Larry Kudlow

Larry Kudlow writes in the National Review Online Obamanomics Has Failed Dismally,  9/14/12


More money doesn’t necessarily mean more growth. More Fed money won’t increase after-tax rewards for risk, entrepreneurship, business hiring, and hard work. Keeping more of what you earn after-tax is the true spark of economic growth. Not the Fed.

In the supply-side model, the combination of lower marginal tax rates, lighter regulation, and a downsized government in relation to the economy is the growth-igniter. Money, on the other hand, determines the value of the dollar exchange rate and subsequently the overall inflation rate. A falling dollar (1970s) generates higher inflation, a rising dollar (1980s and beyond) generates lower inflation.

This is the supply-side model as advanced by Nobelist Robert Mundell and his colleague Arthur Laffer. In summary, easier taxes and tighter money are the optimal growth solution. But what we have now are higher taxes and easier money. A bad combination.

The Fed has created all this money in the last couple of years. But it hasn’t worked: $1.6 trillion of excess bank reserves are still sitting idle at the Fed. No use. No risk. Virtually no loans. And the Fed is enabling massive deficit spending by the White House and Treasury.

So at the end of the day, Obama’s economic program of tax, spend, and regulate has been a dismal failure. And now his Fed chairman is acting dramatically to bail him out. Guess what? It won’t work.


The stimulative effect of loose money is much easier to initiate than it is to reverse.  The Fed is confident that it can reduce reserves when the inflation makes it necessary. Call me skeptical.  The way to reverse this path is to make our shores attractive to capital investment. This administration is hell bent to do the reverse.  It is like the government keeps throwing barbells at the drowning swimmer and the Fed hopes to correct the action by throwing life preservers.  It would be easier to just stop weighting the swimmer with barbells.