Thursday, November 30, 2006

Win in Iraq

The Jim Baker-Lee Hamilton Iraq Study Group is calling for a troop pullback. President Bush says that a troop drawdown is unrealistic. So you have 2 different strategic views.

For my money, Bush is exactly right. We need more military forces to stop the rogue militias and to stabilize Baghdad.

National Review editor Rich Lowry is correct to say there are really only two choices. One is additional troops to bolster Iraqi security. Failing that, we may as well just pack up and leave.

The second option amounts to defeat. We must not accept defeat.

The President is telling us we can’t leave-it’d be premature. I totally agree.

I would like to see a change in generals and a much greater number of U.S. advisors embedded in the Iraqi forces and police.

This is why I’m leery of the Baker commission. If the U.S. leaves, before securing Iraq, the game will be won by Ahmadinejad and Iran.

That is not a desirable outcome.

Still Strong

The recessionary perma-bears need to revisit their forecasts following yesterday’s GDP report. Goldilocks lives according to the updated numbers— we have unbelievably strong profits, a very healthy beige book and a roaring stock market.

Bonds are telling us there's no future inflation and the Fed is too tight; while the stock market is predicting a soft landing and more growth next year.

As investment strategist Jason Trennert said on last night’s program, the stock market can sometimes give off false positives on recessions, but rarely does it give you false negatives. In other words, it's very rare that the stock market goes up in anticipation of a recession or a significant slowdown.

Pretax corporate profits (these are the profits recorded for the IRS tax collectors, so nobody overestimates them) are up a staggering 31 percent, year on year, through the third quarter. After tax they're up 25 percent—truly remarkable numbers.

With the exception of housing, this GDP report says the economy is hitting on all cylinders. Consumers up nicely, business building up nicely, business capital goods up nicely. And inflation is coming down. I mean, for heaven's sakes, the GDP deflator is now under 2 percent. And, because of oil, it might even be negative in the fourth quarter, which would boost real GDP.

According to yesterday’s report, the GDP deflator in the third quarter was 1.7 percent. In the second quarter, it was 3.3 percent. In the first quarter, it was 3.3 percent. In other words, inflation according to this broad measure has fallen by almost 50 percent. The fourth quarter number is going to be lower.

If you take a point or so off due to the housing slowdown, you’re left with about 2 to 2 ½ percent economic growth—again, with very low inflation.

Nothing fell in the GDP report outside of housing. And there's some evidence that housing may be bottoming. Maybe it's got another couple quarters to go, no one knows for sure. But when you look at the other components--consumption, business investment, business building—along with lower inflation, the economic picture looks very good.

When in the history of human kind have we had a recession when business profits—the mother's milk of the economy and the stock market—are rising by 25 to 30 percent?

It is still the greatest story never told.

"Greatly Inflated Expectations"

Jerry Bowyer says the great supply-side debate of 2006 is coming to an end over at National Review Online:

For about two years now there has been a deep division among members of the supply-side movement over the topic of inflation. That debate will eventually draw to a close — as all forecasting debates eventually must (among open-minded people) as the data gradually appear.

The science of economic forecasting, like any science, basically works like this: You form a picture in your mind of how you think the world works; you predict what will happen if the world really does work that way; then you wait and see what happens. If your prediction turns out to be wrong, your theory, then, must also be wrong.

Larry Kudlow, Arthur Laffer, and the Bush administration thought the world worked like this: Gold will give you some useful knowledge about future inflation, but it is not an absolutely reliable indicator in and of itself. Kudlow has made this case on both his blog and his TV show, Kudlow & Co. Laffer has said as much on Kudlow’s show, which has become the command center for the no-inflation camp. And the chairman of the president’s Council of Economic Advisors has predicted “modest inflation” after looking at “market indicators” such as interest rates.

BuzzCharts is in agreement. We have argued that the principle that made gold a good indicator (the wisdom of markets over planners) made the combination of all relevant markets (gold, other commodities, interest rates, and even stocks) an even better indicator.

Other respected supply-side analysts (some with truly outstanding track records) have focused mainly on gold in forecasting future inflation, and because of this have warned of higher inflation. So far, that inflation has not appeared in consumer prices. Rather — instead of seeing manageable levels of inflation turn into high inflation — we’ve gotten a sniff of deflation. As of this writing, prices have generally been dropping for the past couple of months.

Is the debate over? Not yet. However, the federal printing presses were running at their hottest in 2003 and we’re near the end of 2006. It’s getting tougher and tougher to believe that inflation is still languishing somewhere in the money pipeline. With each month of moderate (or even negative) price growth, the inflation case weakens, and so does the “gold-only” theory on which it is based.

Why will the “gold-only” crowd turn out to be wrong? What can we learn about forecasting of all kinds from this episode?

Stay tuned to BuzzCharts.

— Jerry Bowyer is an economic advisor to Blue Vase Capital Management and the author of The Bush Boom.

Wednesday, November 29, 2006

Tonight's Lineup

CNBC's Kudlow & Company will air at its regular 5pm ET time this evening.

We will start off the show with an in-depth look into the U.S. economy and the implications for markets and the Fed.

Our economic panel:

* Nouriel Roubini, economics professor - NYU Stern School of Business
* Jason Trennert, chief investment strategist - Strategas Research Partners
* David Malpass, Bear Stearns Chief Global Economist

A MONEY/POLITICS debate on taxes, spending, social security and more with:

* Peter Ferrara, senior policy adviser at the Institute for Policy Innovation
* Gary Gensler, former Undersecretary of the Treasury
* Jim Glassman, resident scholar at AEI and editor in chief of The American
* Dean Baker, co-director of the Center for Economic and Policy Research.

Finally, we'll dive into the current state of affairs in Iraq. Our guests include Cliff May, president of the Foundation for the Defense of Democracies and P.J. Crowley, Senior Fellow and Director of National Defense and Homeland Security at the Center for American Progress.

Wake Up Call

I am amazed the six imams removed from last week’s U.S. Airways flight are on the loose. This is insane. These guys should be in jail. Better yet, they ought to be deported.

What U.S. Airways did was totally appropriate. They ought to be applauded. It was classic behavioral profiling in response to a litany of suspicious behaviors exhibited by the imams. As reported by eyewitnesses in the AP, Washington Times and elsewhere:

- Before the flight, the imams were repeatedly shouting `Allah' in the terminal.
- They were heard praying loudly.
- They sat in unassigned seats.
- They requested seat-belt extenders when none of them were overweight.
- They spread themselves around the plane just like the 9/11 attackers did—in the front and middle and back sections of the plane.

All these behaviors qualify for profiling.

As Jed Babbin, former deputy undersecretary of defense said on last night’s Kudlow & Company, "Shouting `Allah' in an airport terminal is liking shouting fire in a crowded theater."

Take this guy Omar Shahin. He was part of the imam gang on that flight. Shahin is part of an organization on the Treasury Department's Terrorist Financing watch list. He has links to Hamas. He expressed doubt that Muslims were responsible for the Sept. 11th attacks. He is a part of the Tucson Islamic Center. Tucson, Arizona is where three of the 9/11 hijackers came from. This guy is highly suspect.

It’s not just that these guys are jerks or troublemakers—it’s much more than that. These guys are our enemies—America hating, freedom hating enemies.

Newt Gingrich is dead right that free speech may have to be curtailed in order to fight terrorism. Gingrich recently said:

"We need to get ahead of the curve rather than wait until we actually literally lose a city, which I think could literally happen in the next decade if we're unfortunate. We now should be impaneling people to look seriously at a level of supervision that we would never dream of if it weren't for the scale of the threat. This is a serious, long-term war. Either before we lose a city or, if we are truly stupid, after we lose a city, we will adopt rules of engagement that use every technology we can find to break up their capacity to use the Internet, to break up their capacity to use free speech, and to go after people who want to kill us to stop them from recruiting people."

Behavioral profiling in airports is one of the absolutely necessary tools we need to use on a daily basis in our war on terror. Any suspicious behavior whatsoever should immediately lead to detainment.

Ann Coulter is right about these imams wanting to boycott U.S. Air—if they are serious, well, that is a terrific development! Heck, while they’re at it, boycott all American airlines, every single last one of them!

In fact, I wish they would just leave America.

Goldilocks Lives

Today’s upwardly revised GDP report shows that Goldilocks lives.

Strong business investment, solid consumer spending, unbelievably high profits, and much lower inflation.

In fact, inflation fell from 3.3 percent in Q2 to only 1.7 percent in Q3. Profits are up 31 percent over the past year. GDP was revised up from 1.6 percent in the advance report to 2.2 percent, which leaves year on year of 3.0 percent.

Obviously, the economy is slowing after 2 years of Fed tightening along with higher oil prices. And just as obvious is that the housing slowdown is taking roughly 1 percent off of GDP.

But our free-market, capitalist, economy is resilient, durable and flexible—especially when bolstered by low marginal tax rates on investment—a point that the MSM never talks about.

So, the soft landing scenario is intact. That’s what the stock market has been telling us over the past four months. The Reagan economic policy of low tax rates to promote growth and monetary control to hold down inflation is very much in place right now.

Next year’s economy will move back towards trend growth of around 3 percent or more. Markets are smarter than econometricians. The bond market is predicting low inflation while the stock market is predicting continued economic growth.
Here's a video of a Muslim man from Tulsa, Oklahoma, who wrote a column for his local newspaper condemning Al Qaeda and calling on fellow Muslims to reject terrorism.

The response? Well, he was kicked out of his local mosque by leaders until he apologizes for his article and threatened with violence.

(Hat tip to Little Green Footballs)

Tuesday, November 28, 2006

Tonight's Lineup

CNBC's Kudlow & Company will air at its regular 5pm ET time this evening.

We'll begin tonight's show with our stock market and economic team to make some sense out of the latest news and developments as well as an in-depth look at the Fed. On board:

* Joe Battipaglia, chief investment officer at Ryan Beck
* Lincoln Anderson, chief investment officer at LPL Financial Services
* Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities

Congressman Barney Frank (D-MA), set to lead the House Financial Services Committee in January, will join us in a discussion on Sarbanes-Oxley reform, Fannie Mae & CEO compensation.

Nick Calamos, Chief Investment Officer of the Calamos Growth & Income Fund will offer his stock predictions on this week's Kudlow Stock Club.

The controversy between the imams and U.S. Airways: Jed Babbin, columnist and former deputy undersecretary of defense will debate Ibrahim Hooper, spokesman for the Council on American-Islamic Relations (CAIR).

A debate on Iraq and other political issues with John O'Sullivan, editor-at-large of National Review and Peter Beinart, editor-at-large at The New Republic.

Why Can't We Learn to Win in Iraq?

I want to win in Iraq. We need to come together and figure out a way to do it.

Americans are waiting for some leadership. Only a fifth want to cut and run. Heck, that fifth has always been against any war this country has ever fought.

I was down Sea Island, Georgia, last week, over the Thanksgiving holiday with my wife. It turns out that Newt Gingrich was giving a speech down there. The reason I raise this is that he asked us, "Why can't we learn to win in Iraq?" He said figure out how to do it and do it.

One of the other things Gingrich said that resonated with me was that we've got to have a lot more advisers in the Iraqi regiments. The problem is that the U.S. Army doesn't like advisers, because the way to get ahead in the U.S. Army is through combat operations. Many believe we need three to four times the current number of advisers.

The bottom line here is that we need to figure out a way to win this war.

I agree with Newt Gingrich.

No defeatism.

We need to do what it takes to win.

Enough Pork Already...

Very good editorial in today's Wall Street Journal:

We'll soon find out if the loss of both houses of Congress was enough of a shock for Republicans to check into the Hazelton rehab center for spending addicts. GOP Doctors, er, Senators Jim DeMint (South Carolina) and Tom Coburn (Oklahoma) have been staging an intervention so their colleagues don't risk another overdose before they ride off into the minority.

The drama played out on the Senate floor recently as the pair blocked GOP Appropriators from passing spending bills for Fiscal Year 2007 unless they stripped out special-interest "earmarks." You could almost feel the withdrawal shakes coming on, as the Members contemplated a year without pork....

Monday, November 27, 2006

Taxes and Ben Stein

Ben Stein’s latest tax the rich article in yesterday’s New York Times is so tragic because Ben is such a good guy, such a smart guy, that it pains me to say he has the story totally wrong.

Warren Buffett’s secretary may have a higher tax rate than Mr. Buffett himself, but that’s because Buffett made all his money from the 15 percent marginal tax rate on dividends and capital gains. Very few Americans live and work like this.

And anyway, jacking up taxes on capital investment is a completely dumb idea. What the American middle class needs is more investment to create new companies, new jobs and new technologies—all of which raise our standard of living.

Alan Reynolds, who has a new book out called “Income and Wealth,” reminds me of a key reason why the top 1 percent saw their income share double to 16 percent from 8 percent. (By the way, the top 1 percent’s tax share burden over the past 20 some odd years has gone from about 17 percent to 35 percent.) That is, that until recently, S-corps and LLC small businesses exploded to capture a personal tax rate that was lower than the corporate rate.

S-corp type income was only 7.8 percent in 1982, but was up to 28.4 percent in 2004, according to IRS reports. So it’s just a tax shift, that’s all it really is—a tax shift that is mistaken for outsized income gains.

What’s more, transfer payments like the earned income tax credit, FSA and other welfare payments, as well as social security income, are not counted as low income resources.

Additionally, at lower income tax rates over the past twenty some odd years, there’s been a lot less income tax evasion and a lot more income declaration—all of which shows how sensitive folks are to lower marginal tax rates.

Ben Stein says we can’t cut spending. But in fact, as a share of GDP, Ronald Reagan cut spending from about 23 percent down to 20 percent; Clinton and the Gingrich Congress lowered spending to 18 percent.

Only recently, under the Bush Republicans, has spending jumped back to slightly over 20 percent. So it can be done. This is why I recommend a spending cap-spending limitation approach for Republicans. (And by the way, while many believe that CEO pay is just a continuous vertical line upward, the reality is CEO pay actually fell three straight years in the early 2000s.)

In the end, class warfare and higher tax rates will make the U.S. more like France. I don’t want to be like France. Neither does Ben Stein—if he would think things through.

Tonight's Lineup

CNBC's Kudlow & Company will air at its regular 5pm ET time this evening.

On tonight's show:

Our stock market mavens will weigh in with their take on the economy and markets. On board:

*Don Luskin, CIO at Trend Macrolytics
*Doug Kass, managing partner of Seabreeze Partners
*Gary Shilling, president of A. Gary Shilling & Co.
*John Augustine, investment strategist at Fifth Third Asset Management
*Kimberly Greenberger, Citigroup retail analyst

A capital versus labor debate between the Wall Street Journal's Kimberley Strassel and Jared Bernstein, senior economist at the Economic Policy Institute.

Frank Newport, editor-in-chief of the Gallup Poll, will set the record straight in our weekly "Sunday Unspun" segment.

An Iraq debate between author/columnist Christopher Hitchens and Washington Post reporter Thomas Ricks.

Good for US Airways

Back from vacation...

I was so pleased to hear that US Airways threw six bearded troublemaking Muslims off the plane last week. But I’m not pleased (nor surprised) that Muslim Democratic Rep.-elect Keith Ellison from Minnesota defended these rabble-rousers.

These radical imams and their cohorts are out crying discrimination and calling for a boycott of US Airways. I see our friends from CAIR are of course defending them and want to criminalize Muslim profiling.

Also, not so surprisingly, the incoming Democratic chair of the House Judiciary Committee, left-wing John Conyers, has drafted a resolution that gives Muslims special civil rights protections.

As readers here know, I strongly support airport profiling of all kinds.

This story hit last week, but I am compelled to blog it.

Zillions of Tax Credits

The nonpartisan Tax Foundation has a very good blog on tax credits versus tax rates.

The zillions of tax credits legislated by Congress down throughout the years have caused the taxable income base to shrink significantly, causing higher tax rates for everyone.

These narrow-minded special interest tax favors should be abolished as part of broad based tax reform in order to slash marginal tax rates.

The Tax Foundation estimates that if all these credits and subsidies were eliminated, then an average tax rate of just 9 percent—less than half the current effective rate—could come into play.

Today’s tax code requires six tax rates ranging from 10 percent to 35 percent. Heck, I’d settle for a 20 percent flat tax rate—but that means getting rid of these special favors which are the tax equivalent of corrupt budget earmarks.

I don’t hear any Republican fighting for this, which shows the paucity of current GOP thinking.

On Sam Brownback

My friend Sen. Sam Brownback of Kansas is thinking of throwing his hat into the Republican presidential ring.

I hope he does.

Sam Brownback is an economic, fiscal and social conservative who has strongly backed human rights and democratization in the Middle East.

He is an uncommonly moral person, who can make an uncommonly good contribution to the uncommonly sagging post-election Republican fortunes.

Thursday, November 23, 2006

Happy Thanksgiving Everybody...

The bride and I are down in Sea Island, Georgia, enjoying our holiday and celebrating the many, many wonderful blessings provided by this great country of ours.

We are all truly blessed to lived in this country.

I'll be back in New York and back to business on Monday.

Until then, may you and your loved ones enjoy this wonderful national holiday.

God bless...

Wednesday, November 22, 2006

Just Say No to Class Warfare

What is it with these liberal, lefty, tax-the-rich, economic class warfare zealots who seek to penalize successful workers and hand out government subsidies to everybody?

Why can’t they adopt a growth agenda?

Look no further than David Wessel’s column in the Wall Street Journal. Mr. Wessel, the great chronicler of liberal economics and unsubstantiated assertions, offered up no facts and no real analysis behind his class warfare rhetoric.

Close on the heels of Mr. Wessel is the multi-cagillionaire, Roger Altman, the former John Kerry advisor who delivers a similar class warfare screed (see his op-ed in yesterday’s Wall Street Journal). Altman and the rest should know better.

The reality is that the American economic pie has been growing uninterrupted for 25 years, ever since President Ronald Reagan put into play Milton Friedman, Art Laffer, and Robert Mundell’s ideas.

Just because a bump up in higher gas prices slowed down average wages for a little while means nothing. Now that gas at the pump has dropped a dollar, wages are rising and so is wealth.

Unemployment is at historic lows. Household wealth is at an all-time record. More people own stocks than ever before in our nation’s history. Tax-free savings accounts are proliferating everywhere. And the middle class -- which aspires to be richer -- owns a larger piece of the rock than ever before.

Living standards have been rising, and rising, and rising. Incidentally, one of the things boosting this -- apart from the technological advances (which makes all goods and services better), is free trade (which makes all these goods and services cheaper).

And the latest talk about a government-sponsored health care system is the biggest potential mistake since France was reincorporated after WWII. In fact, if you look at all their plans, the basic theme is let’s make the United States look just like France.

Well, some people need to be reminded that free market capitalism is about equality of opportunity, not equality of results.

Remember, the greatest “equality of results” experiment in human history was the Soviet Union and we already know how that worked out. Doesn’t anybody think of that anymore? Even communist China gave up on that loser.

Milton Friedman had it right about limited government. He was also dead right about low tax rates, putting a cap on spending, and deregulating across-the-board.

One of the major problems I see right now is that Republicans in Washington are motionless. They are blinded deer caught in the headlights. They are in total denial that they just got whooped. They are not countering these silly liberal, lefty economic plans.

At the end of the day, these lefties want to remake America into France. You know what I think about that model.
Noteworthy article on Bloomberg:

Inside the U.S. Federal Reserve headquarters, a small team is testing a forecasting program that does the work of hundreds of economists. Never before has the Fed been able to crunch in real time such a large mountain of data -- as many as 150 indicators -- to divine where the economy is headed.

Chairman Ben S. Bernanke is pushing the ``factor model'' program -- so named because it reduces everything from home sales to mining capacity into a few weighted averages for making predictions. The Fed could use the help: Its gross domestic product forecasts, which influence its interest rate decisions, have missed the mark by an average of 1 percentage point since 2000....

Tuesday, November 21, 2006

Which Candidate...

So, Mitt Romney is out attacking John McCain for being disingenuous on gay marriage.

But the question I want answered is who is the real supply side candidate in the 2008 GOP presidential race?

Which candidate will simplify the tax code to make it the size of a postcard?

Which candidate will abolish all the inefficient and targeted tax credits and tax subsidies so that we could afford a single flat tax rate somewhere around 15 to 20 percent?

Which candidate is going to stop the multiple taxation of savings and investment?

Which candidate will abolish the corporate income tax where compliance costs exceed revenue yields over time?

And, for those of you worried about wage inequality, there’s no better solution than abolishing the corporate income tax. Seventy percent of it is paid for by company’s wage earners and 30 percent is paid by investors.

In other words, if corporate tax costs to Uncle Sam is abolished, then more profits can be returned to wage earners in that company.

John McCain has said some good things, but so far, I haven't seen near enough discussion from the other candidates about real tax reform or a true pro-growth agenda to expand the American economy’s potential value.

What's That About?

Another example of GOP stupidity is how Republicans are not going to finish the budget. That’s really stupid and it shows why exit polls reported that majority of voters believed Democrats are the party of limited government and lower spending.

What the GOP ought to do in this lame duck Congress is enact a spending cap with their majority. Let the Dems try and raise them next year.

And the brain-dead GOP congressional leadership should make it very clear that their spending cap is attached to current low tax rates.

After all, revenues are growing at 12 percent yearly, but spending is still rising at 8 percent.

Wake up GOP!

GOP Presidential Hopefuls

The election may still be two years out, but the race for the Oval Office has been heating up among GOP frontrunners.

Mitt Romney went on the attack yesterday, positioning himself to the right of McCain and Giuliani, while claiming McCain was "disingenuous" on the issue of gay marriage.

McCain has been out front and center as well. The Arizona Senator delivered a fine speech last week. Here's a portion of his remarks:

“...Common sense conservatives believe in a short list of self-evident truths: love of country; respect for our unique influence on history; a strong defense and strong alliances based on mutual respect and mutual responsibility; steadfast opposition to threats to our security and values that matches resources to ends wisely; and confident, reliable, consistent leadership to advance human rights, democracy, peace and security.

“We believe every individual has something to contribute and deserves the opportunity to reach his or her God-given potential. We believe in increasing wealth and expanding opportunity; in low taxes; fiscal discipline, free trade and open markets. We believe in competition, rewarding hard work and risk takers and letting people keep the fruits of their labor.

“We believe in work, faith, service, a culture of life, personal responsibility. We believe in the integrity and values of families, neighborhoods and communities. We believe in limited government in a federal system, individual and property rights, and finding solutions to public problems closest to the people...."


Here's a link to McCain's speech.

Monday, November 20, 2006

Goldie's Deflationary Growth

Is the unstoppable Goldilocks economy heralding a new period of deflationary growth?

Well, the Fed's tight money policy is squeezing nominal GDP growth to 3 percent or even less. Normally this would be a very negative sign for real GDP. However, bear in mind that the level of the October CPI, which fell 5/10th of one percent, is now 4.3 percent below the third quarter average for that index.

This could set up a negative inflation reading for the fourth quarter, something we haven't seen since 2001. So, even if nominal GDP growth in Q4 drops to 2 percent, a negative inflation reading could mean that real GDP will stay in positive territory. It could even be 2 percent to 3 percent after adjusting for a quarterly deflation.

Industrial and commodity indexes are still strong. This indicates that global growth is unimpaired. Meanwhile, the growth component of the 5-year bond, that is the five-year TIP yield, has gone up this year from 1.9 percent to around 2.5 percent. It's the inflation expectations component that has dropped from 270 basis points to 210 basis points.

So, actually, despite continued weakness in housing and soft reports for retail sales and industrial production, the real value of the economy should continue to rise, bolstered by a whiff of deflation.

Goldilocks lives. Deflationary growth. Lower oil prices. Lower interest rates. Rising economy.

That's my take.

Rising Wages

American paychecks are rising again at a pace not seen since the 1990s. The pay increase amounts to 4 percent on average over the past 12 months...Four percent may not sound like much, but you have to look back to 1997 to find a calendar year with a gain that big.

Equally significant, tamer energy prices mean that the "real" wage gains, after inflation, are above 3 percent for the past 12 months. That, too, hasn't happened since the 1990s, even though the economy has been expanding over the past five years....


Click here to read on.

Friday, November 17, 2006

Matt Drudge linked to this gem:

Philanthropy Expert: Conservatives Are More Generous

SYRACUSE, N.Y. -- Syracuse University professor Arthur C. Brooks is about to become the darling of the religious right in America -- and it's making him nervous.

The child of academics, raised in a liberal household and educated in the liberal arts, Brooks has written a book that concludes religious conservatives donate far more money than secular liberals to all sorts of charitable activities, irrespective of income.

In the book, he cites extensive data analysis to demonstrate that values advocated by conservatives -- from church attendance and two-parent families to the Protestant work ethic and a distaste for government-funded social services -- make conservatives more generous than liberals....

MCCAIN TO GOP: LESS IS MORE

According to today's New York Post, Sen. John McCain told a gathering of the conservative Federalist Society last night:

"We lost our principles and our majority. And there is no way to recover our majority without recovering our principles first."

What Sen. McCain is referring to is Republican abdication of limited government and lower spending.

He is dead right.

I have been calling for a spending cap pay-go to balance the budget at today’s low tax rates. (See post below). The White House should work with the Congressional Republican minority and the conservative Democratic blue dogs to get a spending cap pay-go.

I’m glad to see Sen. McCain on board with this message.

The Era of Big-Government Conservatism Must Come to an End

The single-best thing the lame-duck GOP Congress can do is vote in a spending-limitation bill with balanced-budget targets for the next couple of years. This would be a spending-cap pay-as-you-go, which means that any increased spending must be offset by lower spending in other parts of the budget. Not higher taxes. Reduced spending.

This policy action would send a clear message to disaffected Republicans and independents (think Ross Perot voters) that the GOP is moving to regain the high ground on limited government and budgetary restraint.

The era of big-government conservatism must come to an end. And right now.

In the new Congress next year, Democrats will push a revenue paygo. This means any new spending initiatives could be financed through higher taxes. And Democrats want to spend. Just take a look at their wish list: student loan subsidies, a major expansion of No Child Left Behind, more money to fill so-called “doughnut hole” (Medicare Part D) prescription-drug assistance, and an expansion of health care for the uninsured on the way to universal health coverage.

We could be talking hundreds of billions of dollars of budget increases that under a revenue paygo system would require higher tax rates.

Many Democrats are saying there’s a $350 billion “tax gap” that could be collected from tax deadbeats. But this is a huge reach. Sure, a tax amnesty, such as the one proposed by supply-side economist Arthur Laffer, would bring in good money. But not enough to fund the Democratic spending machine.

The GOP must preempt this with a spending-cap approach that will maintain low tax rates and grow the economy. They must show voters that they’re moving back home to small government.

As poll after poll shows, overspending cost the Republicans dearly in the recent election. According to polling by Pat Toomey’s Club for Growth, two-thirds of voters in 15 key swing districts believed Republicans in Washington have overspent. Democrats, on the other hand, were predominantly seen as eliminators of wasteful spending. By more than two-to-one, voters preferred the candidate who would cut spending. By a similar margin, swing-district voters favored keeping the Bush income-tax cuts, and by five-to-two supported keeping the capital gains and dividend tax rates low. By almost three-to-one respondents desired a repeal of the death tax.

A full 54 percent of respondents to a recent CNN poll said they believe government is trying to do too many things that should be left to individuals and businesses. Only 37 percent said the government should do more to solve the country’s problems.

The message? Cut spending and keep tax rates low.

The latest Treasury report on budget spending and tax receipts is noteworthy. Revenues continue to soar at roughly a 12 percent pace, a trend that began more than three years ago when the Bush tax-cut plan was implemented. Meanwhile, spending continues to expand at an 8 percent rate. So here’s the tragedy: If Congress had held spending in the last three or four years to 6 percent annually -- still twice the inflation rate -- we would have a balanced budget by now.

In economic terms, it’s hard to find any clear links between deficits and the economy. In fact, as lower tax rates have expanded the economic pie, thereby throwing off a huge volume of new tax collections, the deficit has come down to only 1.9 percent of GDP. As for overall U.S. Treasury debt, this remains below 40 percent of GDP -- lower than any of the other G7 industrial countries. What’s more, both 10- and 30-year Treasury bonds currently yield less than 5 percent, strongly suggesting that there is no looming U.S. debt crisis.

And yet, in political terms, many voters are unhappy with debt creation to finance bigger government. On the radio I am constantly hearing callers ask, “How will we ever repay this debt?” It’s a nagging political attitude that Republican strategists have long overlooked.

In November 7 exit polls describing the most important voter issues, the economy weighed in at 82 percent, corruption at 74 percent, terrorism at 72 percent, and Iraq at 67 percent. Possibly, it’s still the economy, stupid. Despite plunging gas prices, a low 4.4 percent unemployment rate, and a soaring stock market, voters are worried that debt-financed overspending will make the future economy worse than today’s.

During the Gingrich congressional years, and particularly during the fight for the balanced-budget amendment of 1997, limited spending coupled with low tax rates was the winning message that gathered both conservatives and Ross Perot independents into the GOP tent. Now is the time to return to these very same principles.

The recent passing of Nobel economist Milton Friedman, who for decades advised Republicans to maintain this limited-government, low-tax message, should be another reminder and a spur to action.

Friday Night's Lineup

On CNBC's Kudlow & Company this evening:

We'll start off with a look into the stock market and economy. Our core panel of market experts includes:

*Doug Kass - founder and president of Seabreeze Partners Management
*Craig Columbus - chief market strategist, Advanced Equities Asset Management
*Michael Darda - chief economist at MKM Partners
*Joe LaVorgna - chief U.S. fixed income economist at Deutsche Bank

David Goldman, Global Head of Fixed Income Research at Cantor Fitzgerald, will join the panel and offer his take on the bond market.

Also, Dana Telsey, founder of independent research firm Telsey Advisory Group, will join the panel and weigh in on retail.

Our political panel will debate all the latest news from Washington. On board this evening:

*John Fund - columnist for the The Wall Street Journal
*Leslie Marshall - talk radio host
*Lawrence O'Donnell - MSNBC Senior Political Analyst
*Scott Rasmussen - pollster, president of Rasmussen Reports
It's not an everyday occurence that Republicans can nod in approval while reading the New York Times - especially not the New York Times editorial page...
From The Corner at NRO:

ALCEE HASTINGS [Byron York]

I have a new piece up on Rep. Alcee Hastings, the impeached-and-convicted former federal judge who now stands to become chairman of the House Intelligence Committee. Did you know that the chairman of the House Judiciary subcommittee that in 1988 investigated Hastings and unanimously recommended that he be impeached was none other than Rep. John Conyers, the soon-to-be chairman of the House Judiciary Committee? And that the vote to impeach Hastings in the Democratic-controlled House was 413 to 3? And that Democratic Sens. Harry Reid, Edward Kennedy, John Kerry, Jay Rockefeller (who will soon chair the Senate Intelligence Committee), Robert Byrd, Max Baucus, Kent Conrad, Daniel Inouye, and Frank Lautenberg were among the 2/3 majority in the Senate who voted to convict Hastings in 1989? As for the actual details of the Hastings case, involving bribes, surreptitious meetings, hastily-made airplane flights, and lots of calls from pay phones — well, they are fascinating.
Posted at 8:53 AM

Thursday, November 16, 2006

Tonight's Lineup

CNBC's Kudlow & Company will air at its regular 5pm ET time this evening.

**On tonight's program we will pay special tribute to the passing of one of the all-time greats - Milton Friedman.**

We'll begin with our economic panel to weigh in on all the latest numbers, including today's tame inflation report and the DJIA's surge to a record high. On board:

* Nouriel Rubini - New York University economist
* John Ryding - chief US economist at Bear Stearns
* Liz MacDonald - Forbes magazine senior editor

Next, we've asembled an all-star panel to weigh in on Milton Friedman's passing. They will also offer their perspective on a host of economic issues. On board:

* Steve Forbes - CEO/Editor-in-Chief of Forbes magazine
* Jeremy Siegel - Wharton professor of finance
* Gary Gensler - former Undersecretary of the Treasury
* Jim Glassman - fellow at the American Enterprise Institute

Steve Forbes will stick around in our political segment along with Lanny Davis, former Clinton White House counsel.

Sen. Mitch McConnell (R-KY), newly named Senate minority leader will join us to finish up our show.

The Hand of Friedman

Ideas matter.

So it is with great sadness to report and mourn the passing of Milton Friedman, whose lifelong writings on the paramount significance of freedom, free-market capitalism, and liberty helped overturn the evil tide of communism and socialism in the 20th century.

His great books Capitalism and Freedom in 1962, which was morphed into Free to Choose in 1980, and subsequently serialized on public television, reached literally tens of millions of people and influenced events in the U.S. and across the world.

He explained to us the failures and flaws in government interference in the economy through overspending, over-regulation and over-taxation.

He extolled the virtues of free trade.

He explained that the root cause of inflation is excess money creation.

Rather than Keynesian state planning, Milton’s mantra of free markets, free prices, consumer choice and economic liberty is responsible for the global prosperity we enjoy today.

In fact, we take it for granted nowadays, but Friedman’s was a long, uphill battle, fought over decades to persuade politicians and business people that government is the problem, not the solution.

He was a senior advisor to President Ronald Reagan who put these ideas into play during his transformative presidency.

When you look around the world, at newly capitalist economies sprouting up in Russia, Eastern Europe, China and India, you can’t help but see the hand of Friedman.

When you review twenty-five years of virtually uninterrupted prosperity and near zero inflation in the U.S, you can't help but see the hand of Friedman.

Milton Friedman is one of those few people about whom it can be said that he truly left the world a better place.

May he rest in peace.

The Keystone to Republican Recovery

Newt Gingrich wrote a very good op/ed piece in today’s Wall Street Journal Which Bipartisanship Will Bush Choose?” asking which path President Bush will take in the final two years of his presidency:

If President Bush decides to govern as President Reagan did, he will work to unify the Blue Dog Democrats with the Republicans to win a handful of very large victories while accepting a constant barrage of unhappiness from the liberal leadership. That is what conservative bipartisanship is like. If on the other hand, President Bush decides on an establishment strategy of cooperating with the liberal leadership, he will guarantee splitting his own party and will see his legacy drift further and further to the left as the Pelosi-Reid wing of their party demands more and more concessions.

One thing Mr. Gingrich didn’t mention is a balanced budget spending limitation pay-go. This is the single most important initiative the GOP can take right now. It would rule out tax hikes and force deeper budget savings with a targeted date for a balanced budget—similar to what the Republican Congress did in 1997.

I still believe this spending limitation pay-go is the keystone to Republican recovery. It would send a strong, limited government, low tax message to disaffected Republicans and independents (read Ross Perot voters).

It would also end the counter productive experiment known as big government conservatism.

Polls show an overwhelming majority of respondents believe government should do less and be smaller. This message was completely missing from Republican election strategy and it cost them dearly in the November 7th vote.

It should be a mantra and a rallying cry for Republican reform and strategy. And it should begin right now.

Senators Mitch McConnell, John McCain, Tom Coburn, Jim DeMint, John Kyl and others could get moving on this in the Senate right away. It would show that the GOP understands the election returns and is taking action in a key area.

This spending limitation pay-go could also be tied to budget earmark reform. This would get to the corruption issue—another GOP failing in the past election.

A balanced budget spending limitation at low tax rates would be a strong growth measure as well as a significant political step.

Wit from Mitt

"We have two factions of media in Boston. On the one hand, we have the Hillary-loving, Ted Kennedy apologists. And on the other, we have the liberals." -Massachusetts Governor and probable 2008 presidential contender, Mitt Romney, in a speech in D.C. last night.

Wednesday, November 15, 2006

Pence & Shadegg: Just What the Doctor Ordered

Dick Morris lends his support to Mike Pence as minority leader and John Shadegg as Republican whip:

Rep. Mike Pence (R-Ind.) represents the kind of politics that puts ideas ahead of cash and privilege. Electing a man with his kind of conservative principles would show that the Republican minority understands the frustration of their base voters who ejected them from the leadership.

By the same token, Rep. John Shadegg (R-Ariz.) also stands for principled politics and deserves the support of those who understand what hit them on Nov. 7. Not so of his opponent.


I know Mike Pence. This rising GOP star is a wonderful, Reagan-thinking conservative. His life is governed by religious values, a belief in a strong national defense, and a sensible pro-growth approach to low taxes and less government spending.

John Shadegg is cut from similar cloth. As Rep. Paul D. Ryan (R-WI)—another rising GOP star—recently said, "[Shadegg] was one of the guys who got here in the '94 Republican revolution and didn't go native."

If Pence and Shadegg get the nod, they will no doubt work their tails off to usher in true spending reform.

These two guys, along with all the other members of the conservative Republican Study Group, have the principles and the guts to tackle the issues.

They will get House Republicans back on messages of limited domestic spending, earmark reform, broad-based tax reform, expanded investor tax-free savings accounts, and Social Security reform.

Pence and Shadegg are exactly what the doctor ordered.

Tighten the Budgetary Belt

The latest Treasury data paints a rather interesting picture.

Results from the month of October—the first month of the new fiscal 2007 year—show revenues are soaring. They are up an impressive 12 percent.

Smoothed out on a 12-month basis—there’s a roughly $260 billion increase in revenues, while spending grew at 8 percent.

A back-of-the-envelope analysis shows that if Congress had held outlays in the last three or four years to 6 percent—which is still twice the rate of inflation—we would have had a balanced budget by now.

Message to the lame-duck GOP Congress: Get a spending pay-go limitation with balanced budget targets passed.

What Republicans Need to Do

The single best policy action that the lame-duck GOP Congress can do right now is to vote in a spending pay-go limitation with balanced budget targets.

Spending limitation pay go simply means that any increased spending must be offset by reduced spending in some other area of the budget. Not higher taxes, but reduced spending.

This would send a clear message to disaffected Republicans and independents (Ross Perot voters) that the GOP is moving to regain the high ground on limited government and budgetary restraint.

The Democrats are pushing a revenue pay-go. This means somewhere along the line, they’re going to raise taxes to finance roughly $75 billion of new spending on health, education and other areas.

Republicans must signal that they learned a lesson from their midterm election defeat. Show voters that the GOP is moving back home to its small government roots.

A balanced budget spending limit at low marginal tax rates should be the GOP mantra.

They should start immediately. Right now—during the lame-duck Congress.
From John Fund's blistering critique of John Murtha today.

...[S]everal members are privately aghast that Mr. Murtha, a pork-barreling opponent of most House ethics reforms, could become the second most visible symbol of the new Democratic rule. "We are supposed to change business as usual, not put the fox in charge of the henhouse," one Democratic member told me. "It's not just the Abscam scandal of the 1980s that he barely dodged, he's a disaster waiting to happen because of his current behavior," another told me.

...Melanie Sloan, the liberal head of Citizens for Responsibility and Ethics in Washington, was cheered on by Democrats six weeks ago when she helped reveal the Mark Foley scandal. Now she says that "Ms. Pelosi"s endorsement of Rep. Murtha, one of the most unethical members of Congress, show that she may have prioritized ethics reform merely to win votes with no real commitment to changing the culture of corruption."

...Gary Ruskin, director of the liberal Congressional Accountability Project, told Roll Call that "when it comes to institutional policing of corruption in Congress, John Murtha is a one-man wrecking crew." Now with the support of Ms. Pelosi, that "wrecking crew" stands just one ballot away from becoming House majority leader. Should he win the sealed-ballot election of his peers tomorrow, Democrats may have a hard time explaining just what has changed regarding the Congress's "culture of corruption."

Tuesday, November 14, 2006

Tonight's Lineup

On CNBC's Kudlow & Company this evening:

We'll begin the show with a look at Rubinomics.

The Dynamic Duo of former Labor Secretary Robert Reich and the Wall Street Journal's Steve Moore will duke it out.

Michael Leavitt, the secretary of health and human services, will be on board to discuss lowering Medicare drug prices. (Reich and Moore will stick around to respond.)

Our all-star economic panel will offer their perspective on a panoply of subjects including today's inflation report and their take on the auto sector. Joining us this evening:

*John Silvia - chief economist for Wachovia
*Diane Swonk - chief economist at Mesirow Financial
*Jim Glassman - senior economist for JP Morgan

We'll also look into what's next in Iraq with P.J. Crowley, senior fellow and director of National Defense and Homeland Security at the Center for American Progress and Rowan Scarborough, Washington Times reporter/author of Rumsfeld's War: The Untold Story of America's Anti-Terrorist Commander.

Righting the Republican Ship

Last Wednesday - the day after the GOP was taken to the electoral woodshed - I wrote that the midterm election results did not point to a conservative defeat, but rather to a Republican defeat.

And as I said on last night's Kudlow & Company - as of last Tuesday - the days of big government conservatism are over.

Following the GOP's much needed electoral shellacking, we are heading back to Reagan's principals of limited government.

Newt Gingrich agrees:

When it comes to the lessons of the 2006 elections, it's very important to set the record straight. I traveled throughout the country this election year. I met with Americans in all the key states. And what I now understand is this: Republicans lost, but conservatism didn't...

We should rebuild the grassroots conservative movement. From the Reagan Revolution of 1980 through the Contract with America in 1994, it was this movement from outside Washington that carried us to the first center-right majority governing coalition in more than 60 years.

The problem has not been with conservatism or with our voters.

The problem has been with Republican leaders who forgot who elected them and what values their supporters expected to see implemented in Washington....
Today's Wall Street Journal:

...If Mr. Rubin and Senator Clinton really believe the economy needs a big tax increase, by all means they should make this a plank in their 2008 agenda. But they shouldn't do so by asking fellow Democrats to betray their recent campaign pledges or Republicans to make it easier for them by repeating the GOP's blunder of the early 1990s.

Monday, November 13, 2006

Tonight's Lineup

On CNBC's Kudlow & Company this evening:

GLOBAL WARMING...Robert Redford will join us at the top of tonight's show live from Sundance, Utah. Mr. Redford will be joined by Mark Begich, the mayor of Anchorage, Alaska. (Link to the Sundance Summit homepage.)

TAXES & THE ECONOMY...We'll debate former Treasury secretary Robert Rubin's recent statement on increasing taxes. On board:

*Renaissance man Ben Stein - economist, actor, author
*Dan Mitchell - senior fellow with the conservative Heritage Foundation
*Jared Bernstein - senior economist with the Economic Policy Institute
*Art Laffer - former Reagan supply-side economist, chairman of Laffer Associates

SUNDAY UNSPUN... our guests will bring some political clarity to our show in our weekly segment.

Frank Newport, editor in chief of The Gallup Poll will join us, as will Terry Jeffrey, editor of Human Events and columnist Bill Press.

Ben Stein will stick around and weigh in with his perspective.
***PLEASE NOTE***

Academy Award winning director Robert Redford will join us live on tonight’s Kudlow & Company from Sundance, Utah to debate the controversial challenge of global warming.

As the founder of Sundance Preserve, Mr. Redford is co-hosting the second annual Sundance Summit: A Mayors’ Gathering on Climate Protection, November 12-14, 2006.

We hope you'll join us tonight at our usual time - 5pm ET.

Rubin Urges Tax Hikes

Robert Rubin wants Democrats to raise taxes.

(See Ex-Treasury Head Rubin Urges Democrats to Mull Tax Increase in this weekend’s WSJ.)

He says that it would have no negative economic impact.

"I think if you were to increase taxes right now you would have probably about zero negative effect on the economy," he told the Economic Club of Washington last Thursday night.

With respect, I beg to differ with the distinguished former Treasury man. We will not tax our way into prosperity.

Mr. Rubin has never believed that changing tax rates on work and investment affects economic behavior. But he is wrong.

Former Nobel Prize winner Edward Prescott argues that workers and investors are highly responsive to changing tax rates. Yale economist Robert Shiller has been arguing against tax hikes because the economy is slowing.

So whether you’re a Laffer curve supply-sider as I am, or a Keynesian as Mr. Schiller is, raising taxes is the wrong way to go.

Why not slow spending growth? (If there’s one thing the GOP should propose right now, it is a spending limitation pay-go.)

The top-heavy U.S budget needs to be curbed. And low tax rates are essential to continued economic expansion.

Friday, November 10, 2006

A Trip Down Memory Lane...

One of many brilliant one-liners from the master himself:



"...The greatness of Ronald Reagan was his optimistic vision. His unequivocal belief in freedom and democracy, in America as a city on the hill, never faltered. His free-market prescription for economic growth relied on the creativity of ordinary people working in free enterprise rather than under government planning. He believed in entrepreneurship, not welfarism. He understood how to use military power. And his optimistic faith in America gave a moribund country a new life.

Reagan saved America. His passing is a sad occasion. But as his soul gazes down from the heavens, he will see that his ideas will live forever."

-From a NRO column I wrote shortly after his passing.

Kudlow on the Radio

Please join me tomorrow during my weekly radio show on News Talk Radio, 77 WABC-AM - live from 10am to 1pm ET.

We'll discuss all the latest Washington to Wall Street issues.

Topics on the grid for tomorrow's show include a discussion of what's ahead for Congress, Iraq, as well as the economy and stock market.

The phone lines will be open...

Our radio guests for Saturday:

**Steve Moore, economist and member of the Wall Street Journal editorial board

**Rowan Scarborough, Washington Times reporter and author of Rumsfeld's War: The Untold Story of America's Anti-Terrorist Commander

**John MacIntyre, President and co-founder of RealClearPolitics
My friend R. Emmett Tyrrell Jr. has a terrific op/ed piece in today's New York Sun. Bob hit the nail on the head:

...The Democrats' victories do not signal a liberal recrudescence in the republic. Many of the incoming Democrats ran as conservatives. That is because the conservative drift of the country continues. As many as two dozen of the newly elected Democrats ran affirming traditional social values, low taxes, or other conservative desiderata. In the long term, things continue to look bleak for the Old Order. Bob Casey, the candidate who beat Senator Santorum, is a social conservative whose father was barred from the 1992 Democratic convention because of his opposition to abortion. Jim Webb, who ran against Senator Allen, was a Reagan Republican and President Reagan's secretary of the Navy. In the House, newly elected Democrats ran as advocates of gun owners' rights and traditional values. One even signed the Americans for Tax Reform's pledge against higher taxes (three Democratic incumbents in the House and one in the Senate have done the same).....

Thursday, November 09, 2006

Blue Dogs, Balanced Budgets & More

Everybody wants a movement towards a truly balanced budget.

But the question becomes: Are we going to have a tax hike to go with it? There’s little doubt that Bush will put on his Grover Cleveland hat and veto any tax hike proposal that comes across his desk.

If we can get some serious spending limitation from Democrats and Republicans - without any tax increases - the stock market will celebrate.

The bottom line here? President Bush’s team must develop a spending limitation pay-go proposal to preempt a Democratic revenue pay-go. Spending increases must be offset with spending cuts—not tax hikes.

Between 1995 and 1998, during the high tide of their limited government period, Gingrich & Co. effectively used a spending limit pay-go. Using such an approach will head off any potential revenue pay-go advocated by Pelosi, Spratt, Rangel and others that would lead to tax hikes.

Conservative blue dog Democrats—whose ranks grew larger this past Tuesday—understand all this. They grasp the pro-growth message for the most part. Blue dogs are business friendly and understand the need for lower spending, lower taxes, and less onerous regulation like Sarbanes-Oxley.

The blue dog bark will be heard in this Congress. Their group boasts 44 fiscally conservative members, enough to truly affect the balance in Washington. They may have what it takes to get us to a balanced budget with a spending limitation without raising taxes.

Look no further than two of our guests on Kudlow & Company last night. Former NFL quarterback, newly minted Congressman Heath Schuler (NC), and Dennis Cardoza (CA), co-chair of the Blue Dog Coalition, are both pro-business Democrats. They don’t want tax hikes. These guys are not your typical tax-hiking Dems by any stretch of the imagination.

And if Rep. Mike Pence (R-IN) gets the nod as House Republican leader (as he should, and likely will), he will no doubt work closely with these guys to usher in true spending reform.

What’s more, if my recent interview with future House Speaker Pelosi is any indication, she will be leading the charge toward fiscal responsibility. (Knock on wood that Mrs. Pelosi can steer clear of raising taxes in the process.)

I still think we are in a Goldilocks, soft-landing economy. And I think this stock market still has legs. Tuesday's election results may end up being a very good thing for both.

Oh, one last thing: I still believe it's the greatest story never told.

Tonight's Lineup

Here's what's in store for CNBC's Kudlow & Company tonight:

We'll start the show off with a look into what's ahead in Washington.

Two distinguished congressmen will join us to offer their perspective:

*Rep. Steny Hoyer (D-MD), current Democratic whip, currently gunning for the Majority Leader position.
*Rep. John Shadegg (R-AZ), who's running for the No. 2 minority leadership position as minority whip.

A debate on Rumsfeld and Iraq with Jed Babbin, former deputy undersecretary of defense and P.J. Crowley, former special assistant for national security affairs under Clinton.

We'll also have a debate on the Democratic plan for free trade, health care, minimum wage, and a windfall profits tax between Don Luskin, CIO at Trend Macrolytics and Gary Gensler, former Undersecretary of the Treasury.

John Silvia, chief economist for Wachovia, will join in the debate and offer his thoughts on the stock market and economy.

And finally, our political pundits will duke it out over the political issues ahead. John Fund, member of the editorial board of The Wall Street Journal and Daniel Gross, columnist at Slate will join us.
Former House majority leader Dick Armey offers some advice to Republicans in today's WSJ:

...Moving forward, my advice to Republicans is simple: Don't go back and check on a dead skunk. The question Republicans now need to answer is: How do we once again convince the public that we are in fact the party many Democrats successfully pretended to be in this election? To do so, Republicans will need to shed their dominant insecurities that the public just won't understand a positive, national vision that is defined by economic opportunity, limited government and individual responsibility.

We need to remember Ronald Reagan's legacy and again stand for positive, big ideas that get power and money out of politics and government bureaucracy and back into the hands of individuals. We also need again to demonstrate an ability to be good stewards of the taxpayers' hard-earned money. If Republicans do these things, they will also restore the public's faith in our standards of personal conduct. Personal responsibility in public life follows naturally if your goal is good public policy....


Amen to that.

Back to Basics for the GOP

From Investor's Business Daily:

...When the GOP swept into power 12 years ago, it vowed to erase the budget deficit, downsize government, reduce regulation, cut taxes and uphold traditional values. Over the next five years they largely kept all those promises, leading to gains in 2000, 2002 and 2004.

But in recent years Congress lost its way. Its refusal to get rid of pork-barrel spending — with 12,000 earmarks now in the budget and the number rising — or to launch meaningful fiscal reforms make the GOP the party of the big-government status quo.

"After 1994, we were a majority committed to balanced federal budgets, entitlement reform and advancing the principles of limited government," said Rep. Mike Pence, an Indiana conservative who wants to be the next minority leader. "In recent years, our majority voted to expand the federal government's role in education, entitlements and pursued spending policies that created record deficits and national debt."

That's pretty much dead on. Bush manfully took his medicine, taking responsibility for this week's electoral debacle and then letting Donald Rumsfeld go.

It's time for congressional Republicans to do the same.

They won't have the baggage of Senate Majority Leader Bill Frist or House Speaker Dennis Hastert, who deserve a big part of the blame for the GOP's ills. Now, they might want to dust off that long-forgotten Contract with America, and get back to basics.

Wednesday, November 08, 2006

Tonight's Post-Election Lineup

***CNBC'S Kudlow & Company will air at its regular time tonight - 5PM EST...

We'll start off the show with reaction from Capitol Hill.

One-on-one interviews with the following guests:

*Sen. Jon Kyl (R-AZ), who won his re-election battle in Arizona.
*Blue Dog Rep. Dennis Cardoza (D-CA), who was victorious in California.
*Conservative Rep. Heath Shuler (D-NC), who defeated incumbent Republican Rep. Charles Taylor.

Stock Market Reaction:

*Joe Battipaglia, chief investment officer at Ryan Beck & Co.
*Art Hogan, chief market strategist for Jefferies & Co
*Craig Columbus, chief market strategist at Thomson Financial

The Dynamic Duo: former labor secretary Robert Reich and The Wall Street Journal's Steve Moore will offer their post-election analysis on a wide range of economic and political issues.

Our pollsters, University of Virginia's Larry Sabato and Barron's Jim McTague will weigh in on their election predictions (one was right on the money, one was mistaken...)

All's Well on the Conservative Front

Voters took the GOP to the woodshed—no doubt about it.

That said, I don’t see these election results as a conservative defeat, but as a Republican defeat.

As my friend Don Luskin wrote:

“The bright note is this election was not fought in the arena of economic ideas, and doesn't constitute a referendum on pro-growth policy.”

Luskin’s right. There are some very promising pro-growth trends forming underneath the surface, courtesy of conservative Blue Dog Dems who won a whole bunch of seats last night.

These guys look a lot more like Republicans and a lot less than the Waxmans, Conyers, and Rangels of the world.

These Blue Dog Dems are pro-business. And they understand the proven benefits and success of Bush’s 2003 tax cuts. They understand incentives and believe in the pro-growth formula.

There will likely be some steps toward budgetary restraint. Good chance we’ll also see smaller government, less regulation, SarBox reform.

This is a plus.

Republicans may have lost—but the conservative ascendancy is still alive and well.

Reach Out to the Blue Dogs

Look at blue dog conservative Dem victories, and look at Northeast liberal GOP defeats. The changeover in the House may well be a conservative victory, not a liberal one.

Blue dogs are rabid budget balancers.

At today's news conference, President Bush should reach out to them, and to the Republican base, with a spending limitation pay-as-you go proposal that gets to a balanced budget in a couple of years. Any spending increases (defense) must be offset with spending cuts (domestic pork).

A spending limit paygo was used effectively by the Gingrich Congresses between 1995 and 1998, the high tide of their limited government period. And, this approach will head off a revenue paygo advocated by Pelosi, Spratt and Rangel that would lead to tax hikes.

Tuesday, November 07, 2006

Election Night Lineup

***Tonight's special midterm election edition of CNBC's Kudlow & Company will broadcast live from Washington at 5PM EST.***

After a long, heated campaign season, it's finally here. The day of reckoning for Republicans and Democrats has come. Please join us tonight - we will be live in Washington for the climax of the midterm elections. Who knows? Some November surprises may be in store...

On tonight's show:

We will come out of the gates with our pollsters' Pulse of America. On board to offer their perspective:

*John Zogby, pollster & President/CEO of Zogby International
*Jim McTague, Barron's Washington bureau chief
*Ed Goeas, Republican pollster-strategist/President & CEO of The Tarrance Group

Our stock market panel will provide a look at today's market action and what's ahead for the economy and stock market. With us tonight:

*Elizabeth MacDonald, Forbes magazine senior editor
*Dr. Bob Froehlich, Scudder Investment's chief investment strategist
*Doug Kass, general partner at Seabreeze Partners

The dynamic duo of former labor secretary Robert Reich and The Wall Street Journal's Steve Moore will debate the panoply of state election initiatives all across the country.

*Lanny Davis, former White House counsel to President Clinton, will join us live from Sen. Joe Lieberman's Connecticut campaign headquarters.

And finally, our political panel will weigh in with all the latest midterm election news:

*Joel Mowbray, conservative author/columnist
*Kellyanne Conway, Republican strategist/CEO & President of the polling company
*Bill Press, Democratic commentator
*Lawrence O'Donnell, MSNBC Senior Political Analyst

Monday, November 06, 2006

Surprise, Surprise

A series of late-October, early November surprises has turned the midterm elections into a real horse race. The bullish stock markets of recent months have been saying all along that a Democratic tsunami will not materialize, but now even a decent Dem wave seems a long shot.

First we have the John Kerry blunder: The Massachusetts senator badmouthed American troops in Iraq as a bunch of uneducated losers. This was typical anti-war elitism from Kerry, but his timing was impeccable. In a scorched-earth negative response, undecided and independent voters are flocking into the Republican camp, according to late-breaking polls from Pew and Washington Post/ABC.

Just as Walter Mondale infamously became the face of the Democratic party on the eve of the 2002 midterms when he replaced Sen. Paul Wellstone on the Minnesota ballot (Wellstone was killed in a plane crash), John Kerry has become the face of the Democrats on the eve of the 2006 vote. It’s a disaster for the Democrats -- and they know it. “Kerry’s Blunder, Wall Street’s Gain,” read one financial headline.

Then we have the blockbuster 4.4 percent unemployment rate, the last major front-page economic statistic to appear before the election. Jobs in the U.S. are booming, as government revisions clearly show. Corporate payrolls are rising at nearly 150,000 a month, but the more accurate household survey -- which measures the number of people working -- rose 426,000 in October, 420,000 per month over the last three months, and 226,000 monthly across the whole year. Meanwhile, wages are growing at 4 percent -- almost twice as fast as the 2 percent inflation rate, which itself has been cut in half with plunging gasoline prices.

New polls show rising public approval of the economy as a result of blockbuster job creation, low unemployment, falling gas prices, and a roaring stock market. It’s not a coincidence that the Dow soared over 100 points on Monday on news of the Pew poll that shows the Republican comeback. Democratic House campaign manager Rahm Emanuel told a Sunday TV news host, “This is making me nervous . . . I don’t know what to make of it.” It’s called the low-tax economic boom, stupid.

Then we have Saddam Hussein’s conviction and death sentence. This reminds American voters that there has been a good deal of progress in Iraq. Saddam and his mass-murdering crimes against humanity are a thing of the past. The Iraqi people have participated -- and in large numbers -- in three democratic elections in this former dictatorship. What was back-burner material is suddenly front-burner again.

Indeed, as tough as the Iraq story has been, the Saddam conviction reminds voters that President Bush’s vision of overthrowing the jihadist totalitarian order is worth the fight. In terms of American values, U.S. security, and human-rights democracy improvements in the Mideast and around the world, victory in Iraq matters.

And finally we have President Bush’s indefatigable campaigning on Iraq, homeland counterterrorism, low taxes, and economic growth. Bush has been written off so many times by the mainstream media, but he keeps coming back -- standing tall, resolute, and with an incredibly strong backbone of character.

Without question, Bush versus Kerry in the final days of the midterm campaign is a solid plus for Republicans who are cutting their deficits in key House races and reinforcing their hold on the Senate. But even if the Democrats capture the House, they will have done so with many pro-life, pro-business, pro-national-security “Blue Dogs” -- conservative Democrats who may deliver a 2006 post-election surprise.

Just as Ronald Reagan relied on conservative House Democrats to pass his key legislation on lower taxes, reduced domestic spending, and a stronger defense -- thereby overthrowing the Tip O’Neill liberal Democrats with a functional majority that included 35 to 50 “Boll Weevil” votes -- George W. Bush should be able to reach across the aisle for Blue Dog support in the next two years. These Blue Dogs are not Pelosi Democrats.

Another post-election surprise just might come from the House Republicans: Mike Pence and his allies in the conservative Republican Study Group -- John Shadegg, Paul Ryan, Jeff Flake, Marsha Blackburn, and others -- could stage a leadership revolt that will get House Republicans back on the messages of limited domestic spending, earmark reform, broad-based tax reform, expanded investor tax-free savings accounts, and Social Security reform.

Put simply, while the Democrats may get a Pyrrhic victory in a six-year-itch close House win, in effect they will have suffered another substantial defeat. A lost opportunity with a losing message.

Double-Dose of Kudlow & Company Tonight

****Kudlow & Company Announcement****

We will be doing two separate live shows from Washington D.C. tonight on the eve of tomorrow's midterm elections.

The first show will broadcast live at its regular 5pm EST time slot; the second show will air live at 8pm.

Please join us on the eve of this important election...

Tonight's 5pm Lineup

On tonight's first installment of Kudlow & Company:

We will start things off with a stock market discussion and a fresh look at our Goldilocks economy.

On board:

*Jason Trennert, chief investment strategist at Strategas Research Partners LLC
*John Rutledge, Chairman/CEO of Rutledge Capital
*Quentin Hardy, Silicon Valley Bureau Chief for Forbes magazine

A Washington to Wall Street economic/political debate between Jim Glassman, fellow at the American Enterprise Institute and Gary Gensler, former Treasury undersecretary.

On the political front - our all-star political panel will offer their perspective on the eve of tomorrow's election.

On board:

*Tony Blankley, Washington Times editorial page editor
*Lanny Davis, author/White House special counsel in the Clinton administration
*Peter Beinart, author/editor-at-large of The New Republic
*Deroy Murdoch, syndicated columnist

Also, pollster Scott Rasmussen of the Rasmussen Reports will offer his take on tomorrow's election battles.

Sunday, November 05, 2006

November Surprise?

A nationwide Pew Research Center survey finds voting intentions shifting in the direction of Republican congressional candidates in the final days of the 2006 midterm campaign. The new survey finds a growing percentage of likely voters saying they will vote for GOP candidates...The narrowing of the Democratic lead raises questions about whether the party will win a large enough share of the popular vote to recapture control of the House of Representatives....

Well, it looks like a few great November surprises may be in the works.

According to the new Pew survey of likely voters, the generic ballot is in a dead heat.

Think 4.4 percent unemployment (And by the way, the economic polls went up in the Pew poll).

Think John Kerry. The Senator from Massachusetts is having a larger than expected negative impact on Democrats, and positive for Republicans.

Think renewed voter enthusiasm on the GOP side.

And think President Bush’s approval ratings are going up.

Very interesting...

Friday, November 03, 2006

Panetta's Fear

Leon Panetta - former Clinton White House chief-of-staff and guest on Kudlow & Company tonight- shared his fears about Democrats winning one or both houses on Nov. 7th:

"My fear is that the Democrats after 12 years of trench warfare and a pretty rough time - these people are pretty battle-scarred from that - basically come out and seek vengeance for everything that's taken place. If they do that, I think they make a pretty big mistake because the public will say, 'These guys are no different than Tom DeLay and his crowd.'" - Washington Post

Tonight's Lineup

CNBC's Kudlow & Company will broadcast live at 5:00pm EST this evening.

We will begin with a look at today's impressive jobs report and what it portends for the U.S. stock market and economy.

On board:

* Nouriel Roubini, NYU economic professor/chairman of Roubini Global Economics LLC
* Brian Wesbury, chief economist for First Trust Advisors
* Doug Kass, hedge-fund manager at Seabreeze Partners
* Jim Paulson, chief investment strategist at Wells Capital Management

A political discussion between two former White House Chiefs of Staff - Leon Panetta and Andy Card are on the show tonight.

A capital vs. labor debate between Walter Williams, professor of economics at George Mason University and Dean Baker, co-director of the Center for Economic and Policy Research.

And finally, Randay Bateman, Chief investment officer at Huntington National Bank will deliver his stock picks on Kudlow's Stock Club.

4.4%

**Today's blockbuster jobs report closes the door on the doom and gloom recessionary bears.

The Goldlilocks economy is still alive and well - not too hot, not too cold.

The greatest story never told marches on...

Bloomberg:

Employers in the U.S. added 92,000 jobs in October, and payroll growth in prior months was revised higher for the second time in a row, pushing the unemployment rate to a five-year low.

Last month's gain in employment followed increases of 148,000 in September and 230,000 in August, both higher than previously reported, the Labor Department said today in Washington. The jobless rate fell to 4.4 percent from 4.6 percent the previous month....

"Air Plot Said to Target Cities"

**Thank God for the authorities across the pond and here at home whose excellent work unearthed this sick, murderous plot...

From the Washington Post:

A group of alleged terrorists arrested in London in August planned to blow up airliners over U.S. cities to maximize casualties, rather than over the Atlantic Ocean as many intelligence officials originally thought, according to recent remarks by a senior FBI official.

The comments by Mark Mershon, head of the FBI's New York field office, indicate that U.S. and British intelligence officials now think that the airliner plot was aimed at maximizing the potential loss of life and economic impact.

"The plan was bring them down over U.S. cities, not over the ocean," Mershon said...

Thursday, November 02, 2006

Tonight's Lineup

CNBC's Kudlow & Company will broadcast live at 5:00pm EST this evening.

We'll begin tonight's show with a live interview with White House Press Secretary Tony Snow.

Our visit with Mr. Snow will be followed with another live interview from the other side of the aisle - vocal Iraq war critic Rep. John Murtha (D-PA) will join us with his perpspective on the war and the upcoming election.

Mr. Snow and Mr. Murtha will be followed by conservative commentator/author David Limbaugh and Lanny Davis, White House special counsel in the Clinton administration.

Our stock market/economic guests will offer their insights on the economy and their predictions on the jobs report tomorrow.

On board:

* Robert Shiller, Yale economics professor and author of Irrational Exuberance
* Don Luskin, Chief Investment Officer, Trend Macrolytics
* Joe LaVorgna, Chief US Fixed Income Economist at Deutsche Bank

Government is the Problem

The Reagan legacy lives on.

Government is the problem – not the solution.

A recent CNN poll shows that 54 percent of the 1013 adults surveyed said government is trying to do too many things that should be left to individuals and businesses.

Only 37 percent said they thought the government should do more to solve the country’s problems.

When asked if the size of the federal government has increased in the past four years, 72 percent correctly said it had; while another 86 percent said they thought federal spending had gone up during the same period.

This is a Republican weakness going into this election.

No, the Democrats won’t be any better. They will be worse. But Reagan’s message of limited government has been lost in recent years during GOP rule in Washington.

Ironically, it is the Pelosi Democrats who are now calling for a balanced budget. I can’t think of a single Republican official who is making that call – not one.

The Truth About Our Troops

Those who have been so quick to suggest that today’s wartime recruits represent lesser quality, lower standards, or lower class should be expected make an airtight case. Instead, they have cited selective evidence, which is balanced by a much clearer set of evidence showing improving troop quality. – From Who Are the Recruits?” by Tim Kane, Ph.D of The Heritage Foundation

Bravo to Tim Kane for pointing out the facts on the tremendous quality of our nation's troops.

According to Kane’s research report (which incidentally was released four days before Kerry’s “botched joke”) “the current findings show that the demographic characteristics of volunteers have continued to show signs of higher, not lower, quality.”

Check out some of these findings:

- The high school graduation rate of 2005 military recruits, 96.72, is higher than the rate for the general population, 79.8 percent.

- The 2004 recruits reading level is a full grade level higher than that of the comparable youth population.

- In 2004, 92 percent of those who became active-duty officers held a baccalaureate degree or higher. And from 2000 to 2005, between 35 percent and 45 percent of active-duty officers held advanced degrees.

As for all the class warriors and race baiters out there, here are some additional facts worth pondering:

- The median household income of the 2005 recruits was higher than in 1999 and higher than the national median, indicating that more recent recruits "come from even wealthier areas than their peers” who enlisted in 1999. The percentage of 2005 recruits with household incomes between $52,071 and $200,000, 22.85 percent, is higher than for the U.S. population ages 18 to 24, 20.02 percent.

- African-Americans and Hispanics comprised a smaller percentage of Army recruits in 2005 than their percentage of the overall U.S. population.

John Kerry ought to read this report.

According to an AP story out today - "Kerry's '72 Army Comments Mirror Latest" - Kerry wrote a Massachusetts peace group over three decades ago saying, "I am convinced a volunteer army would be an army of the poor and the black and the brown."

This nonsense is nothing new from Kerry.

Has Sen. John Kerry ever met a fact that influenced his motor mouth thinking and talking?

The final word goes to Dr. Kane:

"In summary, the additional years of recruit data (2004–2005) sup­port the previous finding that U.S. military recruits are more similar than dissimilar to the American youth population. The slight dif­ferences are that wartime U.S. mil­itary enlistees are better educated, wealthier, and more rural on aver­age than their civilian peers.

...With regard to income, education, race, and regional background, the all-volunteer force is representative of our nation and meets standards set by Congress and the Department of Defense. In contrast to the patronizing slanders of antiwar critics, recruit quality is increasing as the war in Iraq continues.”

Bullish Ratings

Some rather bullish ratings news for CNBC's Kudlow & Company:

- We just recorded our biggest year-to-year growth (134%) in the key 25-54 demographic of any show on the network.

- In addition, Kudlow & Company just delivered its highest monthly ratings ever last month.

Thank you for your continued support...

Wednesday, November 01, 2006

Tonight's Lineup

CNBC's Kudlow & Company will broadcast live at 5:00pm EST this evening.

Our political panel will lead off tonight's show.

We'll jump into Sen. Kerry's bungling, the midterm election outlook, the situation in Iraq, polls and more.

On board:

* Steve Moore, senior economics writer for The Wall Street Journal
* Leslie Marshall, liberal radio talk show host
* Joel Mowbray, conservative columnist
* Julian Epstein, Democratic strategist

John Fund, from The Wall Street Journal's OpinionJournal.com will also join us with a look at campaign cash hordes and election implications.

Our stock market guests will offer their insight on all the latest economic and market news, including the jobs report which comes out this Friday.

On board:

* Gary Shilling, economist/President of A. Gary Shilling & Co., Inc
* JJ Burns, President of JJ Burns & Company
* Bob Froehlich, chairman of the investor strategy committee at Scudder Investments

Good for Senator McCain

Sen. John McCain has publicly called for 20,000 more troops in Iraq to get the job done and retake control from the rogue militias and the death squads - including fat boy al-Sadr.

In an interview with the Manchester, New Hampshire Union Leader over the weekend, Sen. McCain also called for a larger U.S. Army and Marine Corps—to the tune of an additional 100,000 troops. I completely agree with McCain on these issues. He is absolutely dead in the water right.

So far as I know, he is one of the only public officials to make this call on Iraq—perhaps the only one.

Instead of talking withdrawal, he is talking about winning the war. And again, he is dead right.

What is more, Sen. McCain has patched up his differences with former Sen. Phil Gramm. The former Republican Senator from Texas has become McCain’s number one economic advisor. Gramm is a sure shot to become Treasury Secretary in a McCain administration.

This is excellent news because Gramm gets it right on the economic issues.

McCain advisor Kevin Hassett of the American Enterprise Institute has been pushing for elimination or sharp reduction in the corporate tax. This is an excellent idea.

Good for senator McCain—on the war and the economy.

John Kerry, the GOP's Message & the Midterms

The Kerry flap offers an opportunity to punch away at the forlorn loser of 2004. That of course was a great victory year for President Bush and the Republicans. And Kerry’s miscue certainly underscores his anti-war bias. But we already knew that.

It’s possible that some voters will take enough umbrage at Kerry’s stupid remarks and translate that into Democratic Party disrespect for our brave troops. But I have a suspicion that those folks are already voting Republican anyway.

That said, I do remember in 2002, after Sen. Paul Wellstone of (D-MN) was killed in a plane crash, Minnesota Dems nominated Walter Mondale. That Mondale nomination started at Wellstone’s funeral service which was a highly publicized media event.

As a symbol of the disastrous 1970s, and a reminder of the reviled Jimmy Carter presidency, the Mondale Democratic metaphor may have helped Congressional Republicans in the last week of that campaign. Bush was riding high in the post 9/11 national security glow, and Mondale could have reminded the country that this was no time for peacenik, soft-on-defense Dems. However, with today’s disillusionment over Iraq, I’m not sure the Kerry piece falls into place for the GOP.

Veep Cheney drew blood in attacking Charlie Rangel on Kudlow & Company Monday night for raising taxes. And President Bush’s slam on Rangel for wanting to slash funding for troops on the battlefield—a point Rangel made to The Hill newspaper—may also be productive. But I still think the best GOP message is low taxes, low unemployment and a solid Goldilocks stock market and economy.

Today’s Wall Street Journal/NBCpoll shows Bush approval at nearly 50 percent on the economy—a very significant gain. Last week’s Washington Post/ABC poll showed 55% approve of the economy, although Bush didn’t get as much credit in that survey. Nonetheless, if the GOP is to hold Congress, or at least shave Democratic margins, they need a big investor class turnout.

That gets back to the stock market and low tax rates on capital gains and dividends. To me, that’s the key GOP issue.

George Allen in Virginia has lost this message and has fallen behind Jim Webb. Webb wants to raise taxes and Allen should be hammering him for this. In that race it would seem that low tax rates might trump sexually promiscuous novels; if Allen would only make that case.

Nationwide, tax cuts, the economy and the stock market is the best message and Republicans should keep their eye on that ball.