8/29/2005

Daily Kos: Bonddad v. Kudlow; Round 1

Bonddad v. Kudlow; Round 1
by bonddad [Subscribe]
Mon Aug 29th, 2005 at 13:42:11 CDT

I hate Larry Kudlow because the man is dangerous. The combination of a fairly wide audience and intellectually lazy and dishonest habits is a deadly combination. He was one of the chief architects of the "supply-side" argument - the economic theory that is responsible for over 5 trillion of the US' 7.7 trillion total debt (Add up Reagan's, Bush I and II's debt). He still argues that tax cuts pay for themselves despite the clear evidence to the contrary. (Compare Bush's total tax receipts to Clinton's. Also note Reagan's tax receipts only went up after his tax increases in 1983).

When I was in Austin taking the bar, I promised myself I wouldn't watch and financial news. That lasted about 2 hours. The first day of the bar, South Korea announced it would start to diversify out of the dollar. Kudlow's advice? "Don't pay attention to it." This coming from a man who says in his latest article the Fed should listen to the markets. That's right: ignore bad news because it makes Republican theories look bad because, well, they are.

* bonddad's diary :: ::
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Anyway, his latest column is horrible. I am sure the RWNM will be touting it as proof of good things to come. So, here is why his latest column is so completely off base.

On the oil-price shock, I say at least two cheers for higher prices. Why? Because I believe in markets. When the price of energy goes up, demand falls off and supply increases. This is the case today and it represents nothing short of a tectonic shift.

First, Kudlow makes a horrible economic mistake, which Angry Bear completely destroys. Considering Kudlow use to work for the New York Fed, this mistake is egregious. However, that is not the mistake that gets me.

With gas prices moving toward $3 a gallon, the public is now even favoring nuclear power -- by two-to-one, according to pollster Scott Rasmussen. Nuclear energy is the ultimate solution for clean power and reduced foreign dependence.



I have three words for Larry: Three Mile Island. Remember that, Larry? I do because I lived in Ohio at the time. If that plant had gone "nuclear" I would be dead Larry (or have three arms and gills). I find it really interesting that Larry did not mention any safer alternatives from public companies like Solar Power or Wind Power. Publicly traded companies, Larry, have made great strides in alternative energy that don't explode creating radioactive fallout or create waste that is toxic for millions of years. Is there a particular reason you overlooked safer alternatives?

Are any of the Fed bigwigs in Jackson Hole watching the market price-rule indicators? Do they understand the teachings of Milton Friedman and Frederich Hayek — that markets, which contain more information than economic models, are the best judges of economic “risk management”?

This demonstrates Kudlow’s complete lack of knowledge about recent developments in economic thinking. By recent, I mean the last 15 years. “Risk management” is a fancy way of saying “Cheap money has created an asset bubble. Lenders are not being compensated for the risk they are undertaking.” As a result, the Fed needs to “tap the brakes” of the economy to prevent an asset bubble from busting and creating financial havoc.

While those on the right continue to deny its existence, several other people have noticed it. For example the FDIC noticed it in February. National City Corporpation noticed it several weeks ago. Greenspan noted the bubble in his latest statement. I realize you are smarter than these people and know more, but it seems to me the weight of the evidence isn't in your favor. The bottom line is the only thing preventing a possible blow-up in the housing market is a gradual course of increasing interest rates. This is what is often referred to as "tapping the brakes on the economy." You might remember that from school - assuming you actually went to class at some time instead of hanging out at the frat house.

After all we have learned about the failure of central planning in the last century, are intelligent people today willing to accept the notion that government banks are smarter than markets? Or must the prudent investor worry that the Fed will overreact to home prices and energy costs by once again draining too much money out of the economy and smothering the growth effects of supply-side tax cuts? Are any of the Fed bigwigs in Jackson Hole watching the market price-rule indicators? Do they understand the teachings of Milton Friedman and Frederich Hayek -- that markets, which contain more information than economic models, are the best judges of economic "risk management"?

The failure of central bank planning? Last time I checked, it was that "failure" that eliminated massive inflation in the early 1980s, Larry. It allowed 8 years of economic growth in the 1990s, Larry. I may be crazy, but that doesn't sound like failure to me.

Daily Kos: Bonddad v. Kudlow; Round 1

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