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Washington Goes Supply-Side

A Commentary By Lawrence Kudlow

Saturday, January 08, 2011

"Stop the bad stuff" is what John Boehner told a bunch of us at breakfast a few weeks before the election. That's how he defined the GOP mission. Now he's speaker.

And now there's an opportunity for both ends of Pennsylvania Avenue to move in the direction of a supply-side economic growth model to reduce chronic unemployment and really get the economy moving again.

You can't govern from the House alone. Boehner knows that. But he also knows that you can  stop the redistribution, the big spending, the overregulation, the tax hikes, and the war against business and investors.

The economy is picking up this new political vibe. Economic growth has shifted to 4 percent from 2 percent (even though the Fed hardly acknowledges this). And just in the last six weeks, indicators of better jobs and business confidence have been springing up everywhere.

The economic upturn probably started late last summer, but it has picked up steam since the elections. Car sales, ISMs, small-business confidence, 297,000 ADP private jobs and brisk holiday retail sales -- the indicators all look good.

And what's helping light things up? Low-tax-rate clarity. Stopping the pork-barrel, earmarked, omnibus spending bill. And now the potential undermining of Obamacare. Plus, the hope for broad-based spending limits, and even a corporate tax cut touted by Obama and hopefully the new House Republicans. Trust but verify.  And right now I'm willing to trust.

If Obamanomics has been replaced by Tea Party Reaganomics 2.0, the revived Gipper approach is at heart an economic growth  message -- operating through free-markets, not government. And it's not simply budget bean-counting either.

Cut-and-grow seems to be the new House GOP mantra. And that's fine, as long as the cut part includes corporate tax cuts to grow the economy and complement the hoped-for spending cuts. Growth is essential to the GOP political future, as well as the nation's health and wealth.

Over at the other end of Pennsylvania Avenue, Barack Obama won't be the first liberal to move in the direction of supply-side growth incentives, especially lower tax rates. Think John F. Kennedy and Bill Clinton. Then and now, the motives are undoubtedly political. Fine. It's the results that count.

Just today, the White House announced that Obama will speak before the Chamber of Commerce in order to improve relations with business. This is good. Next thing you know he'll be speaking at a tea party event.

And it looks like the president is Clintonizing his White House staff. He's probably bringing in businessman and former Clinton Commerce secretary Bill Daley to be chief of staff. And he might pick former Clinton economic chief Gene Sperling to replace Larry Summers.

Bill Clinton was a liberal who got mugged in the midterm elections, and he changed his stripes on the economy and taxes. And now we may be seeing Obama make the same transformation. But I repeat my own mantra: trust but verify.

And there's no smooth sailing ahead for the GOP. They'll have to fight tooth and nail over the EPA carbon assault and the Obamacare health takeover if they're to stop these monumental economy and job killers.

But stocks and the dollar are rising, and gold is falling. These markets are affirming the shift in politics and policy. We are moving toward the supply-side. That's good. Haven't been there in a while.

COPYRIGHT 2011 CREATORS SYNDICATE INC.

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