Economic pessimists
have had a field day ever since GDP was reported a week ago at
only 1.1 percent for the fourth quarter. But the latest jobs report
released on Friday blew them out of the water. Including revisions,
January employment is a huge 317,000 above the initial December
level. In fact, over the past three months, non-farm payrolls
have increased an average 229,000 per month. That’s explosive.
We’re on pace for another 2 million jobs in 2006, following
gains of 2 million in 2004 and 2005. Wages are also picking up
steam, and with gasoline prices falling, consumer purchasing power
and retail sales are climbing.
So the question for
the Bush Administration is this: What are you waiting for?
As soon as
the breakout employment news was released, Salesman-in-Chief George
W. Bush should have been in the Rose Garden giving it air time.
He should have declared that jobs have continued to grow big time
while the unemployment rate has fallen -- all the way down to
4.7 percent. He then could have used this optimistic data to build
his already strong case for extending the tax cuts on dividends
and capital gains. These 2003 tax cuts, along with lower income
taxes, are a good reason why jobs numbers are strong and the economy
is prosperous.
What are
they waiting for?
In his State
of the Union message, Bush noted that recent tax relief has left
$880 billion in the hands of American workers, investors, small
businesses, and families -- money that has been used to help produce
more than four years of uninterrupted economic growth. People
will spend their money more wisely than government will.
Bush ought to keep
this drumbeat up. On Friday, the drums were deafeningly silent.
The latest
numbers from the Congressional Budget Office show a clear supply-side
effect where lower tax rates and higher after-tax rewards for
work and investment have expanded the economy and created a huge
surge of tax collections. Dan Clifton of the American Shareholders
Association first reported that actual revenues from the lower
capital-gains tax rate came in $46 billion higher over the last
three fiscal years and $62 billion higher over the last three
calendar years than congressional estimates. The Laffer curve
is alive and well.
The naysayers
are always quick to pounce on low-growth glitches in the economy,
such as the Hurricane Katrina-induced GDP report for the fourth
quarter. But a glitch is just a glitch. The greater reality is
that the economy is growing nicely, jobs are being created, wages
are rising, profits are strong, and productivity trends are excellent.
Good news
is all over this still very new year. The “January effect”
-- the traditional January stock market rally that follows the
traditional December sell-off -- was the best since 1999. Same-store
retail sales in January beat all projections with a 5.2 percent
yearly gain. Car sales have had a nice comeback. And consumer
confidence has now increased for three straight months.
Even wages
are coming online. According to the Bureau of Labor Statistics,
average weekly earnings are up 3.6 percent year-on-year. That’s
the best since 2000. Then there’s the personal-income proxy
derived from hours worked multiplied by wages. This measure registered
a 6 percent gain in the year ending January, way up from 4.5 percent
last October. With retail gasoline prices coming down 23 percent
last fall, from $3.07 to $2.36, real wages are on the rise.
Pessimists
can obsess about a mild housing slowdown, but expanding businesses
and jobs are throwing off plenty of income. If only the president
would jump on all this positive economic data, the pessimists
would be exposed as data-deprived, hyperbolic, and just plain
wrong. More, by truly seizing the economic moment, he would strengthen
his case for tax-cut extensions. Right now, he doesn’t yet
have the votes in the Senate. The battle must be joined.
Additionally,
the Bush administration has just requested another $70 billion
for the battlefronts of Iraq and Afghanistan, another $18 billion
for Gulf Coast recovery, and $2.3 billion in case the Avian Flu
epidemic ever arrives. This is essential spending, but it is also
essential that budget makers dig deep for spending offsets. A
$400 billion budget-deficit estimate will politically damage the
tax-cut case. New House Majority Leader John Boehner must really
get moving on the road to budget reform.
If there
is no turnaround, overspending and headline deficits will politically
crowd out the vital tax-cut extensions that are so necessary to
investor, business, and consumer confidence.
The supply-side economic
growth plan is working. But the governing GOP coalition must close
the circle on budget restraint. Economic growth and Republican
political longevity depend on it. The president must do his part
by turning up the volume on the good-news economic data.
Lawrence
Kudlow is a former Reagan economic advisor, a syndicated columnist,
and the co-host of CNBC's Kudlow
& Company. Visit
his blog, Kudlow's Money
Politics.
