The 4 percent solution - Jeb is right

Jeb Is Right about 4 percent growth and the whole GOP should back it from Larry Kudlow at Kudlow and Company

Meet Mr. Lawrence (Larry) Kudlow

“There is not a reason in the world why we cannot grow at a rate of 4 percent a year.” That’s what Jeb Bush said when he officially announced his presidential run in Miami last week. And right off the bat, most economists trashed the idea.

“It can’t happen and it’s never happened.” “Productivity is too low.” “The labor force is growing too slowly.” “Secular stagnation.”

They don’t call it the gloomy science for nothing.

But wait a minute. We have experienced relatively long periods of 4 percent or more economic growth. Following the Kennedy tax cuts, the economy averaged 5.2 percent yearly growth between 1963 and 1969. After the Reagan tax rates fully went into effect, alongside Paul Volcker’s conquering of inflation, the economy grew at 4.5 percent annually between 1982 and 1989. These were the “seven fat years,” so named by former Wall Street Journal editor Robert Bartley. And between 1994 and 1999, the Bill Clinton/Newt Gingrich economy increased 4.3 percent annually, after welfare reform, NAFTA trade, and cap-gains tax relief.

So we’ve got six-year, seven-year, and five-year periods -- all in recent memory -- when the American economy beat 4 percent. And for nearly all the post-World War II period, dating from 1947 to 2007 (before the meltdown), the U.S. economy actually grew at 3.4 percent annually. And 3.4 percent is not so far from 4 percent. It’s maybe only a few pro-growth policy changes away. Why wouldn’t we try?

So Jeb Bush’s 4 percent target is both aspirational and doable. It sets an important policy marker for the coming election. The whole GOP should adopt the target. Let the skeptics scoff. Positive solutions are grounds for optimism. And Americans will respond favorably to this kind of optimistic leadership -- which is sorely lacking today.

Now, the back story to the Jeb Bush 4 percent target starts in Dallas in 2010 at the George W. Bush Institute. Executive director James Glassman, a former undersecretary of state, was casting about for an economic agenda. And one of his board members, Jeb Bush, tossed out a centerpiece goal of 4 percent growth. It stuck.

Columnist and author Amity Shlaes (author of Coolidge and The Forgotten Man) was brought in by the institute to oversee a book called, naturally, The 4% Solution: Unleashing the Economic Growth America Needs. It was published in 2012.

“That term unleash is very important,” Jim Glassman told me, “because it simply means unleash the economy from government constraints.” Ironically, this past spring, a group of supply-siders -- including Art Laffer, Steve Forbes, Steve Moore, and myself -- founded the Committee to Unleash Prosperity. (I don’t think we remembered the original book title. Leave it as a coincidence.)

But the key theme here is our desperate need of a new batch of economic-growth policies. For nearly two decades we have grown at 2 percent yearly. That’s unacceptable.

Put supply-side tax reform at the center of a new growth agenda. Start with slashing the corporate tax, which falls most heavily on middle-class wage earners. Go to full cash expensing and a territorial system that would repatriate overseas profits. On the personal side, flatten the rates, broaden the base, and simplify the code. Make sure it pays more after-tax to work, invest, and take risks. Instead of raising taxes on capital, reduce or abolish investment taxes (which would contribute to a rebound in the soft productivity numbers).

But tax reform is not enough. We need pro-growth immigration reform to boost the lagging growth of the labor force. We need entitlement reform for welfare, food stamps, and disability, so that instead of paying people not to work, we incentivize people to rejoin the labor force.

Trade tariff reduction, now front and center in Washington, would also be important to a pro-growth agenda. Tariff cuts are tax cuts. They make businesses more competitive and provide more export markets. Meanwhile, consumers get the best-quality goods at the lowest prices anywhere.

Improving education with choice, charters, and vouchers is another much-needed pro-growth reform. So is ending Obamacare and replacing it with a privately driven, free-choice health-care system.

Finally, a better, more consistent, and more transparent monetary policy from the Fed that creates a reliable dollar would be a huge pro-growth reform.

Is 4 percent growth really possible? Sure it is. And it would help solve a lot of problems, including poverty, middle-class take-home pay, jobs, budget deficits, and on and on.

I’m not endorsing Mr. Bush at this point. But I am endorsing his 4 percent solution. If decisive policies can unleash innovation and entrepreneurship, get the economy out from under the government’s shackles, and provide a spirit of optimism, then all things are possible.

The whole history of America tells me so. Don’t tell me it can’t be done.

_____________________________

Become a Truth Serum Partner Now

Things to come for electricity consumers

From the files of Marita Noon at Energy Makes America Great, Inc.

Meet Marita Noon

One year ago, Gina McCarthy, Environmental Protection Agency (EPA) Administrator, announced the controversial centerpiece of the Obama Administration’s climate change legacy: the Clean Power Plan (CPP). The rule is slated for finalization this summer.

Unions have protested against it. The North American Electric Reliability Corporation, which is the international regulatory body devoted to ensuring outage-free electric service for Canada, the U.S., and parts of Mexico, as highlighted in a recent study, believes it risks the reliability of the grid. States, encouraged by Majority Leader Senator Mitch McConnell, are boycotting it.

Yet, the EPA is pushing ahead, touting the plan’s built-in flexibility for individual states in devising a compliance plan—uniquely suited to each specific state. If states, as McConnell advocates, refuse to comply, the EPA will impose a Federal Implementation Plan (FIP).

While no one knows what the final plan will be, we can be sure that, at the very least, it aims to severely reduce coal-fueled power generation and dramatically increase the implementation of renewables such as wind and solar. Industry experts expect the CPP will possibly force the premature closure of hundreds of coal-fueled power plants—and that, alone, without factoring in the higher-cost renewables, will raise costs to all consumers.

The anti-fossil fuel movement would like us to believe we are just replacing one power source with another. The problem, however, is far bigger.

After attending a recent workshop at the Federal Energy Regulatory Commission (FERC), Phillip A. Wallach, a Fellow in Governance Studies at the Brookings Institute, wrote a report titled:

The confounding complexities of the Clean Power Plan—reliability concerns aired at FERC. In it, Wallach addresses the technical problems that the CPP will have to overcome—which he calls “staggering.” He, then points out that “the interplay of federal laws set off by the CPP is enough to make one’s head spin.” He continues: “It can take a remarkable 12-14 years to site a new high-voltage transmission line. Unless federal regulators (and possibly Congress) somehow facilitate streamlined development, it is hard to see how states will be able to achieve big emissions reductions in time to meet the first compliance goals in 2020. Amidst this cacophony of legal requirements, states are not currently able to plan for compliance with any confidence.”

Wallach’s predictions about the “complex, EPA-mandated process of energy sector transformation” are hypothetical, but totally believable—especially given the real-world example of New Mexico’s ongoing experience.

__________________________________

In New Mexico’s Four Corners region, negotiations regarding bringing the San Juan Generating Station (SJGS) into compliance with Regional Visibility Rules under the Clean Air Act have been underway for more than a decade—with the bulk of the shenanigans taking place during the past five years.

Note: SJGS’s back and forth with the EPA, the New Mexico Environmental Department (NMED), and anti-fossil groups have been over just one small rule that would improve visibility in wilderness areas and national parks to such a small degree that it would not be detected by the human eye. One can easily imagine how this process would be exacerbated by policy so extensive that it strives to transform the entire energy sector.

You may want to just skim over the following abbreviated timeline as it will “make your head spin”—which is my goal. The reality is far more overwhelming than what I am presenting here. (Thanks to James Crawford for the use of his background research on the SJGS.)

SJGS is a coal-fueled power plant near Farmington, NM that produces 1,683 mega-watts (MW) of electricity through four units. The Public Service Company of New Mexico (PNM) is the majority owner and takes 783 MW for NM customers. The coal for SJGS comes from an adjacent coal mine operated by BHP Billiton. The current contract for coal expires in 2017.

To meet Regional Visibility Rules, the EPA requires that states develop a State Implementation Plan (SIP) that must be approved by the EPA. The NMED submitted its first SIP back in 2003. However, due to evolving regulations, it was never approved.

In 2010, NMED submitted another, revised SIP but had to withdraw it again due to those changing regulations. Once again, in February 2011, NMED submitted a new SIP for EPA approval—which the EPA ruled was invalid because it wasn’t approved by the required 2009 date.

The EPA further decreed that because of sue-and-settle cases brought by Wild Earth Guardians and others, EPA was under court order to implement a FIP by January 2011—which the EPA did finally issue in September 2011 (well after the SIP submittal that wasn’t even considered). Now, SJGS was subject to the dictates in the FIP without any due consideration of the SIP.

The February 2011 SIP called for compliance-achieving emissions controls costing about $80 million. The FIP required a different approach that costs almost $1 billion—or, PNM could close down two perfectly good, reliable generating units with years of life left.

PNM and the NMED filed suit against EPA and, after a couple years of legal wrangling settled on closing the two units and lesser-cost equipment for the two remaining units. In September 2013, NMED submitted a revised SIP, which reflected the agreement, and was approved by EPA a year later.

However, the antis were not happy with this agreement for replacing the lost electricity which, for PNM, would be met by assuming a greater share of the electricity from the two remaining units (remember: PNM didn’t use all that was generated, there are other owners; some plan to leave), constructing a new natural gas peaking plant, bringing in nuclear power from Arizona, and adding 40 MW of solar. They wanted the deficit made up strictly with renewables. (In fact, the antis want all four units closed—this, after PNM already spent $320 million in 2009 on extensive emissions remodeling.)

Just before the October 2014 Public Regulatory Commission’s (PRC) meeting to approve the SIP, environmental groups filed a series of legal blockades that ultimately changed the agreed upon plan.

Finally, in January 2015, the PRC held hearings on the plan almost everyone agreed on—environmentalists protested outside the hearing and demanded the closure of all four units. Addressing their views, Paul Gessing, President of New Mexico’s free-market think tank, the Rio Grande Foundation, said: “the radical anti-modern-society types were out in force … While the PNM plan is not perfect, the radical anti-energy crowd would love nothing more than to completely kill New Mexico’s economy.”

In April, a hearing examiner advised the PRC to reject the plan unless changes were made. His concerns, according to the Associated Press report, were in part because PNM didn’t have a “contract to provide coal for the plant beyond 2017.” The adjacent coal mine is the subject of negotiations between current owner BHP Billiton and several proposed new owners.

On May 5, a deal was struck. Westmoreland Coal Company would purchase the mine and take over operations—resulting in a $300 million savings over the next six years for PNM and its customers. However, the PRC must approve this deal before the sale goes through.

Business leaders, coal miners, power plant workers, and elected officials from the Four Corners area have united in support of the plan that would allow SJGS to continue operating. At a recent Albuquerque City Council meeting, Ray Hagerman, Four Corners Economic Development CEO, “emphasized that 740 jobs—400 coal miners and 340 power plant workers—would be jeopardized if the plan is not approved.” According to the Farmington Daily Times, Hagerman said: “the generating station and the coal mine that feeds it also represent around 2,400 indirect jobs.” Unemployment in the region would double.

Because getting all parties—including minor-percentage owners in SJGS such as the City of Anaheim and the Utah Associated Municipal Power Systems—on board is essential to approval of the deal, the PRC voted, on May 27, to give PNM more time to finalize an ownership restructuring agreement. Sources tell me that many of these co-owners don’t meet regularly and the new July 1 deadline has the potential to scuttle the entire decade-plus procedure.

Hagerman believes: “if the utility supplies regulators with the documentation they need, then approval of the plan is likely.”

PNM spokesman Pahl Shipley, according to the Farmington Daily Times: “reiterated that the revised plan, with new tentative agreements in place, represents ‘the most cost-effective path forward, balancing reliability, affordability and environmental responsibility. The ownership restructuring and coal supply agreements would further increase the cost benefit to customers.’”

While there will be a “cost benefit to customers,” rates will still increase. The PRC hearing officer “warned that the changes spurred by the partial closure of San Juan would result in substantial rate increase for customers over the next 20 years.”

In a recent op-ed in the Albuquerque Journal, Carla Sontag, executive director of the New Mexico Utility Shareholders Alliance, addressed the cost factors: “It is estimated that the shutdown will cost about $5.25 a month for the average residential customer. PNM plans to replace lost power generation with cleaner energy sources and significantly less coal. Those costs will be filed with the PRC later, and that increase would take effect in 2018. … PNM recently filed its first rate increase in almost five years. Beyond the need to maintain system integrity, the biggest driving force behind the increases is environmental initiatives.” Environmental groups acknowledge a 7 percent increase to monthly bills.

So, now we wait.

Will the PRC approve the plan? Will good-paying jobs be saved? Will cost increases be minimized? Will the anti-fossil fuel groups sue? Will New Mexico have enough power for the future?

______________________________

This is a New Mexico story. It is about just one power plant, in a sparsely populated state. It is the story of that power plant, in that state, trying to meet just one EPA regulation dealing with regional visibility—even though improvements will not be detectable to the human eye. (The American Lung Association’s 2015 State of the Air report just ranked Farmington number 1 for cleanest metropolitan areas in the country for 24-hour particle pollution and number 2 for cleanest metropolitan areas in the country for annual particle pollution.)

Under the CPP, similar scenarios will have to take place in every state, over every coal-fueled power plant—not with just one regulation, but with a massive plan designed to transform the entire energy sector. The CPP, which is not yet final, is supposed to be implemented in less than five years. This New Mexico story is a taste of what is to come: years of legal wrangling, cost increases for consumers, loss of good-paying jobs—for reductions in CO2 emissions that will make no temperature difference on a global scale.

It makes my head spin.

_____________________________

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy.

Marita hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column.

_____________________________

Become a Truth Serum Partner Now

A Hillary challenge: Return to JFK growth agenda

But it looks like she’s going the wrong way from Lawrence (Larry) Kudlow at Kudlow and Company

Visit the Larry Kudlow Website

Meet Mr. Larry Kudlow

When John F. Kennedy was elected president he surprised both Democrats and Republicans with a bold tax-cutting plan to solve the problem of a moribund economy. He had campaigned on “getting the country moving again,” and had set a 5 percent economic-growth target, but he never specified how he was going to do it. Then he opened everyone’s eyes with a plan to lower marginal tax rates across-the-board.

JFK’s advisors proposed a traditional Democratic approach: temporary targeted tax cuts. But Kennedy insisted on lower tax rates that would create much higher rewards for work, saving, and investment. And Kennedy argued that his lower tax-rate incentives would so expand the economy that after a few years his tax cuts would pay for themselves.

He was right.

After his plan went into action, the economy boomed and revenues went up. And there was no inflation because he insisted on a sound dollar that maintained the post-war link to gold. Later on, Richard Nixon, Gerald Ford, and Jimmy Carter would throw out JFK’s growth model piece by piece. The economic results were disastrous. But Ronald Reagan turned back to the Kennedy approach in the 1980s and thus launched a 25-year prosperity.

So why am I thinking so much about the JFK tax cuts these days? Two reasons: Economic historian Brian Domitrovic and I are writing a book on this. And Hillary Clinton just announced she’s running for president -- and I have a challenge for her.

Hillary’s smart, hard-working, and experienced, and she’s not going to be anybody’s pushover. So I challenge her to think outside today’s liberal-left Democratic orthodoxy and return to a true, JFK-style growth agenda.

Today’s greatest domestic challenge is to restore economic growth. The trend line used to be near 3.5 percent. Now it’s barely 2 percent. This is not the American way.

But it’s my contention that if Mrs. Clinton chose pro-growth policies such as her husband (working with Newt Gingrich) implemented -- reduced investment-tax rates, rollbacks of unnecessary regulations, budget restraint -- she could shock and electrify the country.

Would she do it? Would she attempt to bring back the JFK/Bill Clinton Democrats and stop the Bill de Blasio/Elizabeth Warren Sandinista Democrats?

Unfortunately, it doesn’t look good.

It’s early in the campaign, and Hillary’s already talking about taxing the rich, punishing CEOs, redistributing income, regulating more, and spending more. Her buzz terms are women’s pay, parental leave, care-giving leave, and paid sick days. As AEI columnist Jim Pethokoukis writes, liberalism is not exhausted.

Already, Hillary is going wrong. And she will be proven wrong if this is her agenda.

Take the idea of a growing CEO-employee pay gap. It’s not true. The AFL-CIO has created a phony argument, taking the pay of 350 CEOs from America’s biggest companies, comparing that to average worker wages, and coming up with an executive pay gap of 333-1. According to AEI scholar Mark Perry, the AFL-CIO is cherry-picking numbers. Bureau of Labor Statistics data show that the average salary of roughly 250,000 U.S. CEOs is a modest $200,000, which puts the so-called executive pay gap at only 4-1.

Then there’s the women’s pay gap -- another big Hillary theme. It’s a 77-cents-on-the-dollar myth. If you account for key factors such as education, choice of industry, hours worked, experience, and career interruptions, the difference between average male and female wages shrinks to 5-to-7 cents on the dollar, according to Romina Boccia of the Heritage Foundation.

Diana Furchtgott-Roth of the Manhattan Institute adds that women today earn 57 percent of bachelor’s degrees, 50 percent of master’s degrees, 51 percent of doctorates, and nearly half of law degrees. Meanwhile the unemployment rate of adult women (4.9 percent) is lower than that for adult men (5.1 percent).

And Mark Perry argues that if you factor in fatal occupational injuries, such as for logging, roofing, and mining, all male-dominated fields, there is no female pay-equity difference at all.

As for taxing rich people, the Wall Street Journal reports that the top 20 percent of earners pay 84 percent of income taxes, and that the 3 million in the top 1 percent, who make about 17 percent of total U.S. income, pay nearly half the income tax. Meanwhile, the bottom two-fifths of earners are net tax recipients.

These are just a few examples of the mistaken numbers and policies that Hillary is promoting. There’s nothing pro-growth in this. Instead of JFK, Hillary’s going third-term Obama. And that means America will remain in its economic quagmire if she is elected.

It’s a pity. Hillary has a great opportunity to provide new leadership and energy to the country and the Democratic party. I’m offering her a challenge, but it looks like she won’t take it. That’s one key reason why she will be defeated in November 2016.

______________________________________________

Become a Truth Serum Partner Now

King dollar - Naysayer nonsense

A strong greenback is a very good thing indeed from Lawrence (Larry) Kudlow at Kudlow and Company

Click Here to Visit the Kudlow Website

Visit Larry Kudlow

Despite the conventional criticisms of the financial commentariat, both theory and evidence argue for a strong, stable, and reliable currency as a crucial channel to prosperity. Just think of the reverse: If you could devalue your way into prosperity, Argentina would be the center of the world economy.

But lately, a loud and growing chorus is blaming the rising U.S. greenback for just about everything. “Multinational profits will suffer.” “Imports and trade deficits will hammer the economy.” “Stocks will fall.” “Recession looms.”

Wall Street insists that King Dollar is bad. It is wrong.

This falsehood is a near cousin to the idea that falling energy prices will wreck the economy. Also wrong. Energy will slow, but the rest of the economy will benefit.

In fact, the rising dollar, a key factor in the oil-price plunge, provides a double tax cut for the economy. Both will also promote world recovery.

Over the past year, the dollar has appreciated about 20 percent. So what happened? The S&P 500 is up 11 percent and the American economy has actually improved. While the underlying economic-growth rate is still a soft 2.5 percent, real GDP was up 3.5 percent or more in four of the last six quarters. And nonfarm payroll jobs have increased 3.3 million in the past 12 months, much better than the 2.2 million jobs gain of the prior period.

And the inflation rate is nil. The consumer price deflator is flat. Import prices for the 12 months ending in February are down 9.4 percent. And finished-goods producer prices have slumped 3.4 percent.

What’s happening? The dollar is up and oil prices are down. The economy, jobs, and stocks are up, and inflation is down.

How could this be bad?

So let me dust off some of my golden oldies: King Dollar is a very good thing. King Dollar has far-reaching benefits that way offset any temporary small costs. King Dollar is pro-growth.

And if investors gain confidence that King Dollar will stay firm, global capital will flow into U.S. dollar markets. That means, according to investment strategist Jason Trennert, a strengthening dollar pays for a bit lower profits with stock-multiple expansion.

Modest currency-conversion costs of U.S. corporate income earned abroad may temporarily translate into slower profits -- at least in GAAP-accounting terms. But this is small stuff. Actually, most of that money stays overseas to benefit from lower taxes. And many companies, especially technology firms, have demonstrated shrewd hedging acumen to take advantage of the King Dollar trend.

Anyway, as a result of the strong dollar, every import that American companies use for their products -- be it autos, computers, or mobile phones -- is vastly cheaper. And when products are finished in the USA, figuring in lower domestic-wage demands and interest rates, cheaper U.S. products will lead to stronger exports because of a sound dollar.

Remember Japan in the 1970s and ’80s, when the yen was running over 300 to the dollar (today it’s 120) and the country was a massive export machine? There you go. A strong currency leads to cheap exports from lower interest rates, zero inflation, and strong competitiveness.

In fact, the King Dollar/plunging-energy-price combination has substantially reduced the cost structure of American businesses, making them more competitive. And at the same time, the buying power of consumer incomes is significantly increased as prices for energy, food, and virtually all goods and services have dropped.

And as economic editor John Tamny puts it, “When investors invest, they’re hoping to get back the dollars they invested, plus an additional dollar return.” Tomorrow’s dollar should be worth the same as today’s. That’s the confidence value of currency stability.

How about some more history?

Between 1982 and 2000, as the dollar increased 178 percent, King Dollar (with lower tax rates and lighter regulation) presided over a stock market gain of 1,099 percent, a jobs increase near 40 million, and 3.5 percent average annual real GDP.

During the recent dollar decline period, from 2001 to 2011, as the dollar fell 25 percent, jobs increased a paltry 2.3 million, real GDP growth averaged less than 2 percent, and the S&P gained a measly 15 percent.

And don’t forget the dreadful 1970s: The dollar plunged, the economy suffered through years of stagflation, and the real value of stocks fell significantly.

Yes, the world’s currency system is in disarray. Europe and Japan are depreciating (won’t work) and the U.S. is appreciating (nurturing growth). Yes, we need a new monetary system. Yes, we need better currency and policy coordination.

In any event, as the Fed slows its accommodation, and while pro-growth corporate tax reform is in the air, King Dollar is on the rise.

Stop whining, folks. It’s a good thing.

______________________________________________

Become a Truth Serum Partner Now