It’s Time To Restore Prosperity in America

Let’s begin with perhaps the most famous line ever written in the English language: “They are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” Thomas Jefferson and the Founders knew what they were talking about. That famous phrase is not only about prosperity, but as friends and devotees of Adam Smith, they were thinking about the economy and making people happy. Smith was the free-market rock star who led the Scottish enlightenment. Jefferson, Franklin, and others knew him and communicated with him regularly. His “The Wealth of Nations” was published in 1776. Ring a bell? So was the Declaration of Independence. In some sense the American revolution itself was an economic revolt against the oppressive tax policies of King George III. Free people want opportunities to better themselves, to climb the ladders of success, to achieve and create, to support their families and their communities. That’s what free-market capitalism is about. That’s what economic growth should be about. That’s what prosperity means. I will say flatly: We do not have enough prosperity in America. Certainly not during the past year, when we’ve suffered through inflationary recession. Yet it’s a longer-term story, unfortunately. It dates back through the past few decades. A couple of numbers for modern times: After World War II, between 1947 and the year 2000 — a period of more than 50 years — the American economy adjusted for inflation grew by more than 3.5 percent per year on average. A remarkable achievement. However, since the year 2000 our economy has stagnated to an annual growth rate of less than 2 percent. That’s stagnation. It’s not the American way. It’s not the kind of long-term prosperity that America used to be known for. One question is what’s gone wrong, and how to fix it. If that post-war trend line of 3.5 percent growth had been maintained the last 20 years, our economy would be an incredible $9 trillion higher today, and if we kept the 3.5 percent growth rate over the next 10 years, we’d be adding another $8.5 trillion in GDP. So the difference in round numbers is almost $20 trillion of lost economic output. Average families in the U.S. would probably be $75,000 wealthier in income for investment, for retirement, for the children and their education, for their grandchildren, and for a better life. The stakes are very high — as you can see. It’s not all about numbers, but these numbers show us how far short we are from what American economic potential should be. It’s hard to pinpoint just one specific cause of the American economic shortfall, but I would posit the view that the federal government has grown too large. It spends too much, taxes and regulates too much, and it inflates too much. As an aside, we haven’t had much king dollar currency confidence since the early 1970s, when the U.S. left the gold exchange standard. The inflation rate for 25 years after the war was about 2.5 percent, but over the past half-century inflation has nearly doubled to more than 4 percent — and of course in the past two years, it’s nearly doubled again. That’s a huge part of the problem. What about the size of the federal government? Well, during the high-growth period, federal spending as a share of the economy averaged 18.9 percent, but in the last 22 years it’s moved up to 21.6 percent and right now it stands at nearly 24 percent. We’re moving in the wrong direction. In the last three years, government spending at all levels actually averaged just more than 44 percent of GDP. That sounds like big-government socialism to me.In fact, a recent TIPP-Insights poll is a shocker: by 51 percent to 31 percent, Americans agree the U.S. is moving toward socialism. They don’t really like it. By 57 percent to 35 percent, Americans are unwilling to pay higher taxes to support more social programs, but the reality is, in recent decades we have been drifting toward socialism, to use Kevin Hassett’s phrase, and growth and prosperity have suffered.I argue we need less government and more economic freedom. We need to spend less, tax less, and regulate less. We need to remove government barriers to growth. As Art Laffer has told us so many times, “Tax something more you get less of it. Tax something less, you get more of it.” The next few years we may be fighting recession, and that’s why spending, taxing, and regulating should be curbed significantly. Let’s remove government barriers to production and investment. Let’s make typical blue-collar families wealthier. Let’s make the federal government a bit poorer. Let’s restore workfare and work requirements, so able-bodied people receiving generous federal benefits will go back to work. Work is the heart and soul of the American economy. People love a job well done. Government incentives not to work have been a body blow to the economy and to families. You know, this free-market model has worked in the past. Let’s go back in time: Ronald Reagan slashed tax rates and when he left Washington, there were only two tax brackets. Take a deep breath: They were 28 percent and 15 percent — and that was it. Did it work? Between 1982 and 1989, the U.S. economy increased at a 5.1 percent annual rate, after the Reagan revolution. Peace through strength was the Gipper’s goal. He reignited the economy and Soviet communism crumbled. There’s more evidence. Democrat JFK slashed tax rates. Did it work? Well, between 1962 and 1969, the U.S. economy — adjusted for inflation — grew at a 5.4 percent annual rate. Please permit me one more step back into history. In the 1920s — the Jazz Age — Warren Harding, Calvin Coolidge, and Andrew Mellon slashed tax rates, slashed government spending, and slashed the federal debt burden as well. Think of it After the terrible post-World War I deep recession with high inflation, free-market policies launched an unbelievable boom. According to a new book by historian Ryan S. Walters, between 1922 and 1927 the economy averaged 7 percent real growth. Despite massive tax cuts that fueled the growth, federal revenue increased, spending was tightly controlled, yearly government budget surpluses emerged, and one-third of the national debt was paid off. The Bidens have moved in the opposite direction. They never talk about growth or prosperity. Climate, race, social welfare — these are their big themes, and the poor results show. In just his first year alone, President Biden’s war against fossil fuels and his war against business in general generated an unbelievable $200 billion increase in net regulatory costs.His central-planning regulatory octopus has gotten even worse in his second year, with no end in sight. President Trump slashed regulations and gave us an energy independence boom and the biggest corporate tax cut in history. So for several years we had a prosperity interlude. But the Bidens obsessively tried to reverse Mr. Trump’s policy successes. I am optimistic that the new Republican Congress can begin to unwind Mr. Biden’s big-government socialism, but it will not be easy and it will not be immediate. Putting all the legislative proposals aside for a moment, we have learned from history that prosperity matters. It’s crucial to family progress and national defense security, and the way to restore prosperity is to reawaken the successful history of economic freedom. We know what works. Now let’s get to it. From Mr. Kudlow’s broadcast on Fox Business News.

It’s Time To Restore Prosperity in America

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