Thursday, September 29, 2011

Obama as Demoralizer-in-Chief

So just when everyone had concluded the Chris Christie matter — saying “Great speech at the Reagan Library, but he’s not gonna run for president” — the New York Post comes along with a story that says the New Jersey governor is seriously considering a 2012 run. Apparently the Reagan Library experience had a big impact on Christie, and others. He’s now being urged to go for it by Nancy Reagan, Henry Kissinger, former president George W. Bush, and former first lady Barbara Bush.

According to the Post story, even Christie’s wife Mary Pat is warming to the idea.

I don’t have anything to add to this in the way of a forecast. But it does give me a hook to weigh in on Christie’s speech. It was uplifting and inspiring. As many have commented, it was a Reagan leadership speech on exceptionalism, or “earned American exceptionalism,” as the Wall Street Journal editors put it. I agree.

There are a couple a points that I want to emphasize, though.

First, Christie gets the linkage between domestic economic growth, national security, and foreign-policy influence. This was an absolute key Reagan principle.

Reagan’s firing of the PATCO workers was heard around the world by the old Soviet Union. But it was Reagan’s tax cuts, limited government, deregulation, disinflation (with Paul Volcker), and free-trade policies that grew the economy by nearly 5 percent annually during the recovery period of the 1980s, with nearly 20 million new jobs added. That ultimately knocked out the Soviet Union. (Throw in deregulated oil prices, too. They decimated Soviet coffers.)

Second, at the Reagan Library, Christie talked about the New Jersey model, where in a tough war against government unions and teachers, divided government worked to reform the state’s pension and health benefits, cap property taxes, and hold down arbitration awards for union salaries. (Christie didn’t mention this, but he also stopped the millionaire’s tax in New Jersey.)

And while the governor said there was compromise on a bipartisan basis, and while he emphasized leadership in compromise several times in his speech, he noted that he balanced two budgets with over $13 billion in deficits without raising taxes.

So there’s compromise, and there’s compromise.

In New Jersey, Christie has set an example for the U.S. Congress. What he seems to be saying is that compromises should occur in the spending areas, with particular emphasis on entitlements and a general curbing of the public sector. That’s a strong, positive message.

Third, Christie is a growth guy. He gets that. Numerous times in the speech the governor spoke about pro-growth tax reform along with entitlement reform and free trade. He came down on the side of the entrepreneur, not the government planner. And he said he’d opt for free-market reform in education. These are important policy markers if he decides to run.

Additionally, in what may have been the speech’s toughest passage, Christie blasted President Obama for dividing the nation along class-warfare lines: “Telling those who are scared and struggling that the only way their lives can get better is to diminish the success of others . . . trying to cynically convince those who are suffering that the American economic pie is no longer a growing one . . . insisting that we must tax and take and demonize those who have already achieved the American dream . . . is a demoralizing message for America.” (Italics mine.)

That helped make the Christie speech truly superb.

American economic psychology today is depressed and dispirited. It is, in fact, demoralized. And President Obama’s contribution as a divider is a key part of this demoralization. Not the only part. There are other culprits. But a key part.

In effect, Christie has labeled Obama the demoralizer-in-chief. He is the first to do so. It was an exceptional addition to an exceptional speech.

I am not choosing sides here in the GOP primary. I am not endorsing. I am merely trying to report what I think is a very important political statement, one that should be incorporated into the various GOP campaigns and the national debate.

Governor Christie is holding President Obama responsible. No excuses. And that, by itself, is a big contribution.

Thursday, September 22, 2011

A Twisted Outlook

Stocks collapsed roughly 700 points over two days after the Federal Reserve launched its “Operation Twist.” The market correctly perceives that the central bank’s plan to swap $400 billion of short-term notes for long-term bonds adds no new reserves to the financial system. So it wasn’t QE3, that’s for sure. No stimulus. In fact, with the Treasury yield curve flattening, the Fed’s sterilized asset swap actually tightened financial markets.

The Fed should have listened to the GOP congressional leadership, which in a letter advocated no more stimulus and no more market-subverting interference.

But the real issue is the new FOMC forecast: “There are significant downside risks to the economic outlook, including strains in global financial markets.” That was the killer statement.

So let me repeat: We are on the front end of a recession. The profits picture is very much in doubt. More Obamanomics tax hikes are in the air. Europe is unsolved. U.S. finances are a mess. All this is being discounted by slumping stocks.

Corporate credit risk spreads have been widening, which is a negative for the profits picture, as economist Michael Darda has pointed out. Profits are the mother’s milk of stocks. And the European funding markets have tightened substantially, as their much-wider financial-stress spreads all indicate.

Indeed, the European banking and sovereign-debt crisis is still a shoe waiting to fall. Greece may get bailed out again in a couple of weeks. But so far, the European Union’s authorities have not agreed on a bailout or bankruptcy plan to backstop debt-restructurings, or to recapitalize banks in the wake of those default restructurings.

Meanwhile, September purchasing managers’ indexes for European manufacturing and services teeter on the brink of recession. In Asia, Hong Kong shipping volumes are way down, and China’s PMI came in weak. The global transportation-delivery powerhouse FedEx just lowered its worldwide earnings and sales outlook.

And coming back home, the Obama $1.5 trillion tax-hike plan, and his veto threat for any deficit package that doesn’t include big tax hikes on successful earners, investors, and businesses, is another sword of Damocles hanging over the economy and the stock market.

Is the U.S. stock market now predicting recession? Well, the cyclical economic sectors are in bear-market mode, with roughly 25 percent declines since late April for energy, industrials, and materials. Banks, which are being hurt by credit downgrades and yield-curve flattening, are off over 30 percent.

How bad might the recession be? Well, it’s hard to say. But in all likelihood the answer is not so bad. The yield curve has narrowed from 10s to 2s, from nearly 300 basis points in March to about 150 basis points currently. But the curve is not inverted, and that’s important as a recession signal. And over the past ten years or so, the average spread has been about 160 basis points, not far from today’s reading.

Also, the U.S. banking system is flush with cash, as is corporate America. And for better or worse, interest rates in the Treasury market are negative (easy money). Business profits will slow significantly, but are still likely to rise a bit. And with oil dropping to about $80, a price shock that was a key slowdown factor is going away.

Housing is still in the tank, and consumer spending looks very iffy. And we had zero jobs and zero retail sales in August — two very bad signs. On the other hand, exports and business investment are still rising.

So it’s not 2008. Not by a long shot. But it’s not a pretty picture either.

Tuesday, September 20, 2011

Obama’s Bizarre Tax Attack

It could almost make your head spin. With an economy on the front end of another recession, President Obama’s tax attack on the folks who are most likely to succeed, invest, start new businesses, and create jobs is nothing short of staggering. Only liberal-left class-warfare ideology can explain this.

In his speech on Monday, Obama laid out $1.5 trillion in tax hikes over ten years, aimed almost entirely at America’s well-to-do. This includes $800 billion from rolling back the top rates in the Bush tax-cut plan, $470 some-odd billion to reduce itemized deductions for upper-bracket payers, and — oh yes — a millionaire’s tax called the “Buffett Rule.”

Pause a moment on the Buffett Rule. Almost all of Warren Buffett’s income comes from capital gains taxed at 15 percent. He only pays himself $100,000 a year, which would be taxed at the top rate. Most of his wealth is untaxed as unrealized capital gains. So his effective income-tax rate is lower than his secretary’s.

So what?

The vast majority of millionaires pay a 35 percent current tax rate on personal income from salaries, bonuses, and small-business income. Their effective tax rate is around 30 percent, much higher than the roughly 20 percent effective rate for the so-called middle class (depending, of course, on how you define the middle class).

Remember that the top 1 percent of income-tax payers shoulders 40 percent of all income taxes. They are paying their fair share. Then remember that 50 percent of income-tax filers don’t pay any income tax at all.

Obama refuses to tell us what the new millionaire tax rate would be, or what the formula might be in relation to middle-class taxpayers. But one thing’s for sure: This new Buffet tax is a penalty on investment, risk-taking, and job-creation.

No one even knows what the targeted group is going to be. A New York Times story suggests that the Buffet tax will hit three-tenths of 1 percent of taxpayers, which could be 450,000 people out of 144 million tax returns.

A Wall Street Journal story suggests the Buffet tax would have hit just 22,000 people in 2009, those households making more than $1 million annually and paying less than 15 percent of income in federal income taxes. According to the Tax Policy Center, doubling the tax burden of those 22,000 would raise just $19 billion a year. How silly is this?

And let’s also not forget that over the past four decades the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the cap-gains tax lowers revenues. It’s a pure Laffer-curve effect.

Clearly, the logic here is political, not economic. And it’s equally clear that Mr. Obama is now catering to his liberal-left base. I guess his logic is that even though so many people don’t have jobs, they’ll feel much better knowing that 22,000 rich people will have a higher tax rate.

Make sense?

Adding to this bizarre scenario, Obama knows full well that the debt-ceiling deal now moving to the phase-two super committee rules out tax increases. He also knows full well that none of these tax hikes will ever get through the GOP House. Perhaps, as Congressman Paul Ryan notes, class warfare makes for good politics. Perhaps.

But Ronald Reagan was branded a class warrior for the Kemp-Roth tax cuts, and he was overwhelmingly reelected. Why? Because low tax rates reignited economic growth and job-creation. Today, the president’s militant tax-hike threats, along with Obamacare and unmanageable regulatory costs, are holding back job-creators.

And Paul Ryan makes another key point: Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long-run. Penalizing incentives will do that. And lower growth means higher deficits.

Why in the world doesn’t President Obama follow the overwhelming consensus for fundamental tax reform to lower marginal rates and broaden the income base? Economists of all stripes agree on this.

At the end of the day, it sure looks like our president wants to raise taxes on wealthy Americans and large corporations in order to spend more and enlarge the size and scope of government. From the standpoint of jobs, growth, and prosperity, it just won’t work.

Friday, September 16, 2011

Mike Bloomberg’s Irresponsible Riot Tactic

New York City mayor Mike Bloomberg, in a radio interview on Friday, warned that high unemployment could lead to widespread rioting. That’s right. He actually said that. At a time when European cities have suffered massively from hooliganism, and at a time when U.S. towns like Philadelphia and Kansas City have suffered huge human and commercial tolls from so-called flash riots.

For Bloomberg to come out with this statement is irresponsible and incendiary. But you know what? He’s got a personal agenda. This is a desperate talking point to sell Obama’s jobs plan, which Bloomberg favors as a solution to high unemployment and zero growth.

There’s a whole history here of liberals threatening riots if they don’t get their way. WABC radio host Mark Simone reminded me that back in 1994, Matilda Cuomo warned there would be race riots in New York if her husband Mario weren’t reelected governor in his race against George Pataki.

So now the liberal Mike Bloomberg is trying to go to bat for his pal Obama. And he’s doing so in a very clumsy and inappropriate way.

In fact, Bloomberg is pitching for the whole Obama jobs package -- the $450 billion stimulus plan and the $470 billion tax hike. The package is totally unpopular. A recent Bloomberg poll (how ironic) showed that voters disapprove of more Obama stimulus by 51 to 40 percent, and that 56 percent of independents oppose it. Other polls show that more than 60 percent of Americans disapprove of Obama’s handling of the economy.

Memories are long. The $800 billion stimulus package nearly three years ago didn’t work. So why do it again? Large dollops of government spending combined with temporary tax cuts do not promote investment or entrepreneurship, which are the true job-creators. Tax-rate incentives must be permanent in order to grow the economy. Digging holes for infrastructure may be necessary, but it’s no job-creator for the private sector.

And that $470 billion tax-hike bill, due in 2013, comes on top of other scheduled tax hikes, such as higher personal tax rates on successful earners and small businesses and the Obamacare payroll-tax increases that encompass investors.

The Wall Street Journal’s Steve Moore calls this a steep tax cliff. It’s exactly what the economy doesn’t need for the simple reason that business people today have at least a three-to-five-year time horizon when it comes to making decisions to invest and employ. They know a temporary-tax-cut red herring when they see one.

As a formerly successful entrepreneur, Mike Bloomberg should know this. But he supports Obama’s tax increases along with the rest of the futile stimulus package. And he has taken to the radio airwaves to support these policies in an incendiary and self-defeating fashion.

Some political insiders I spoke to believe Bloomberg desperately wants Obama to win a second term. They say the New York City mayor wants to be Obama’s new treasury secretary. Therefore, Bloomberg is hammering Republicans today and absolving Obama from taking any blame or ownership of the current economic mess, which has placed the nation on the front end of yet another recession.

Riots are not the answer to our economic problems. Promoting private-sector investment is. As Bloomberg well knows from his own experience, businesses create the jobs that provide incomes for families and consumers. And businesses require capital investment. But if we keep raising taxes on investment, we will get less of it.

The American economy will continue to stall until we get a right-thinking new administration.

Thursday, September 15, 2011

The Downturn Scenario

Is the economy standing on the front end of a new recession? As IMF executive director Christine Lagarde and World Bank president Robert Zoellick warn that the global economy is entering a new economic danger zone, there’s plenty to be worried about right here in the U.S.A.

The August batch of economic stats shows zero jobs and zero retail sales. Industrial production rose slightly to save us from a clean zero sweep, but it was only two-tenths of 1 percent. However, manufacturing registered by the New York Fed and the Philly Fed showed continued declines. Jobless claims continue to rise. On top of all that, consumer prices showed a surprising increase.

So at best, we have a stagflationary stall in the economy, while at worst a recession could take hold.

Even on the profits front, which has been strong, top Wall Street economist Ed Yardeni reports a large drop in the growth of corporate tax receipts, suggesting a major profits slowdown. A Wall Street Journal story reports a profits squeeze from manufacturers. With productivity slipping, unit labor costs paid by business are rising faster than the prices business can get. Echoing that, producer prices are rising much faster than consumer inflation at retail.

The recession call is not conclusive. I’m the first to admit it. And my optimistic instincts rebel against the downturn scenario. But facts are facts. They must be reported. And the numbers aren’t good.

At this stage there’s virtually nothing the Federal Reserve can do. It caused the huge oil shock by depreciating the dollar during QE2. That’s been a killer. Now it’s time for some pro-growth fiscal policy. The Obama stimulus package repeats all the president’s past mistakes: temporary tax cuts, big spending, government planning (think Solyndra), and all these targeted clean-energy and infrastructure plans that spend the public’s money but do not on balance create new jobs -- and certainly do not create new entrepreneurial start-up businesses.

House Republicans ought to take a look at the revolt against Obamanomics. All the polls show it. Republican Bob Turner’s dramatic election win in Queens, N.Y., shows it. The voter zeitgeist has turned against the president’s policies. The GOP should rip up the Obama plan and come down with fundamental tax and regulatory reform to generate new economic-growth incentives and roll back the big-government regulatory costs on business.

The force is with the Republican party as the country awaits bold new action to get us out this economic mess.

Tuesday, September 13, 2011

The King Dollar Frontrunners

Watching the two GOP frontrunners in last night’s debate — Mitt Romney and Rick Perry — a couple of policy points jumped out at me.

First, regarding the Fed, both candidates strongly supported King Dollar. This is interesting because monetary policy continues to be a GOP campaign issue. That is rare in politics, but it’s a good thing in the context of today’s sputtering economy and failed quantitative easing.

For Governor Romney, who said he would not reappoint Bernanke in the last debate, this is a switch from April when he defended Bernanke in an interview with me. Last evening, Romney made it clear that “the Federal Reserve has a responsibility to preserve the value of our currency, to have a strong American currency, such that investors and people who are thinking about bringing enterprises to this country have confidence in the future of America and in our currency.”

As for Governor Perry, he too spoke against the devalued dollar and argued for a “sound monetary policy” with a strong dollar. Perry also repeated his charge of a month ago that if the Fed conducts policy for “political purposes” it would be “almost treasonous.” While I personally disagree with Bernanke’s QE2 dollar-depreciation, which harmed the economy, I still believe the word “treasonous” is inappropriate. (I argued this point in an August column, “Perry’s Red-Hot Bernanke Slam.”) But Perry’s push for a reliable King Dollar is spot on.

What is noteworthy about all this is the growing likelihood that a Republican president following the November 2012 election will appoint a new man at the Fed to conduct a new strong-dollar policy. Reagan used King Dollar in his first term to conquer inflation and ignite tax-cut incentives to grow the economy. Bill Clinton used a strong dollar in his second term to spur the economy. But we’ve had a weak-dollar policy during the George W. Bush and Barack Obama years as the economy has badly sputtered.

A second point on the debate: Neither frontrunner outlined a true reform plan for Social Security. So far as I recall, Romney and Perry avoided commitment to extending the retirement age, shifting cost-of-living adjustments, or establishing personal savings accounts. At some point, as the Ponzi issue over Social Security continues, they are both going to have to play their cards and talk specifically about solving the problem.

That said, both leading candidates agree on flatter-tax reform, light regulations, and a strong currency. That’s a pro-growth economic policy mix. Obviously, it’s totally different from what President Obama is offering.

Wednesday, September 07, 2011

On CNBC's Kudlow Report Tonight

Please join us at 7pm ET tonight on CNBC.

- Brian Kelly, Brian Kelly Capital President
- Brett Arends, Wall Street Journal Columnist
- Jack Bouroudjian, Index Futures Group CEO

- CNBC’s John Carney discusses the latest.

- Tom Farrell, Dominion Resources CEO

- CNBC's John Harwood reports.

- Douglas Holtz-Eakin, Fmr. CBO Director; Fmr. White House Chief Economist; American Action Forum President

- Howard Dean, (D) Former Vermont Governor; Fmr. Democratic National Committee Chairman
- Dick Armey, FreedomWorks Co-Chairman

- Ford O'Connell, CivicForumPAC Chmn
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
- Steve Forbes, Forbes Media Chairman & Editor-in-Chief

An Interview with Mitt Romney

Former Massachusetts Governor Mitt Romney joined me in Las Vegas yesterday to discuss his new jobs and economic plan. He also shared some thoughts on his new Republican rival, Texas Governor Rick Perry.

Full transcript follows below.


North Las Vegas, an international truck dealership, we welcome Governor Mitt
Romney back to the show. Thank you very much.

Governor, zero jobs in August; but actually we haven't created a net new job
in 10 years in this country. We may be on the front end of another recession.
The stock market is plunging. OK. How can you fix that if you were elected
president? What's in your new plan?

Former Governor MITT ROMNEY: Well, you have to recognize that the world has
changed, the economy has changed. We're still following the old policy, the
old strategy. It's not working anymore. I joked that President Obama is
following a pay phone strategy, we're in a smartphone world. And so what we
have to do is recognize that our companies are competing globally. We got to
bring our employer tax rates down to be competitive. Bureaucracy regulation
and government...

KUDLOW: Corporate. Corporate tax rates?

Gov. ROMNEY: Corporate tax rates. Bureaucracy regulation has to be
modernized, streamlined. Government has to see itself as an ally of
enterprise, not an opponent. We got to open up trade for American goods. The
last two and half years, the president sat on his hands with regards to trade.
We got to get markets open to American products, push them into those
products. We got to clamp down on nations like China that are cheating,
stealing our intellectual property. We got to get serious about energy.
Look, we're an energy rich nation. We're acting like an energy poor nation.
Let's use the energy that we have. The list goes on.

I've got 40--excuse me, 59 items that we have to address to get America's
economy structured for the new economy, and that's going to put Americans back
to work.

KUDLOW: All right. A lot of meat on the bones, a lot of topics. Before I
can throw--toss is back to Bill Griffith, my colleague, let me just ask you,
on the campaign trail you took some flack for saying that corporations are
people, but you are sticking to your guns. Can you tell us, we're the
business and financial station, why are corporations people? What are you

Gov. ROMNEY: Well, I hope people understand that when you tax corporations
that the concrete and the steel and the plastic don't pay. People pay. And
so when you tax corporations, either the employees are going to pay or the
shareholders are going to pay, or the customers are going to pay. And so
corporations are people. This old 1960s "We don't like companies" shtick
isn't working anymore for President Obama. That's just not the right course.
We recognize we want small businesses, middle businesses, even big ones to
grow and thrive and hire people. We like business. We're not anti-business,
we're pro-business in this country.

KUDLOW: All right. Let me go and toss it over to my friend and colleague
Bill Griffith up in Englewood Cliffs. Go ahead, Bill.

BILL GRIFFITH reporting:

Larry, thank you.

Governor Romney, we welcome you here. Let me ask you a more market oriented
question, if I may. Right now Wall Street is focused sole--to a great degree
on what's going on in Europe as they wrangle with their debt crisis, and
they're doing a lot of soul searching over there on how to restructure the
Eurozone to solve that crisis. One extreme is to create what the New York
Times labeled the United States of Europe, a central authority. On the other
end it would be just to disband the Eurozone altogether. In your view, what
would be in the best interest of the US economy and our banking interests here
and there for Europe to do? Should there be the central authority or should
they disband the Eurozone, or is there something in between?

Gov. ROMNEY: Well, I got to be honest with you, it is tough enough to figure
out what we have to do for America to continue to lead the world and to put
our people back to work and to help the middle class, and so I'm not going to
weigh in on what I think Europe has to do. But clearly, their problems are
not just temporary, their problems are structural. You have nations that are
cobbled together with one monetary policy, despite having very different
fiscal policies, and that simply can't go on on an indefinite basis. And
either those nations on the periphery are going to have to adopt fiscal
policies that are consistent with those of nations like France or Germany, or
you're going to see continued stress in the euro. My own view is they have to
recognize that, show the world that they do recognize that, that they've taken
structural change. And on that basis, you'll get investors to once again have
some confidence in the future of the--of the European currency markets.

KUDLOW: All right, let me just pick up. I want to come back to the
corporate. You're going to drop the corporate rate to 25 percent, is that

Gov. ROMNEY: That's correct.

KUDLOW: And what will you do about taxing overseas profits of US companies?
A lot of people think repatriation would give the whole economy a shot in the

Gov. ROMNEY: Yeah. I've been talking about that for a long, long time. As
you know, it makes absolutely no sense to say to a company, `If you've got
money overseas and you keep it there and invest it there, you won't pay US
tax. But if you bring your money home and invest here and create jobs here,
we're going to tax you.' It doesn't--that just doesn't make any sense at all.
We got to go to a territorial tax system which says, `Look, you're going to
pay taxes in the territories where you're competing. We want you to bring
money home without having a repatriation tax.' Let's get the trillion dollars
or so some estimate is parked outside the country back home, creating jobs
here. My Democrats friends say, `Well, some companies will just send it out
as dividends.' It's like, `Yeah.' And that'll go to shareholders, and it will
go to pension funds and retirees.

KUDLOW: Just terrible things.

Gov. ROMNEY: It's not all bad.

KUDLOW: That would be a terrible thing.

Gov. ROMNEY: And they'll--and they'll buy stuff. That's a heck of a lot
better than having the government take money from one person and give it to

KUDLOW: And it'll pay for itself.

Gov. ROMNEY: Take the--yeah, it'll pay for itself.

KUDLOW: Yeah. And then some. It'll pay for itself.

Gov. ROMNEY: It'll do more than pay for itself.

KUDLOW: But I was surprised in your documents that you're not going for
fundamental tax reform for the individual personal tax code. Explain to me.
As I understand it, you want to keep the Bush tax cuts in place.

Gov. ROMNEY: Yeah. Yeah.

KUDLOW: But you don't want, for example, Governor Huntsman, your friend and
colleague and so forth, he wants to go, what, eight, 14 and 23, and he wants
to eliminate most of the deductions. Why did you stay away from fundamental
personal tax reform?

Gov. ROMNEY: Well, I lay out in our plan that I do want to see down the road
a restructuring of our tax system with a broader base and lower rates. But my
plan is about getting Americans back to work right away. And the place I've
targeted is on middle income Americans. The people who have been most hurt by
the Obama economy are middle income Americans, and so I say to anybody who's
making under $200,000 a year, we're going to eliminate all taxation on
interest dividends and capital gains for you so that you can save, so that you
can invest, so you have more money, so you're able to care for your kids and
their future and your retirement as you think is best. That, for me, is the
place we need to move immediately.

KUDLOW: All right, I'm going to sign off here. We're going to continue with
Governor Mitt Romney in a second. I'm going to just toss it back to Bill
Griffith on "Closing Bell." Thank you, Bill.

GRIFFITH: You bet, Larry. Thank you.

And, Governor Romney, thank you for being with us here. And don't forget, you
can see the rest of Larry's interview with the governor tonight at 7 PM
Eastern time right here on CNBC on "The Kudlow Report."


KUDLOW: All right. Let me continue with you on this issue. Now you're going
to eliminate--I'm sorry--you're going to abolish capital gains and

Gov. ROMNEY: Yeah.

KUDLOW: ...for singles earning $200,000 a year, is that correct?

Gov. ROMNEY: Or less, that's correct.

KUDLOW: All right. Now about the top people? Why are you not including
them? And I raise this because you've got some people who have who have been
ankle biting you on this question. They said years ago, in the middle 1990s,
you argued that the flat tax--Steve Forbes' flat tax was a fat cats tax, and
George Will rhetorically in a column asked, `What does Governor Romney think?
What constitutes a rich person? What constitutes a fat cat? What's the
dividing line?' Tell us why you made it 200,000.

Gov. ROMNEY: You know, there's nothing magic about a particular dividing
line. You pick a point where you're getting the great majority of Americans.
Look, there are many people who think we should have zero tax on capital
gains, interest and dividends for everybody, as--the very, very wealthy. But
recognize that means that Bill Gates and Warren Buffett would pay no income
tax at all. And some people say, `Well, that's a good thing for growth of the

KUDLOW: But you're referring to the capital gains tax?

Gov. ROMNEY: And I--yes, exactly.

KUDLOW: And the dividend tax, those are different.

Gov. ROMNEY: No. If we eliminated capital gains, all tax for the--for
everybody, even those making millions a year on interest dividends and capital
gains, then Bill Gates and Warren Buffett would pay no tax at all because
their income is overwhelmingly if not entirely capital gains interest and
dividends. And so the very, very wealthiest would pay no tax at all. My
guess is that the American people would feel that, you know, right now the
people that are hurting in this country are not the very wealthy but the
middle income folks. And so the place I want to focus my effort and my break
and also encourage more investment savings is for middle income Americans.

KUDLOW: So you agree with Buffett then, there should be higher taxes on the
upper income people.

Gov. ROMNEY: Well, listen, I believe in keeping...

KUDLOW: But would you also tax wealth?

Gov. ROMNEY: I believe, Larry, I believe...

KUDLOW: Would you tax wealth?

Gov. ROMNEY: Well, of course not. We have right now a 15 percent tax on
capital gains. That's the rate that I would keep in place for now. And what
I would say is we would remove the tax for people in middle incomes. Their
tax would go to zero. The tax for higher income folks would stay the same.

KUDLOW: All right. Let me move on. You talked about trade and you sort of
have a two-edged sword going here in your package. You want free trade deals
but you're very tough on China, in fact, uncharacteristically tough on China.
Piracy, counterfeiting, I get that. How can China be brought into the WTO or
play by--at an all-out...(unintelligible).

Gov. ROMNEY: Well, the people are going to always threaten that if they
don't get their way, they're going to do something that's hurtful. And
sometimes people get frightened and say, `Oh, I better give them what they
want.' But, you know, we've been doing that for a long time and China
continues to steal our intellectual property. They hack into our computer
systems. They manipulate their currency such that their products have a
substantial disin--excuse me, substantial advantage relative to our products
in the world. They buy far more--excuse me, we buy far more of their products
than they buy from us. Their government doesn't buy anywhere near the
products from America they should be buying.

KUDLOW: How can we force them?

Gov. ROMNEY: And so, look, what you say is, `Hey, look, you signed

KUDLOW: All right.

Gov. ROMNEY: `You've agreed to follow certain practices. If you don't
follow those practices, why, then, we're going to take the corrective actions
which are outlined.'

KUDLOW: What would the correction actions be?

Gov. ROMNEY: Well, you take a--when you negotiate, you let them know that
you're willing to take whatever action is necessary, and that would include,
for instance, if they've stolen intellectual property on a particular series
of goods that you're going to put tariffs on their products if they don't
abide by the rules.

KUDLOW: So you agree with Don Trump. Essentially Donald Trump wants to put
tariffs on their imports.

Gov. ROMNEY: You know, I'm not going to adopt the policies of someone else
that I haven't read. I can tell you that I agree with my policies that I
describe in my book, which is to say that in places where people have taken
advantage of us and have killed American jobs or are threatening to do so,
that we're not going to sit back and just say, `Oh, we got to do this because
we owe them a lot of money.' We're going to say, `You know what? We don't
want a trade war, but we're not going to endure a trade surrender.'

KUDLOW: All right. So tax cuts for corporations. Tax cuts for the middle
class, keeping the Bush tax cuts in place, free trade but tough on China,
deregulation. You have a big deregulation point.

Gov. ROMNEY: Yeah.

KUDLOW: Let me ask you this, economics on the campaign trail, it's getting
pretty rough and tumble. Yesterday, once again, Governor Perry slammed you.
He said Governor Mitt Romney did not create jobs in Massachusetts and he,
Governor Perry, created jobs in Texas. What's your response to Governor

Gov. ROMNEY: You know, I'm not responding to Governor Perry right here.
He's not here. I'll probably get the chance to do that at some point. But
I'll talk about my record on that.

KUDLOW: But it must get under your skin?

Gov. ROMNEY: Why would I be worried about what other people say? I've been
in politics now for long enough to not worry about what others are saying, but
instead to talk about what I believe.

KUDLOW: Did you create jobs in Massachusetts?

Gov. ROMNEY: Well, of course I did. Of course I did. The unemployment rate
went down as I was governor of Massachusetts. We were losing jobs every month
when I came into the state. We turned that around and created jobs every
month. And, you know, I'm proud of the fact that when I was governor, the
three of the four years I was there, our unemployment rate was below the
national average. You know, each state has some differences. I'm pulling out
those differences and we'll talk about the prospects we have for seeing the
entire country have as its leader a person who has not just watched other
people create jobs but someone who's actually created jobs. In 25 years in
business and at the Olympics, I created jobs.

KUDLOW: All right, that's where I was going. OK. You give as good as good
as you take. You have charged that Governor Perry is a career politician and
that you have spent the bulk of your career in the private sector. Do you
understand how the economy works better than Governor Perry?

Gov. ROMNEY: You know, I haven't spoken about Governor Perry, but what I
have said is that career politicians don't know what it takes to get this
economy going again, and, you know, evidence number one is what's going on in
Washington, DC. You're seeing the president come out with more of these
stimulus plans. Plan one, two, three, four and five didn't work. He's going
to do another one that's going to have the same output because they don't
understand what it takes to get businesses to invest in America and to hire
people. I do. I've done that. I've competed around the world. If people
want somebody-if they think the most characteristic of a president is someone
who understands how the economy works and is expert in turning around
enterprises, then I'm the guy. If there are other measures that they want to
select upon, well, maybe I'm not the guy. That's the choice that they'll have
to make.

KUDLOW: Well, just interesting on these choices. People are kind of freaked
out by the debt limitation debate, and there's a lot of economists who are
actually saying that that whole debate, which came right up to the edge of a
default and still really didn't make a dent in our spending and our borrowing,
damaged the economy. That what we're seeing now in a potential double dip is
in part caused by that. I want to ask you, is it possible for you and other
Republicans to make any common ground at all with President Obama, who gives
his jobs speech on Thursday night?

Gov. ROMNEY: Well, of course. We'll see what he has to say in his jobs
speech. But I've found in my interactions with people on the opposite side of
the aisle that we can find ways for us to find common ground. There are a lot
of Democrats who realize that spending is too much. But, Larry, you have to
understand, back in the days of John F. Kennedy, government at all
levels--federal, state and local--consumed about 27 percent of the economy.
Today it consumes 37 percent of the economy. And Republicans like me are
saying, `Look, that's too much. We're not going to keep growing the

KUDLOW: Where would you target it?

Gov. ROMNEY: I'd get the federal government down to 20 percent. Right now
it's close to 25. Get it down to 20 percent. We've got to cap the amount
that the federal government is spending. We can't let government keep growing
and growing because you're seeing in Washington a class of people, permanent
politicians, career politicians who have never worked in the private sector,
never really built an enterprise, never signed the front of a payroll check,
and they think they know what's right for America. And they don't. They need
to go home and get a job.

KUDLOW: What about President Obama's infrastructure bank proposal? He also
talks about targeted tax credits. But I want to go into infrastructure bank.
Is that the answer to an economy that hasn't really grown in 10 years?

Gov. ROMNEY: Well, I'm afraid we do need to see better infrastructure in
this country and we need to encourage the investment in airports, in new
flight systems, in highways and bridges. Our bridges are in terrible
disrepair. And there are a wide array of ideas about how to do that.

KUDLOW: Could you support a government project bank?

Gov. ROMNEY: Well, I...

KUDLOW: It sounds like Fannie Mae.

Gov. ROMNEY: I will--look, I don't want the government getting into more and
more enterprises like Fannie Mae and Freddie Mac. I'll look at ways to see if
we can't get our highway system updated and get our bridges rebuilt. That's
something that we can do. And there--and there--what I want to make sure is
that we have revenue streams to pay for it, not just more money coming out of
the general fund. And guarantees. Look, this idea of the government
guarantees, that that doesn't cost anything, that's wrong, as we've learned.
Government guarantees are real cash and can end up hurting the taxpayers.

KUDLOW: All right, Governor Mitt Romney, we're going to leave it there.
Thank you for visiting us. It's a warm day here in North Las Vegas, but it's
a great pleasure to have you back. All best on the campaign trail.

I'm Larry Kudlow, folks. We'll be right back with "The Kudlow Report" in just
a moment.

Tuesday, September 06, 2011

On CNBC's Kudlow Report Tonight

Please join us at 7pm ET tonight on CNBC.

- Jason Trennert, Strategas Research Partners; Chief Investment Strategist & Managing Partner
- Art Hogan, managing director at Lazard Freres & Co

- CNBC’s Diana Olick reports.

- Peter Fisher, BlackRock Global Head of Fixed Income; Fmr. Under Secy of Treasury

The GOP presidential candidate and former Massachusetts governor will discuss his new jobs plan and the Republican presidential race.

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth

Friday, September 02, 2011

A Reagan Moment: Stop Our Economic Decline

No sooner had President Obama shocked the political world with a gloomy economic forecast — projecting 9.1 percent unemployment for this year and a reelection-killing 9 percent for 2012 — than the dismal August jobs report arrived showing no gain in nonfarm payrolls. That’s right, no gain at all. Private jobs increased a scant 17,000, while hours worked and wages actually declined. Obama’s economic policies have failed.

Are we on the front end of yet another recession? This report alone suggests that we could be, although other data points disagree. But on the eve of President Obama’s so-called jobs speech, there’s a much bigger question here: Has the U.S. entered into long-term economic decline?

As a quintessential optimist who believes in American exceptionalism, I don’t even want to raise this issue. But the data tell me that I must.

For example, over the past ten years, the U.S. has actually lost jobs on a net basis. In August 2001, nonfarm payrolls calculated by the Bureau of Labor Statistics stood at 132 million. Through August 2011, payrolls stand at 131.1 million.

In fits and starts, a 4 percent unemployment rate has moved up to some kind of permanent 9 percent plateau. Following the Bush tax cuts of 2003, 8 million new jobs were created. But in the aftermath of the financial meltdown those jobs have disappeared. The so-called Obama recovery over the past two years has made no dent in this gloomy picture.

And through this whole period our economy has barely grown at a subpar 1.6 percent yearly rate for real GDP.

Meanwhile, the stock market — perhaps the best measure of our wealth and well-being — has essentially been flat for the past decade. And while the free-enterprise private sector has barely muddled along, the government has grown fat.

During the Bush years, the federal government increased from 18 percent of GDP to 21 percent. The debt went up $2.5 trillion, from roughly 32 percent of GDP to 40 percent. And now, during the Obama period, spending has moved even higher to at least 24 percent of the economy, while total federal debt has ballooned near 100 percent of GDP.

It’s almost a mirror image: The expansion of the public sector and the decline of the private sector. This is completely inimical to the American peacetime experience. And it forces us to think seriously about whether we are losing our world economic leadership. Are we? And if so, does this loss of economic leadership threaten our national security and foreign-policy stature?

And all while jobs, the economy, and stocks slumped over the past ten years, the dollar dropped 37 percent and gold increased by nearly 500 percent, from $250 to nearly $1,900 an ounce.

We don’t have the kind of inflation today that we experienced in the 1970s. But it is certainly worth noting that a collapsing currency and a skyrocketing gold price are key barometers of a loss of confidence in the American economic story.

And because most foreign currencies and gold denominated in those currencies have shown the same problems — paper money going down and the yellow metal going up — it’s not farfetched to suggest that America’s funk is leading the rest of the world in the wrong direction.

My key thought is that the U.S. in the last decade has adopted a wrongheaded policy of government expansion — primarily spending and regulating — financed by ultra-easy monetary policy and rock-bottom interest rates.

Tax rates haven’t moved much. But the whole tax system is badly in need of pro-growth flat-tax reform and simplification. However, the expansion of spending and regulating is robbing the private sector of its entrepreneurial vitality. Here’s the new fear: More big-government spending stimulus from Obama’s jobs plan. More EPA. More NLRB. More Dodd-Frank. More Obamacare.

And as the policy mantle for growth has swung to Federal Reserve stimulus, we are learning once again what Milton Friedman taught us 40 years ago: The central bank can produce new money, but there is no permanent production of jobs and growth from that pump-priming.

Big government financed by easy money is a lethal economic combination. It must be reversed. We should be reducing the regulatory and spending state while keeping money predictably stable (and even re-linked to gold). The supply-side nostrum that worked so well for 20 years, beginning with Ronald Reagan, was low tax rates, light regulation, limited government, and a hard dollar. Gold collapsed between 1980 and 2000 as stocks, jobs, and the economy roared. The last ten years? We’ve gotten the policy mix completely backwards. The results show it.

This is a Reagan moment. We need a new leader who can get the economics right and reverse our decline. Literally, for the whole world, nothing is more important.

An Interview with Dick Cheney

Earlier this week, I had the honor and pleasure of sitting down with former Vice President Dick Cheney on CNBC’s Kudlow Report to discuss his new book, "In My Time" about his 40-year political and business career.

The full transcript and video follow below.

LARRY KUDLOW, host: I am pleased and honored to welcome back to this program former Vice President Dick Cheney, who has written a terrific new book called "In My Time" about his 40-year career in politics and, I might add, business. I think people forget you were the CEO of Halliburton for a bunch of years.

Former Vice President DICK CHENEY: Right.

KUDLOW: And you served on a whole bunch of corporate boards.

Mr. CHENEY: I did, indeed.

KUDLOW: So you come at it from both sides. Anyway, Mr. Vice President, thank you very, very much.

Let me just begin. Before I get into the book, I want to do some current events with you. I am worried, as are others, that America is in financial and economic decline right now. And I want to get your take on this. Our economy hasn't really grown in 10 years. Stock market hasn't really moved in 10 years. The budget is bankrupt, we've just been downgraded, the debt continues to rise, the dollar is falling, gold is rising. How worried are you that we are in decline? How do you see the future of the great American economy, which ain't so great anymore?

Mr. CHENEY: Well, I'm worried, too, Larry. I'm--you're somebody I follow who we've worked together over the years, back our days in government. If you're worried, I'm worried. And I think most Americans are concerned, not just about the problems of the moment, but about the long term. Finally, our debt problems are catching up with us, and we've got to find some way to get back on top if we're going to pass on the country to our kids and grandkids in as good as shape as we found it.

KUDLOW: The Chinese are nipping at our heels and they're criticizing us at every turn, particularly on the budget and the debt and the decline of the US dollar currency, which frankly, started during the Bush-Cheney years. The dollar's been falling now for 10 years, gold has been rising, China's been yelling. Again, what should we be doing about that? How serious a decline is this?

Mr. CHENEY: Well, in terms of the financial standpoint, I think it's very serious. I'm not ordinarily a pessimist. I basically believe deeply in the capabilities of the United States. We've done some tremendous things over the years, and I think we're capable of doing that again. But we have to face up to the fact that we've got these very real problems that we've created for ourselves, in large part, especially with respect to the debt, and we, in fact, have to put in place policies that'll stimulate growth, stimulate expansion, job creation, the private sector; and, at the same, time get a handle on entitlement spending in the federal government.

KUDLOW: Now you know the president constantly blames the--your administration for it. He says the Bush-Cheney people drove the economy into the ditch. That's his stock phrase. And that he's got to rescue us. And also, democratic talking points about all this, that we didn't pay for the war, that we didn't pay, we--the administration, the government, did not pay for the so-called tax cuts for the rich, they didn't pay for the healthcare drug entitlement. What is your reaction to their blaming the Bush-Cheney administration?

Mr. CHENEY: Well, I think after nearly three years in office now, the effort to sort of pass all the problems back to George Bush's platter, if you will, don't sit very well. We're getting to the point where, after you've been there for three years, you've made a lot of promises, campaigned from coast to coast across the country as President Obama did, sooner or later it becomes your economy. And I think we're to that point now. He's going to be measured very much next year against his performance.

KUDLOW: Do you--do you take some--do you take some of the blame for it? I went through some numbers. These are just broad numbers. Spending did increase during the Bush-Cheney years from 18 percent of GDP to 21 percent. The debt did go up $2 1/2 trillion from 32 percent of GDP to 40 percent. Now the debt is running close to 100 percent of GDP now. I get that. But do you take some of the blame? Could Bush-Cheney fiscal policies have been tighter and more disciplined?

Mr. CHENEY: Well, perhaps, but we were faced with some unique situations. I mean, when 9/11 happened, all of a sudden we're hit with a terrorist attack against the homeland, 3,000 dead Americans in an hour and a half one morning. That required us to take some major steps that were expensive with respect to getting on top of that and making certain that we weren't faced with another attack like that on our watch. So no question it cost money, but it was something that you absolutely have to do. It's war time. And we've been able in the past to meet those kinds of challenges, as we did during World War II, for example, and then ultimately get on with our business. Now, in terms of adding to the debt, Obama has added as much to the debt in two and a half years as we did in eight years. The fact of the matter is, if we talk about unrestrained spending and a lack of discipline with respect to spending, I think the Obama administration's record is the worst we've seen.

KUDLOW: I want to go back into the book. You don't really spend too much time on the economy and financial stuff. It's mostly a book about the terror war, and I appreciate that, but you do talk towards the end of the book about the big banking crisis in late 2008.

Mr. CHENEY: Right.

KUDLOW: And specifically you say the $700 billion TARP package, you mention this, and you said, `Look, I have long been an advocate of keeping government intervention in the private sector to a minimum. What we were talking about now was the largest such intervention in the history of the republic and I was a strong supporter.' Now, as you know, the Republican Party en masse, especially in the last couple of years, have been totally against TARP. What do you say? Why were you such a strong supporter? Do you really think it worked?

Mr. CHENEY: Well, I--yes, I do think it worked. And I was a strong supporter because I concluded, as I think many of us did at the time, that the federal government is the one with the ultimate responsibility in terms of the nation's financial system. Federal Reserve's a part of that, Treasury's a part of that, but the fact is there isn't anybody else in the--in our system that can address those issues that were raised by that financial crisis except for Uncle Sam, for the federal government. And TARP was the response to that. And I think TARP has worked in the sense that we did stabilize the situation, that government is collecting in terms of money being paid back, so that virtually all of it has been or will be paid back. Though, from the standpoint of a lot of the criticism that was leveled against it, I don't think it was valid.

KUDLOW: Did we learn wrong lessons? Is it government bailouts? Is it too big to fail? What came out of this was the Dodd-Frank Bill, which is a massive regulatory bill, almost ineffectively governmentizing the banking systems. Did we wrong--learn the wrong lessons from that emergency?

Mr. CHENEY: Well, possibly. I'm certainly not a fan of Dodd-Frank. I hark back to my early experience in government, which was a little thing called the Wage Price Control Program...

KUDLOW: Oh, yes, of course.

Mr. CHENEY: ...under Richard Nixon. And my job then, I was the director of operations for the Cost of Living Council. I had 3,000 IRS agents who worked under my guidance to enforce those controls. I came away from the experience convinced it was a disaster. It was a classic case of trying to substitute government judgment for what ought to be a private sector enterprise, that millions of Americans would make better decisions for the country on a daily basis as they had addressed all those issues of wages and prices and profits than would a bureaucracy trying to operate in accordance with a set of bureaucratic rules. I think wage price controls were a disaster. I came away from that more conservative in terms of my view of what government's role ought to be in this society. But this was different. I thought the financial crisis that we faced in '08 really, all of a sudden, the financial system seized up, major firms with no significant financial problems can't get short-term operating cash. I mean, we had a lot of major, major indicators, if you will, that the financial system was coming to a screeching halt. And TARP was the system that was devised on short notice to get us out of that. And I frankly--I think it worked.

KUDLOW: Let me go to the--let me switch to the here and now. We have terrible unemployment problem, 9 percent, 16 percent including marginally unemployed. Something like 20 million people out of work or those who would like to have a better job. It's a really bad situation. The economies in trouble. We're growing at 1 percent or less. Now, President Obama next week will unveil another stimulus plan. I don't know whether it's stimulus three or four or five. He's talking about an infrastructure bank, he's talking about more unemployment benefits, he's talking about temporary targeted tax credits. I want to get your take on this. And, again, I remind everybody, you yourself were a former businessman for years. You ran Halliburton, you served on a lot of boards, Procter & Gamble, Union Pacific. What should Obama do to trigger businesses that are sitting on $2 trillion in cash to get this economy moving again? What do you think of his so-called jobs plan as we know it from the leaks?

Mr. CHENEY: Well, of course, I haven't seen the plan yet. We're speculating about it and dealing with the leaks, but I'm not optimistic about what he'll produce. I think his mind-set is very much along the lines of road-building projects, so-called stimulus, enhanced unemployment benefits. That it doesn't go to the heart of the problem and that what we need to do is create an environment in which the private sector is prepared to invest, where there's enough certainty there so that they can move forward in terms of making decisions about ways in which they can expand their businesses and create jobs. We need to do more to reduce the regulatory burden. I see, you know, a big regulatory burden being imposed on the private sector by the administration. That doesn't appear to be addressed at all by President Obama. I think we need to seriously look at tax policy. I think, you know, left to his own devices, he was arguing for tax increases. I think the private sector is still concerned out there that, first chance he gets, he's going to be for tax increases.

KUDLOW: Mm-hmm.

Mr. CHENEY: And all of those kinds of things will retard the restoration, if you will, of the kind of confidence that's needed for the private sector, long term, to enter a period of rapid growth and job creation. That's really the only way out of this. I don't think government can do it by itself.

KUDLOW: I've got a couple more questions. I just want to make sure you and the batteries there are working OK.

Mr. CHENEY: Mm-hmm. Well, they are.

KUDLOW: What have you got going in there? You've got this lovely--looks like a fishing vest.

Mr. CHENEY: It is.

KUDLOW: And what's--what are the hookups to keep your ticker going?

Mr. CHENEY: Well, I've got a--this is a control element. Sort of a small computer.

KUDLOW: Uh-huh.

Mr. CHENEY: I've got two of these batteries.

KUDLOW: Oh, don't move it, it makes me nervous!

Mr. CHENEY: They operate for about 10, 12 hours. Then what it does is it runs a heart pump called the HeartMate II that's inside my chest, plugged into the heart, that takes blood out of the left ventricle, the pumping chamber...


Mr. CHENEY: ...and moves it into the aorta. It operates at about 7,000 RPMs. Instead of a heartbeat, it's sort of like having a Ferrari in your chest.


Mr. CHENEY: I mean, it gives you that kind of noise when you listen to it. But it's wonderful technology. It was originally built to tide over patients until they could get a transplant. It's now gotten good enough so that a lot of people are living for several years with this equipment. It's a little awkward, but you get used to it. I get everything into this vest that's specially made for that purpose.

KUDLOW: How is your outlook with this?

Mr. CHENEY: Well...

KUDLOW: You look great. You sound great.

Mr. CHENEY: far, so good.

KUDLOW: You're snapping right back at me just like you always did.

Mr. CHENEY: Fourteen months ago, I was in big trouble. I was in end-stage heart failure. My heart was not moving enough blood to service my kidneys and my liver. I was close to--close to the end when we went in and put in the heart pump. Now, it's not an artificial heart, but what it does is supplement your heart and move a significantly larger volume of blood than was possible...


Mr. CHENEY: ...before it was installed. And it really is--has done wonders for me.
KUDLOW: All right.

Mr. CHENEY: I fish, I hunt, I'm not playing tennis, but I'm doing just about everything else.

KUDLOW: God bless. God bless. All right. Just the last round then, I appreciate this very much and thank you for showing us that. Back to my worries that America's in decline.

Mr. CHENEY: Mm-hmm.

KUDLOW: I've taken to calling this a Reagan moment. We need to find a Reagan-like figure to reverse the decline of the United States, at last in the economic and financial sphere. National security, we look much better, as your book chronicles, but on economic and financial. Now, let me ask you a couple of questions, political questions. The role of the tea party. How do you see the role of the tea party?

Mr. CHENEY: I think they've had a significant impact on sort of putting some spine in the backs of a lot of my friends in the Congress. That, in fact, I've realized it was controversial for the--for my colleagues to threaten, for example, the--not to grant the commitment to pay the debt, to raise the debt ceiling. That was, without question, controversial, but I think that threat was effectively used to force the administration to sign on to some significant deficit reduction measures. So I don't think we would've gotten as far as we have without them sort of holding the feet to the fire of members of Congress, but that they were deadly serious about wanting to go after the deficit problem. Now we've not yet solved the problem by any means. I'm not totally happy with the package that was approved. I worry very much that defense is going to be on the short end of the stick when it gets down to the point of actually adopting a policy. But we've got to start. I think the special committee that's been established has some good members on it.


Mr. CHENEY: But I think others like Erskine Bowles and Al Simpson have done some good...

KUDLOW: Did a fine job.

Mr. CHENEY: A fine job.

KUDLOW: Democrat Bowles, Republican Simpson.

Mr. CHENEY: Yeah.

KUDLOW: Simpson's a great pal of yours from Wyoming.

Mr. CHENEY: He is indeed a very close friend.

KUDLOW: But they did a fine job.

Mr. CHENEY: And...

KUDLOW: It's a pity the president didn't really just enact their proposals.

Mr. CHENEY: Totally ignored them. Totally ignored them. And we've got to continue to aggressively pursue it, and I think the tea party crowd has had a big impact on moving the political dialogue over to a more responsible...

KUDLOW: All right. On the campaign trail, Governor Rick Perry is the new front-runner. Governor Mitt Romney is a tough competitor. You also have Congresswoman Michele Bachmann. You also have Congressman Ron Paul. Are these people that can step into the Reagan and reverse America's decline? Do you have confidence in the Republican field or are you looking for other candidates to run?

Mr. CHENEY: I haven't endorsed anybody yet, Larry. I'm not sure that would be necessarily helpful. There's some quarters where my endorsement probably wouldn't be welcome. But I--we're sort of at that moment where, as I look at it, the question is whether or not we can elect the equivalent of Ronald Reagan in 1980 or whether we're going to get a Jimmy Carter-like figure.

KUDLOW: Mm-hmm.

Mr. CHENEY: And I worry that Obama--President Obama represents the Carter wing, if you will, of the political spectrum, and we badly need a Ronald Reagan. Now, do we have that yet in the Republican field? I don't know. That's going to depend a lot on what happens in the months ahead in terms of a candidate...

KUDLOW: But you're not convinced. I'm hearing some--I'm hearing some skepticism and doubt in your--in what you're saying here.

Mr. CHENEY: I have to say, I haven't...

KUDLOW: You haven't seen it yet.

Mr. CHENEY: I haven't endorsed anybody yet, and I expect to support the Republican nominee, but they have a lot to show me before I'll be enthusiastic about any one of those candidates.

KUDLOW: All right. I hear you. Last one, sir. Tenth anniversary of 9/11 approaches. It's just going to be in a few weeks. Osama bin Laden is dead, the number two and threes of al-Qaeda, they're dead and gone. We've really decimated them. We've killed them, we've crippled them. It looks like democracy, this was the Cheney vision and the Bush vision. Democracy is spreading--Tehran, Cairo, Tripoli, perhaps Kabul. First of all, on the 10th anniversary of 9/11, are you satisfied that our country is safe? And second of all, are we wining the global war on terror?

Mr. CHENEY: I think we're making progress. I can't say definitively that we've won. I think it's important that we not let our guard down. I think there's still folks out there who wish us harm, and I'm still worried that the biggest threat we face is a terrorist organization equipped with a weapon of mass destruction, a nuke or a biological agent of some kind that they'd try to unleash on one of our cities. So I'm not relaxed from that perspective. On the other hand, I think you're right. I think our intelligence and military capabilities have been significantly improved over the years. We've worked hard on that, and I think it's produced results. The demise of Osama bin Laden is proof positive of that.

KUDLOW: For which you have given the president some credit for pulling the trigger.

Mr. CHENEY: I have, indeed. He made the decision to send in Seal Team 6 at that moment on that raid, and that was a good decision. I think the groundwork for it was laid over the 10 years previously and that a lot of the credit goes to our professionals in the military and in the intelligence fields who really produced the information that ultimately led to bin Laden's demise.

KUDLOW: All right. I'm going to leave it there, Vice President Dick Cheney. First of all, all best, God speed on your health. All best on the success of this book. And thank you for helping THE KUDLOW REPORT down through the years. You know we've had about a half a dozen interviews.

Mr. CHENEY: We have.

KUDLOW: You've been wonderful. Thank you, thank you, sir.

Mr. CHENEY: Well, great to see you again, Larry. I love the show.

KUDLOW: All right, thank you. We'll be right back with more from this evening's THE KUDLOW REPORT as we thank Vice President Dick Cheney and wish him all God speed.

Thursday, September 01, 2011

A Real Recipe for U.S. Job Recovery

I’ve got a few thoughts on this so-called Obama jobs plan, scheduled for release next week.

For starters, let’s be clear: Government doesn’t create jobs. It’s the private sector that creates jobs. And that’s precisely what President Obama has been missing for nearly three years now.

Ronald Reagan knew this. John F. Kennedy knew this. And Bill Clinton eventually learned this.

The trick here is to create new incentives for workers, investors, and business. But first and foremost, we need to remove the regulatory obstacles. Here are some examples:

– Stop the EPA and its environmental overkill.
– Stop the National Labor Relations Board’s war against business.
– Stop Dodd-Frank’s financial attack.
– And take out Obamacare.

And when that’s done, call off the high-tax dogs. Let C-Corps and small-business S-Corps pay no more than a 25 percent tax rate. Move to territorial taxation. Repatriate foreign earnings, bringing the money home. And make the Bush tax cuts permanent, or else move in the direction of a true flat tax.

And on money, until the dollar is properly re-linked to gold, the Fed should do nothing right now. Since QE2 ended, the greenback has actually stabilized. That’s a hopeful sign for lower inflation.

So the only role for government is to set the stage to make it pay more after regulations, taxes, and inflation to work, invest, and take risks. Revive the animal spirits of America’s private entrepreneurial economy with fewer government obstacles and more take-home pay.

Think of it.

On CNBC's Kudlow Report Tonight

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-CNBC chief Washington correspondent John Harwood reports from Washington.

- Sen. David Vitter, (R) Louisiana
- Denny Strigl, Fmr. CEO & Presient of Verizon Wireless

- Joe LaVorgna, Deutsche Bank Chief U.S. Economist
- John Silvia, Wells Fargo Securities Chief Economist

- Bob Lutz, Fmr. GM CEO; CNBC Contributor

- Jeff Kleintop, LPL Financial Chief Market Strategist
- Joe Grano, Centurion Holdings CEO
- Stephanie Link, Director of Research & Vice President of Strategy for The

- CNBC’s Scott Cohn reports from Hollywood.

- Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; Fmr. Chief Economist to V.P. Joe Biden; CNBC Contributor
- Dan Mitchell, CATO Senior Fellow