Larry Kudlow breaks with current conservative orthodoxy by claiming that not only are we in a recovery, but in fact it’s a pretty good one:

Sometimes you have to take out your political lenses and look at the actual statistics to get a true picture of the health of the American economy. Right now, those statistics are saying a modest cyclical rebound following a very deep downturn could actually be turning into a full-fledged, V-shaped, recovery boom between now and year-end. Conservatives shouldn’t trash it.

I’m aiming this thought especially at many of my conservative friends who seem to be trashing the improving economic outlook — largely, it would appear, to discredit the Obama administration.

The real point, of course, is that you don’t have to trash what’s going on right now to trash the Administration:

At this point it’s impossible to project a long-lived economic boom, such as we had following the deep recession of the early 1980s. For one thing, tax rates will rise in 2011 for successful earners and investors, quite unlike the Reagan cuts of the 1980s. So it’s possible that entrepreneurs and investors are bringing income, activity, and investment forward into 2010 in order to beat the tax man in 2011. This would artificially boost this year’s economy, stealing from next year’s economy.

Recall that when Hillary Clinton took her Rose Law Firm bonus in December 1992, rather than January 1993, she knew full well that her husband Bill would raise the top tax rate in 1993. So the fourth quarter of 1992 grew at nearly 4.5 percent, but the first quarter of 1993 saw less than 1 percent growth. The temporary growth spurt for all of 1992 was 4.3 percent, but activity dropped to 2.7 percent the following year.

In other words, “Irrational lack-of-suicidal-depression?”  The economy is getting its spending done while it can still afford to?

We won’t know for sure until next year – but the Administration’s sandbagging on numbers for next year indicates they’re both preparing the field for a bad 2011 and wanting to claim that things are “better than expected” in time for the 2011 races.

And – today’s putative “V” notwithstanding – this could turn out pretty bad:

It could happen again in 2010 and 2011. Although the Obamacons deny it, tax-rate incentives matter a lot.

And at some point, monetary policy will tighten, with higher interest rates on top of higher tax rates. That, too, could slow growth markedly next year. And then there’s the dozen tax hikes in the Obamacare health takeover, and a possible VAT attack from Paul Volcker, all of which will work against growth in the out-years.

Clearly, we are not operating a supply-side, free-market model today. What I wish for is sound money and lower tax rates, which would promote sustainable economic growth. Instead, we’re getting easier money and higher tax rates, which could mean a temporary boom today and disappointingly slow growth after that.

There is one big hope, here:

But then again, who knows? Maybe the tea-party revolution overturns the obstacles to future growth and the boom is sustained. Free-market populism and a return to Reaganism, along with an anti-federal-spending coalition that is the most powerful force in politics today, could right the economic ship.

That’s the big question; does the American people have the attention span to spend 2-6 years to amputate the tentacles the Obama Administration is shooting into the economy?

This entry was posted by by Mitch Berg on Tuesday, April 13th, 2010 at 7:19 am and is filed under Capitalism v Socialism. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.