The American Economy Continues To Expand

Is "R" for recession? Or is "R" for right, as in George Bush being right about us being in a slowdown, but not a recession? Larry Kudlow weighs in, and says so far Bush is right, and all the other economic forecasters are wrong!

Interesting — isn’t it? — just how durable and resilient our low-tax, free-market, capitalist economy truly is. Hit by soaring food and energy prices, a bad housing downturn, and a Wall Street credit crunch, the economy continues to expand, albeit slowly.

The bad news bears always focus on areas of economic weakness. But parts of the economy are doing splendidly. This includes agriculture, energy, export firms operating in the global boom, and all manner of private-sector business, professional, health, and education services. Incidentally, these are the exact sectors producing the highest-paying jobs. What’s more, at 154 million employed, the civilian labor force just hit a new all-time high.

Another significant data point: Corporate profits are outperforming all expectations. With three quarters of the S&P 500 companies reporting, profits outside the banking system have increased 10 percent over a year ago.

Profits are a dirty word on the campaign trail. Hillary and Obama, who blame American corporations for most every problem under the sun, want to tax profits heavily. With ExxonMobil and other oil companies reporting strong earnings, Democrats are now calling for a windfall profits tax. Last time we tried that — under Jimmy Carter — foreign energy imports rose 8 to 16 percent and domestic energy production fell 3 to 6 percent. (This according top a study by the Congressional Research Service.)

A Senate Republican group led by Pete Domenici has a much better idea: Expand drilling and production both offshore and in Alaska. Domenici’s group estimates this would produce up to 24 billion barrels of oil, enough to cover five years of U.S. energy use without a single import.

It’s a vastly better plan than penalizing American businesses and their profits, which are the mother’s milk of stocks, jobs, and the economy. Senator John McCain gets this. His plan to slash the corporate tax rate is the single-best proposal on the campaign trail. McCain also understands that you don’t raise taxes during a slowdown. Nor do you raise taxes when the economy is bouncing back.

Right now, optimism seems to be returning to the stock market. None other than the New York Times ran a front-page story stating, “Wall Street Sees Signs of Sunshine.” That’s like the Daily Worker announcing the end of socialism. But let’s credit the old Gray Lady with reading the tea leaves right.

As a result of mighty efforts by the Federal Reserve, the credit crunch is easing and bond-market risk spreads are falling. The stock market just finished its best April since 2003, with the Dow running above 13,000. The Fed has come to the end of its rate-cutting cycle, and the U.S. greenback is starting to gain strength. With the dollar turning stronger, gold and other inflation signals are coming down.

Even tax rebates for working people will help a bit, although I’m no fan of temporary tax cuts. The much better idea is to make President Bush’s investment tax cuts permanent. McCain is for it. Hill-Bama is against it.

Whose call is it going to be?

Recessions and slowdowns come and go in the free-market economy. But even so, it looks like President Bush — against all odds — may have the last laugh. If he’s right on his no-recession prediction, Sen. McCain and Republicans down the electoral ladder are likely to benefit.