a few points to defend what most folks believe is an indefensible position.

The stock market is hitting record highs daily, returning a tremendous amount of wealth to the half of American households that own shares. This investor-class wealth-creation alone is sparking a new sense of confidence and optimism.

Then on a smaller scale, housing -- the other great source of American wealth -- is beginning an impressive recovery. Over 60 percent of Americans own their own home, a key form of wealth. Like stocks, the housing recovery is creating a new sense of optimism after a very long and depressing dry spell.

Then there's the anemic economic recovery. It's the worst in modern times going back to 1947. But wait a minute -- things are looking up here, too.

Let me quote from the highly respected economists Conrad DeQuadros and John Ryding: "In the last two weeks, we have seen manufacturing ISM, non-manufacturing ISM, ABP employment, payrolls, jobless claims, retail sales, and industrial production beat expectations and show an upswing in economic activity."

Record profits for business may be driving this economic pickup. And it's all unfolding after the supposedly catastrophic budget-cutting sequester, and after a tax-hike bill that supply-siders like myself opposed (although income and investment taxes went up much less than feared).

In fact, even the eruption in government spending is showing signs of calming down. Taking into account a modest recovery, spending-cut bills of roughly $2 trillion and an end to the failed spending stimulus of 2009, the federal spending share of the economy has dropped from 25 percent in 2009-10, to 24 percent in 2011, to just below 23 percent last year.

As I have argued time and again, spending cuts and limited government lower the overall tax burden and promote economic growth.


Larry Kudlow

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