WASHINGTON, March 4, 2016 — Donald Trump mentioned the name Larry Kudlow during the last presidential debate. While Trump has not offered complete specifics on his economic program, he indicated that Kudlow favored his tax plan over any of the other candidates. If elected, it sounds like Trump will seek Kudlow’s advice.
That’s reassuring to Republicans who believe that Kudlow’s policy prescriptions will bring the economy roaring back to life.
It has been more than a decade since America has seen solid economic growth. The result has been stagnant wages, lost opportunity, and anger that fuels support for candidates like Trump and Democrat Bernie Sanders.
The Obama recovery has produced average annual growth at just over 2 percent. After the more severe 1981 recession, annual economic growth averaged more than 4 percent. The impact of that 2 percent difference on the average American was pointed out by Hoover Institution fellow John Cochrane.
From 1950 to 2000, economic growth averaged 3.5 percent annually, which raised per capita income from $16,000 to more than $50,000. Cochrane notes that if growth had averaged just 2 percent for that period, income would have increased from $16,000 to about $23,000.
The establishment fears uncertainty about exactly what Trump will do with economic policy. He has proposed some things that sound promising, like lower tax rates, and others that are just scary, like imposing 45 percent tariffs on some imported goods.
While the establishment rushes to try to override the will of Republican voters by derailing the Trump campaign, he moves forward and does give us a hint of how he would set policy. He reminds us that he is first a businessperson. “I’m not a politician,” he often says.
As a businessperson and a master negotiator, Trump knows that he must set policy that is favorable to the majority of Americans even if it is contrary to the strict, very conservative views of the Republican establishment. To be successful in business Trump knows that the key is to give consumers exactly what they want at exactly the price they are willing to pay.
While many in the established Republican Party are strict conservatives, many are not. Those newly attracted to the Republican Party tend to be economically conservative but socially moderate, which explains why Trump’s position on Planned Parenthood is so appealing.
He wants to stop them from illegally selling body parts from aborted fetuses, but he does not want to stop all funding since Planned Parenthood does many things that improve women’s health. This view seems to be consistent with the majority.
On the issue of economic policy, his alliance with Larry Kudlow will be pleasing to conservatives. Kudlow is a free market, conservative economist who worked in the Office of Management and Budget from 1981 to 1985 during the Reagan Administration.
Kudlow favors low tax rates, flatter taxes, less government spending and more freedom in the marketplace. He will eventually educate Trump on the merits of free trade and how tariffs can be disastrous for the US economy. He will explain why Trump cannot bring back manufacturing jobs from overseas, simply by showing that doing so will result in higher prices for all consumers and a decline in the standard of living. A $600 smartphone for instance, would cost almost $1,800 if all of the smartphone components were made in the US and the phone was assembled in the US.
Besides, Kudlow will note, setting policy which results in increasing economic growth to the 4% range will provide more new jobs at higher wages. The growth will also supply jobs for the future rather than trying to bring back jobs from the past.
Within the next couple of weeks we will likely know if Donald Trump will be the Republican candidate for President. If he is, the Republican Party will have to embrace Trump and work with him to develop a party platform that is acceptable to the party’s base while appealing to a majority of Americans. Trump can negotiate that deal, especially when he surrounds himself with people like Larry Kudlow.