Jon Taplin’s Blog

Someone should tell Larry Kudlow to stick a sock in it. This is a guy who holds himself out to be an economic genius. Let’s assume you took Larry’s advice last September that the credit crisis was over. Then you put your money in the stock of one of the less exposed banks (Bank Of America), figuring old “supply side Larry” knew what he was talking about. You would be one pissed off investor:

So today Kudlow is proscribing his solution for the coming Recession (which he denied was even possible two weeks ago)–more tax cuts for his Wall Street billionaire friends. Without further tax cuts on capital gains and dividends, he contends we will have no capital to finance innovation:

Without new capital to finance new businesses, job creation and consumers will lag further and further behind. It must pay, after-tax, to take risks and invest. New capital is essential for technology and productivity. This is the source of real wage gains. And this is why tax penalties on capital should be eliminated.

This is just patent nonsense. In fact up until a couple of months ago, smart economists like the Fed’s Bernanke were worried about a “global savings glut”. Slate’s Daniel Gross explains Bernanke’s reasoning:

Bernanke identified two main sources. First, there are the rich industrialized countries with graying populations and slow growth, where people need to save more for retirement and yet can’t find attractive domestic investment opportunities (think Old Europe and Japan). A bigger and more powerful source of excess savings, however, is found in newly industrializing countries like China. As Bernanke notes, in the past decade the developing world has metamorphosed “from a net user to a net supplier of funds to international capital markets.”

Obviously there is no lack of capital in the world. The problem is that most countries are net savers, except the U.S.. When Merrill Lynch, Citibank, Bear Stearns and all the other distressed banks need new capital, where do they go? Asia or the PetroStates of the Mid East. Kudlow supply side ideas were once labeled “Voodoo Economics” by George H.W. Bush, but our current business genius of a President has assured Larry that he’s a born again supply sider. OMG