Union Hypocrisy

A few weeks ago I talked about the height of hypocrisy by public and private labor unions. They are trying to use their muscle -- one might even call it blackmail -- to stop President Bush's personal savings accounts.

They have threatened investment managers with a pullout of union money if those managers support private accounts. It is blackmail. It is hypocrisy.

Public and private pension funds have roughly 60 percent of their $2 trillion of assets invested in stocks. So, while they reap the retirement benefits of the magic of market compounding at a near 7 percent adjusted rate, they would deny this comfortable retirement opportunity to all the rest of us.

Here's some more hypocrisy: A recent news story reports that the pension funds of New Jersey and New York City are investing more heavily in private equity portfolio deals. As a free market man, I say fine. But there is even greater risk than in stocks.

Remember, these are the folks who compare the stock market to gambling or slot machines. Go figure. While they extend risk to feather their nest egg, they deny the same opportunity to the rest of the population. It is the height of hypocrisy.

Every person who sees a union ad opposing private savings accounts should understand the hypocrisy of our nation's unions. It's more than misinformation. It's an outrage.

Golden Cone

Today's inflation report in the personal spending release showed 2.3 percent over the past twelve months for the overall PCE deflator, with 1.6 percent for the core measure. Obviously these are excellent numbers. If they held up for the next ten or twenty years we'd all be very happy. Interest rates would stay relatively low. The economy would prosper. (Dare we think that a flat tax in the low to mid-20 percent zone might be part of the outlook? If East Europe can do it, why not America?)

Some of my supply-side colleagues believe that today's $429 gold price reading suggests that the Fed has created excess money. So the Fed has weakened greenback value such that inflation is sure to increase. Perhaps to 3 percent or slightly more. Not the worst outcome in the world, but admittedly a 2 percent inflation rate would be better.

Then again, what is the "right" price of gold that is consistent with near zero inflation of roughly 2 percent? No one really knows for sure.

Let me be clear. I continue to believe that gold is a monetary value signal. But one of the reasons I've stayed with a 2 percent inflation zone forecast is that I don't believe gold is too high. Indexes of gold stocks have traded poorly. If the yellow metal moved clearly through $450 on its way to $500, then I'd throw in the towel and anticipate 3 percent or more inflation. But I don't see it yet.

Here's an interesting chart that has served me well in past years. It indexes gold to 1985's value of $320. Then it extrapolates three scenarios for the rate of increase in gold that might conceivably chart the rate of increase for inflation.




Note that $429 gold today is midway between the 1 percent and 2 percent trend lines. Actually, gold is just about perfectly in line with the 1.6 percent core PCE deflator reading. A coincidence?

According to this model, gold would have to jump all the way to $578 to register a 3 percent inflation rate. Or, it could fall back to $391 for a 1 percent inflation reading.

Using this model, the risk of a major inflation breakout is low. It is a dynamic model because it allows for changing real values of gold over time. $400 gold in the late 1980's signals a more powerful inflation impulse than currently.

This is because things change. Tax rates have declined over the past twenty-five years, creating more goods to absorb the existing money supply. Over the past ten years productivity gains have also increased output to absorb excess money. Globalization, meaning the spread of capitalism to China, India, Eastern Europe, and elsewhere, has also produced more goods to absorb the world's money supply (which is still dominated by the volume of dollars).

It is also worth noting that the monetary base, which measures the volume of new dollar creation by the Fed, has been slowing as the central bank is creating fewer new reserves in a manner consistent with a higher target rate.

All these factors are counter-inflationary. I may be dead wrong about all this, but I still believe that the inflation outlook in our 4 percent growth economy, at lower tax-rates, with deregulated markets, outsized productivity, and globalized free trade for goods, services, capital, and labor, is low.

Tonight's Lineup

Tonight on Kudlow & Company, we have:

-- Al Hubbard, head of the National Economic Council, on GDP and the state of the economy

-- The Right Wing, with Amity Shlaes, Star Parker, and Kellyanne Conway

-- a market segment, with Jim Glassman of J.P. Morgan and Stefan Abrams of the Trust Company of the West

-- CNBC's Tyler Mathisen, on his upcoming special "God and Money"

Prosperity on the Supply Side

The supply-side experiment in tax policy continues to succeed. The economy is growing and so are tax collections. An expanding economic pie has put the Laffer curve back in play. Noninflationary growth prospects continue to spread.

The final version of fourth quarter GDP reinforces the view that lower tax rates have greatly spurred economic growth. Over the last six quarters (post-tax cut), the economy grew at a 4.5 percent annualized pace compared to the 2.5 percent pace of the prior six quarters. On a “core” GDP basis (GDP less trade and government), growth has accelerated to 5.6 percent from 3.0 percent.

The “core” GDP measure essentially is the C+I (consumption plus investment) of basic economics. In the fourth quarter, this measure grew by 5.8 percent, a full 2 percentage points higher than the headline 3.8 percent figure.

It is important to note that business investment has been the driving force in “core” GDP growth. Over the past six quarters, business capex (equipment and software in the GDP accounts) has grown at a 15.2 percent annualized pace versus a 1.0 percent pace in the prior six quarters. Consumer spending has ramped up to 3.9 percent from 2.8 percent.

Capital formation has strengthened the foundation for rapid productivity and profits growth while core inflation remains just 2.2 percent.

Profits are the mother’s milk of business and economic growth. Through yearend, after-tax corporate profits were 8.0 percent of GDP, a post-World War II record. The unemployment rate is a low 5.4 percent.

Over the past ten years, the Treasury yield curve spread (the difference between long and short interest rates) has averaged a positive 130 basis points. This was accompanied by 3.3 percent average economic growth and less than 2 percent inflation. Today’s curve is 180 basis points wide, suggesting slightly faster economic growth and only a little more inflation.

Record profits and rapid economic growth are also likely to keep inflation tame. Inflation is caused by too much money chasing too few goods. But more rapid growth produces lower inflation, as more money is absorbed by even more goods and services.

Some economists fret that the boom in energy and other commodity prices will lead to higher inflation and slower growth. But the recent boom in commodities is demand-driven as the global spread of capitalism to China, India, Eastern Europe, and elsewhere is a growth phenomenon, not an inflationary threat.

America’s flexible, low-tax, deregulated, productivity-driven, information technology-based economy is not inflation prone. While a number of economic reforms, such as a flat-tax policy and personal savings account-related Social Security reform would enhance the growth outlook even more, right now the economic picture is a bright one.

Kofi Must Go

Kofi Annan tried to spin the latest Volcker report as exoneration, but Volcker wouldn’t let him do it. Annan has presided over one of the greatest financial scandals in history. His Oil-for-Food book-cooking puts him in a league above Bernie Ebbers and Ken Lay. A corporate CEO in Kofi’s shoes would be on the street by now. The $60 billion so-called humanitarian program was completely undermined by Saddam Hussein, who skimmed at least $20 billion in order to bribe Security Council members, other diplomats, bankers, oil traders, and you-name-it. Where was Kofi?

The answer is that Kofi was involved in a web of falsehoods and contradictions regarding the fix put in place by his son Kojo to get an outfit named Cotecna Inspections SA put in charge. Cotecna has a history of bribery and financial problems. But they also had Kojo, who took them in to see Kofi on several occasions, including once in the Secretary General’s UN office. The Volcker report refers to all this as “widespread irregularities.” I would say so.

In September, 1998, a middleman named Pierre Mouselli accompanied Kojo to a two-hour lunch with Kofi in Durban, South Africa. The purpose of the meeting was to sell Cotecna. They did. By year-end, Cotecna had contracted with the UN to inspect the Oil-for-Food program. In response to these favoritism charges, Kofi conducted a one-day investigation at the UN, which was mainly enacted through a phone call with Cotecna VP Mike Wilson, an Annan family retainer.

By the time the Security Council created the Volcker investigation, Kofi’s chief of staff Iqbal Riza had his secretary shred three years’ worth of files related to the program. Kofi’s deputy, the Canadian diplomat Louise Frechette, was ordered to stop a critical audit from getting to the Security Council. Then, Benon Sevan, who was nominally in charge of Oil-for-Food, received money from that fund for his legal defense. In every step of this sordid tale, Kofi at first denied that what actually happened, happened.

Kofi says “Hell, no,” I won’t go, but Senator Norman Coleman continues to call for his resignation. I believe Coleman is dead right. Kofi is exactly the wrong person to oversee a reformed and re-energized UN. The American people have virtually no confidence in the present UN, though many of us wish it would be run by democracies, not dictators, for it could do some good to promote world peace and democracy. Other congressmen, like John Ensign of Nevada and House member Jeff Flake of Arizona, intend to intensify investigations of Kofigate.

Volcker expects a third report out this summer. Presumably, the former head US money-man will “follow the money” in the Saddam scam that literally swung votes against the US in the Security Council. Mr. Volcker has a long reputation of independent obstinacy. He helped fix the US economy by slaying inflation over 20 years ago, when he worked with Ronald Reagan’s tax cut program to reignite the American economy.

Let us hope he could fix the UN. It may be that organization’s last chance.

Tenure

It’s even worse than I thought: a new study says 72% of college teachers are liberal and only 15% are conservative. At the elite schools, it’s even worse: 87% to 13%. In the last study, back in 1984, only 39% identified themselves as liberal. Well, you’ve come a long way, baby. We could expect plenty of liberals in the humanities and social sciences. But engineers were 51% to 19% liberal over conservative. Even business faculty were 49% to 39%. 65% of the professoriate wants the government to ensure full employment! Sort of like tenure, I guess.

How about a little affirmative action?

Tonight's Lineup

Tonight on Kudlow & Company, we have:

-- RNC Chair Ken Mehlman on social security, Buh's latest polls, and the administration's economic message

-- Investor's Business Daily's Terry Jones, on Bush's numbers, Terry Schiavo, and more

-- Yellow Roadway CEO Bill Zollars on gas prices, trucking, and more

-- Newsweek's Charles Gasparino on Warren Buffett and Hank Greenberg

Business Self-Defense

An interesting article in the Sunday Washington Post about business benefiting from the Republican election victories. Certainly the story was accurate in citing numerous corporations and business trade groups who contributed to the GOP effort last November.

My response to this: bravo for business! Actively working to defend its interests. If they don’t, who will? Business is the backbone of the U.S. economy. You can’t create a new job without healthy businesses. And businesses need new investments to grow and prosper. If we continue to overtax and over-regulate business, then the American economic machine will go the way of Western Europe or even Japan.

Tax reform, regulatory relief, more energy production, more equitable bankruptcy laws, tort reform…All of this is long overdue.

Let’s not forget-- the industrial unions, the government unions, the teacher’s unions, the trial lawyers and the George Soros 527s have all spent millions against business, and against our economy. The business campaign contributions were legal and transparent. Anybody breaking the law will be promptly busted. But color me happy that U.S. business is fighting back and standing up for its interests, which, by the way, I believe, is consistent with all our economic interests.

Tonight's Lineup

Tonight on Kudlow & Company, we have:

-- Robert Slaughter, president of the National Petrochemical and Refiners Association

-- a market segment with ISI's Jason Trennert and Alaron's Craig Russell

-- Senator and Hall-of-Fame pitcher Jim Bunning, on the steroid controvsery, MLB, and social security

-- Blogger Roger L. Simon, on the upcoming Volcker report

-- New York Sun columnist Steven Milloy, on the anti-business agenda behind the corporate social responsbility movement

Hypocrisy

The brilliant John Fund makes an excellent point in today's Wall Street Journal: that the same liberals who oppose federal intervention in the Schiavo case praised it in the Elian Gonzales case. Check it out.

Congrats!

Hearty congratulations are due to blogger Roger L. Simon, who has scooped the MSM with his excellent piece on the upcoming Volcker report, the United Nations, and the Oil-for-Food scandal. Read the shocking new revelations here.

Terri Schiavo's Easter

Life involves suffering. Too often we forget about this, and mostly we do not like to be reminded of it. But suffering and pain are as much a part of our lives as are joy and celebration.

Today is Easter, a day of celebration. Jesus Christ was resurrected; he rose to heaven to be at the right side of our Father. A truly wonderful event. But as Fr. John Neuhaus reminds us in " Death on a Friday Afternoon ", the darkness of Good Friday preceded the light of Easter Sunday. Jesus had to go through extraordinary suffering and pain before he could fulfill God's plan for him. Jesus' suffering was just as crucial to our salvation and redemption as his final death and resurrection. It was not only his joyous resurrection that cleansed the world of its sins, it was also his suffering that enabled us to be born again.

Writing in the New York Sun last week, George Weigel tells us that " Embracing suffering is a concept alien to us. And yet suffering embraced in obedience to God's will is at the center of Christianity....The Christ of the Gospels reaches out and embraces suffering as his destiny, his vocation-- and is vindicated in that self-sacrifice on Easter.

Then Weigel explains that John Paul II, in the weakness and suffering accompanying his current illness, is a "tremendous encouragement to the elderly, the sick, the disabled and the dying, who find strength and hope in his example." The pope has had several hospitalizations and a huge struggle. But at bottom he is a " Christian pastor who is going to challenge us with the message of the cross-- the message of Good Friday and Easter-- until the end."

Terri Schiavo is part of the unfortunate army of the sick, disabled and the dying. Inexplicably, the US court system is determined to take her life. I say inexplicably because the courts have chosen to disregard the morality of life, the religious belief in life, the culture of life. Inexplicable because all Americans of faith believe that in situations like this we should err on the side of life. But the courts have chosen to disregard this thought, this belief, which is surely held by a majority of people living in this great country.

Yet we know in so many other cases that the courts are not bashful when it comes to ruling on moral questions, even when it means overruling state legislatures, or the intent of Congress or the thinking of other courts. Nor is it uncommon for legislators to weigh in on such matters. NR editor Rich Lowry has noted Federal Habeas review appeals of death sentences, reviews of civil rights violations, and legislative actions in defense of women and the disabled. Think of the recent Supreme Court decision overturning capital punishment for minors-- a decision based on international opinion and the court's own interpretation of prevailing social thought on the issue.

By all acounts it appears that Ms. Schiavo's parents were out-lawyered by her husband's attorneys, a point made by blogger John Hinderaker. Surely the courts were absorbed by legal process, ruling over and over in favor of past decisions rather then undertaking a thorough review of all recents facts. Just as surely the courts made no attempt to empower parenting. Doesn't this remind of the many counterintuitive decisions to prevent parental consent or even consultation when it comes to abortion? Or schooling? If Ms. Schiavo's parents are willing to care for her, why not simply let them?

" Bid to Save Terri Schiavo Is All But Finished " read the Easter morning headline in the Washington Times. But she will ultimately be saved, either in this life or the next. We will all pray for her.

As Fr. Neuhaus suggests in his exploration, Ms. Schiavo's suffering is another example of people "who in their troubles find themselves, as they say, at the foot of the cross." Haven't we all been there at one time or another? Isn't suffering in pursuit of God's will the exact center of the religious life? Isn't the life of faith all about steep costs and consequential losses on the road to greater wisdom and and a better, more faithful life?

For those who understand, accept and believe in this, then Fr. Neuhaus is certainly right when he asks: " If what Christians say about Good Friday is true, then it is, quite simply, the truth about everything."

Budget Cuts

With the economy humming in FY 2005, the federal budget deficit should be coming down more than it has. Through five months, FY to date, tax collections are rising about 10%. However, budget outlays are rising around 7%.

By my estimate, the FY05 federal budget deficit will come in around $386 billion, as compared to $413 billion in FY04. In other words, we are not getting the deficit yield we should be getting from a robust economy that is trending towards 4% growth. The tax cuts of 2003 have done their job in promoting growth. But policymakers are failing to hold back spending. The federal budget should be growing below the inflation rate, but it is actually growing at more than twice the inflation rate.

This is wrong. The White House should be rescinding various outlays in a mid-year mid-course correction. Two sharp budget analysts from Washington, Chris Edwards of Cato and Brian Riedl of Heritage, have proposed 150 billion dollars worth of spending cuts (see below.) This could form the basis for a midyear budget-cutting exercise that could impact the remaining seven months (actually six months, since we are at the end of March, even though we only have data through February). If growth in non-defense, non-entitlement, non-interest outlays is held to 1% for the rest of the fiscal year, the 2005 budget deficit could be lowered by $25 billion to $361 billion.

It could be an exercise in good budget management, like a corporation controlling its expenses. Five year budget projections are nothing but planning exercise well into the future, but taking action right now in this fiscal year would make a huge difference both today and over the next five years. To maintain economic growth, and preserve lower tax rates, there's no time like the present to pull out a budget knife and start carving down overspending.

Tonight's Lineup

Tonight on Kudlow and Company, we have

-- Mike Holland, on the markets

-- Victor Davis Hanson and Grover Norquist, on immigration

-- Trent Duffy, from the White House, on the federal budget

-- Hugh Hewitt, John Hinderaker, and Glenn Reynolds, on the Schiavo case, the Pope, and everything in between. Enjoy!

Tonight's Lineup

Tonight on Kudlow & Company:

Senator Judd Gregg, on the federal budget and wayward Republicans

A market segment featuring Garzarelli Research founder Elaine Garzarelli, Frank Gannon of AIG SunAmerica Asset Management, and Richard Clarida of the Clinton Group

The Right Wing: The Wall Street Journal's John Fund, Townhall's Star Parker, and National Review's Byron York

The Heritage Foundation's Peter Brookes, on today's stunning new revelations in the UN scandal

Senator Baucus's Political Grandstanding

In large part, because of the political grandstanding of Senator Max Baucus of Montana, the senior ranks of the U.S. Treasury Department have been severely depleted.

Mr. Baucus objects to administration policy that makes agriculture trade with Cuba more difficult. As a result, he has put a Senatorial hold on all Treasury Department nominations that require Senate confirmation. One of these includes the newly-created Assistant Secretary for Intelligence and Terrorism.

So let me get this right. Mr. Baucus is willing to trade with the terrorist Fidel Castro, who is also assisting the anti-American Venezuelan President Huge Chavez, but Baucus apparently has no qualms about undermining the intelligence/terrorist policy job that is crucial to fighting the terror war. Does this really make sense?

All told, Mr. Baucus is blocking nominations for Deputy Secretary, two Under Secretaries, and two other Assistant Secretaries. Now, it may well be that U.S. trade policy with Cuba deserves re-exmination. But blocking the work of one of the four major cabinet departments is no way to review trade policy.

Not only is tax and Social Security work being stopped, but the Treasury effort to curtail financial assistance to terrorists is being harmed by Senator Baucus's stubbornness. This is an outrage.

I invite Mr. Baucus to appear on Kudlow & Company to discuss this. I'm sure he has a point on trade. But I am equally sure that his approach on blocking the work of the Treasury Department is no way to run a railroad.

Cheney In Bakersfield

Appearing with House Ways and Means chair Bill Thomas in Bakersfield, CA, Veep Dick Cheney didn’t exactly remove a higher social security wage cap from the proverbial table, but he sure did trash it. So did Thomas.

Remember, when President Bush put a higher wage cap on the table a few weeks ago, on March 7th, the stock market advance stopped dead in its tracks. Since then the Dow has lost 300 points, and the S&P 500 has dropped 3%.

Call it a coincidence, but the investor class knows full well that taxing jobs and the economy cannot be a good thing for profits and the stock market. A $200K wage cap would raise the combined income tax plus payroll tax rate to over 47% from 35% for the most successful earners, and for millions of small businesses. Instead of capturing 65 cents of every new dollar earned, entrepreneurs would only keep 53 cents. That’s nearly a 20% reversal of tax incentives to work, save, and invest.

In Bakersfield, Cheney said “For a lot of small businesses, that is a major hit.” He then added that the President “…has said generally he believes we can’t tax our way out of this problem, that we’ve got to find other ways to address the issue.” Later, Cheney said “And if we were to try to solve that huge deficit…strictly through tax policy by raising taxes, we’d do serious damage to our overall prospects for growth.”

Cheney also compared the investment return from the Thrift Savings Plan to the internal rate of return of the social security system. For social security, the return is a little over 1%. For the Thrift Savings Plan, the range is 4% a year to 11% a year.

Cheney also emphasized the ownership of private account assets that would give people a stake in the long run growth miracle of the overall US economy. Private accounts must be a part of any social security fix. Thye will be voluntary, and there will be guarantees, but they will be part of the plan.

A good selling job by Mr. Cheney. Clearly, his druthers is to avoid a wage cap increase. But it is still on the table. And the stock market is still watching closely.

Tonight's Lineup

Tonight, on Kudlow & Company:

-- The New Yorker's Jeffrey Goldberg and The American Thinker's Herb Meyer, on Lebanon, the future of democracy in the Middle East, and the future of the Democratic Party here at home

-- Pollster John Zogby and National Review's Ramesh Ponnuru, on the investor class

-- The Heritage Foundation's Brian Riedle and The Cato Institute's Chris Edwards, on the federal budget

-- a market segement with Steve Cecchetti, former head of research at the New York Fed, now at Brandeis University, and Jeremy Siegel, of the Wharton School of Business, and author of the book The Future for Investors.

Side-By-Side

I received a fax from a fellow in Wisconsin who did the homework the White House and Republicans should be doing on Social Security reform. He did a side-by-side comparison . . . the benefit under the plan now in existence, compared to the benefit under the Ryan-Sununu proposal.

My Wisconsin friend's scenario assumes a salary of $48,000 and a retirement age of 68. It also assumes interest on personal accounts at 6 percent, which he says is the worst performance to date of any 25 year period on Wall Street.

Under current law, an 18 year old without a personal account would accumulate a retirement benefit of $101,000, amounting to $843 per month. Under Ryan-Sununu, with a personal account, that 18 year old would accumulate $939,000, or $5117 per month. In addition, the personal account can be inherited by family members.

This is what people should understand about personal accounts. And this is what proponents of Social Security reform should be making crystal clear.

Thank you to Robert A. Bartfeld, PhD.

From a Viewer

A fascinating side-by-side comparison came in today from one of our viewers, Robert A. Bartfeld. He looks at the difference personal accounts can make. Here’s his take:

Dear Mr. Kudlow,

I watched your show today with more than the usual interest. Social Security is a topic close to my heart. There are two reasons for it: I am concerned about retirement benefits for my grandchildren, sixty years from now, and I am appalled with the less-than-two-percent interest that social security pays to its current recipients (of which I am one.)

The advantages of personal accounts are so obvious to me that I was as disappointed as you were when representative Paul Ryan did not produce a side-by-side comparison of his excellent proposal.

A simple example can, in my opinion, demonstrate that proposal in an elegant fashion. Assume an annual salary of $48,000.00. According to Mr. Ryan’s proposal, half of the current social security deduction (6.2%) will be put into a personal account with the remaining half going to the existing social security account. Assuming a retirement age of 68, the following graph [not shown] illustrates the difference between that proposal and the current system. This figure represents the worst performance to date of any 25-year period on Wall Street.

If an 18-year old opens a personal savings account and invests 6.2% of his salary, that amount, compounded monthly, will grow at his retirement to $939,223.39. The same 6.2% given to social security will amount to $101,184.00. Only the “best” 34 years of earnings are counted for social security benefits. It is assumed that 60 years from now social security will pay 0% interest (an optimistic assumption).

I hope this conveys the advanatges of private accounts for younger individuals.

Speaks for itself, doesn't it.

Steroids

After Congressional hearings, it looks like baseball’s players union has agreed to a ten day suspension for first-time steroid offenders without the option of paying a $10,000 fine instead. Big deal.

Steroids are speed. Steroids are addictive. And speed kills.

In the Olympic games, second-time offenders are banned from the sport. This is as it should be. The NFL has done a much better job on steroids than has Major League Baseball.

Baseball is doing a disservice to the nation, and to the kids, by not clamping down on steroids.

Rudy For Gov

Today’s Fred Dicker article in the New York Post suggests that Rudy Giuliani is considering a gubernatorial run if George Pataki decides not to run. I’ve always felt that the command-and-control, executive-oriented Giuliani is well-suited to be governor. A Giuliani-Spitzer race would feature two strong players with very different economic philosophies. Rudy, at bottom, is a supply-sider. Spitzer is definitely not. There is no way Rudy can successfully run for President without first being a successful governor. But I think he would be one heck of a good governor, and he would not enjoy being a senator. Should Mr. Pataki depart the political scene, a Rudy candidacy would be most welcome.

Cheney And Oil

The Veep was not overly concerned with the economic threat of $60 a barrel oil, correctly noting that oil use in today’s economy is only about half of what it was 25 years ago. He was pleased that ANWR drilling is now well on its way, having narrowly passed the Senate vote and been safely tucked into the budget resolution. He made no mention of releasing Strategic Petroleum Reserves, nor did I expect him to.

I was curious about any stagflationary forecast prints inside the White House. We are seeing some of this coming off Wall Street. Rising oil has at least temporarily blocked the stock market advance.

For reasons I have blogged on elsewhere, I continue to believe that oil prices are in a bubble. They are just too far ahead of other raw material commodity prices to make any sense. Also, as per Huber and Mills, there’s plenty of energy reserves in the ground. With high oil prices, even if they land around $40, there’s plenty of price and profit incentive to attract capital investment and generate greater energy production.

I also believe that core inflation will move a bit higher in the next year or two, but mainly as a result of the Fed’s easy money policies. As the central bank gradually removes excess money through their restraining strategy, any inflation rise will be short-lived.

One key point is that oil supplies are flowing; there is no supply disruption. At higher prices, oil demand will slow and oil (all energy) production will increase.

Owing to lower tax rates, high productivity, and the market-oriented flexibility of the US economy, business conditions and the outlook for prosperity (including profits) are a lot stronger than many believe.

Clinton’s Door Is Open

When I asked the Vice President whether the administration might enlist President Clinton for active duty in support of social security reform, the Veep definitely left that door open:

KUDLOW: Well, speaking of corralling some Democrats to support a Social
Security reform bill, which I assume will include personal savings accounts,
has anyone given any thought to enlisting former President Clinton, as you
enlisted him in the tsunami effort? He did talk about the urgency a few years
ago. He did talk about private savings accounts. You seem to be enjoying
good relations with him. Is he a potential ally in this fight?

Vice Pres. CHENEY: Well, we haven't had any discussion about that, but maybe
once we get through--he finishes up with his tsunami assignment, he'll be
ready for other duty.

KUDLOW: All right. I just thought I'd put that on the table. So you
wouldn't rule it out necessarily?

Vice Pres. CHENEY: No. I think I really believe, Larry, that eventually
there are going to be a number of Democrats who are going to be active
participants in this process. I think the notion that they would turn their
back on this problem and say to the American people, `One, there's no
problem,' or `We're not going to step forward and be part of figuring out what
the solution ought to be,' I think that's a loser for them. And Harry Reid
was out in 1999 talking about private accounts. The fact of the matter is,
This is a significant problem, and we need to come together as a nation and
solve the problem.

Would Madame Hillary permit President Bill to lobby for private accounts? So far she has steadfastly opposed any “carve-out” of private accounts inside social security. The former president, however, might be open to it, especially if a carve-out were accompanied by social security add-ons.

Putting Mr. Clinton in play could be a high-risk stratagem for Bush. Tsunami relief is one thing, but domestic politics is quite another. That said, for some reason I have the impression that Mr. Clinton likes hanging out with the Bush clan. I think he finds them to be a classier bunch than the current Howard Dean-led Democrats. This gang of obstructionists – led by Harry Reid and Nancy Pelosi – show none of the constructive policymaking that embodied the Clinton White House in its high-tide period between 1994 (Gingrich Congress elected) and 1998 (the Monica Chronicles).

Is The Cheney Door Open?

With a smile, Vice-President Cheney told me after the CNBC interview, “That was a trick question.” I responded, also with a smile, “That’s why I asked it, sir.” What was the question? Simply this: “If the President asked you, would you reconsider your door-closing on a race in 2008?”

So did he, or did he not, leave the door open? I need help on this one from our readers. You tell me. Here is the transcript on that subject:

Mr. Vice President, we only have a few seconds left. I want to ask you, there was a phenomenal column in The Wall Street Journal yesterday or the day before by Leslie Gelb of the Council on Foreign Relations who coined a new term: Cheney envy. And basically a lot of people are envious, not only at the tremendous success of the president's policy to spread democracy through the Middle East and worldwide, but also your honchoing internally of those policy-type issues. Let me ask you, sir, with Cheney envy in mind, I know you've closed the door about running for president, but if the president himself were to ask you to run, as the steward of the Bush-Cheney policies, the freedom and democracy abroad, the tremendous economic and domestic reforms here at home, if the president asked you, would you reconsider your door-closing on a race in 2008?

Vice Pres. CHENEY: I've made it very clear, Larry, that my tour here is tied to him. I agree to come back to government. I've had a great 25-year career. He persuaded me to come back after eight years in the private sector. I've loved it, hadn't regretted it for a minute, but I'm here to serve him as long as he serves. Now I looked some years ago myself at the idea of running for president. I decided then not to do it. I came back this time and work with him in part because I'm not running for president in '08, because my agenda is his agenda. I think if I were a candidate, then you'd begin to get the traditional divisions develop inside the West Wing, the president headed down one road and the vice president worried about how he's being received in Ottumwa, Iowa, and the Iowa caucuses four years hence. It doesn't work that way... It's worked very well for us. I'm absolutely committed to doing everything I can to help him succeed, but I'm also committed four years from now. I don't plan to be here. I'm going to be out on the road or back with my grandkids or fishing streams I've not yet fished.

It seems to me that door is just a teensy bit open. The key sentence arguing for this option is “He persuaded me to come back after eight years in the private sector.” So might the Veep be persuaded again?

On the other hand, Mr. Cheney pretty well closes the door when he says “…but I’m also committed four year from now. I don’t plan to be here. I’m going to be out on the road, or back with my grandkids, or fishing streams I’ve not yet fished.” Even I must admit that seems pretty final.

I wish it weren’t. There is “Cheney envy” on both foreign and domestic policies. The Vice President has been a key player in promoting freedom and democracy abroad and in promoting supply-side tax cuts, personal savings accounts for Social Security, legal abuse tort reform, energy reform, and other market-oriented policies at home. His partnership with President Bush is legion. And the scope of this reform-oriented partnership is itself almost unsurpassed. In all of the last hundred years, only the FDR reforms have been greater.

Ironically, it is precisely the Roosevelt New Deal reforms that Messrs. Bush and Cheney are attempting to reconstruct to fit a twenty-first century paradigm, that substitutes market choice and personal responsibility for FDR’s Depression-oriented, over-regulated capitalism.

As we observe leading Republican senators and House members move off the reservation of private-account social security reform, and we see them flinching on even the mildest budget restraints for overspending entitlements, the idea, indeed the need, for hard work to preserve the Bush-Cheney legacy is not farfetched. There is a disappointing parallel here. George H. W. Bush was elected to a third Reagan term in order to guard the Gipper’s legacy on slashing tax rates, deregulation, and exporting political and economic freedom abroad. But Papa Bush disappointed by raising taxes at home and doing business with dictators overseas. Realism trumped idealism on foreign policy; leaving Saddam Hussein in place being the worst example.

It is highly doubtful that a President Cheney would repeat those errors in a third W. term. What is more, Mr. Cheney is a highly effective communicator. By all accounts and polling surveys, in debates with Joe Lieberman and John Edwards, Cheney cleaned their clocks.

Mr. Cheney probably has the widest and deepest knowledge base of government policy of anyone in the past hundred years. His executive abilities to get things done amidst often fractious debates in both domestic and international policy is well known and documented. This of course is the source of “Cheney envy.” It has frequently been observed that the Republican party has all the good ideas nowadays. The Democrats have virtually none. But one would correctly say that it is Messrs. Bush and Cheney who not only generated these ideas, but also put them into action.

Does anyone seriously doubt that Cheney is the most qualified person to be President, in either party? Any number of early Republican hopefuls, be it Frist, Allen, Giuliani, McCain, or whoever would make excellent Vice Presidents. To Mr. Cheney, that is.

I hope President Bush asks Vice President Cheney to succeed him. For four more years.

Cheney Transcript

Here is the transcript of my interview with Vice President Dick Cheney


LARRY KUDLOW, host:

Mr. Vice President, Mr. Cheney, thank you very much for coming to KUDLOW &
COMPANY. I appreciate it. You know, on the front page of this morning's
newspapers, Republican defections on the budget, and then on the business
pages, oil. I'd like to cover both. Let me begin with the budget, if I may.

Vice President DICK CHENEY: Sure.

KUDLOW: Some leading Senators, Republicans, Senator Smith of Oregon, stopping
the Medicaid savings, Senator Coleman stopping the community development block
grant savings, Senator Chambliss trying to give the agriculture welfare queens
even more than was budgeted. Why is this? How are you going to meet your
deficit targets if all these senators, some of them leaders and influential
ones, are stopping you?

Vice Pres. CHENEY: Well, I think we'll get there. This was a Senate and
House act. The House did a better job on those particular items. They, in
fact, supported the Medicaid reductions and supported the entitlement changes
we needed. The Senate, obviously is its own independent body. We don't have
a veto over this process, but we work closely with it. I was up there for
about six hours last night, and we got the bulk of what we asked for, but
we've got to go to conference not between the two houses. I think we'll come
up pretty close to our original request.

KUDLOW: I mean, it's interesting to me. The supply-side tax cut experiment
of June '03 has played out beautifully. The economy is growing rapidly, tax
collections are rising about 10 percent right now. But there's still this
chronic overspending which at last count, I think year to date, fiscal year
date, is about 7 percent. And so it just seems to me there has to be a huge
premium on holding down spending, because economic growth and tax cuts are
threatened by that, aren't they?

Vice Pres. CHENEY: They are, and fiscal restraint's very important, and if
we want to keep tax rates as low as possible, which we absolutely do--That's
been the key, as you say, to our economic growth--then we've got to be tough
on spending. And the budget the president submitted is a good budget. It's a
tough budget, and it had some entitlement reductions in it as well as what
needs to be done on discretionary spending. There's about a $5 billion
difference on the discretionary spending cap now between what we recommended
at $843 and the Senate passed at $848. That goes primarily to that Medicaid
proposal you talked about. But we'll work on that in conference, and the
House is at our level, so we're not far off in terms of the aggregates of
where we need to be.

KUDLOW: With respect to these issues--Medicaid, bond subsidies and so forth
and also the great transportation bill, which is looming out there--is there,
in one of these old beautiful desk drawers, a dusty old veto pen someplace?

Vice Pres. CHENEY: Yes, sir. If we get a highway bill that's higher than
the $283 that was the agreed-upon number, it'll be vetoed.

KUDLOW: Yeah.

Vice Pres. CHENEY: And that's what we got through the House. The Senate
agreed to it. At the last minute, they came in and tried to raise the funding
level in the Senate, but they know that $283 is it. We've been there now for
two years. This bill's been hung up, and it has not gone forward because the
president's been very tough, and he said, `I said 283. I meant 283. You send
me something bigger than that, it's going to be vetoed.'

KUDLOW: All right. Let's look at oil for a moment, if I may. Oil is once
more marching up towards $60 a barrel. A lot of private-sector and Wall
Street economists are marking down their economic growth and raising their
inflation estimates. My question to you, sir, is, are White House economists
doing the same thing? Does it now look like slower growth ahead as a result
of this oil spike?

Vice Pres. CHENEY: I haven't seen that yet, Larry. We watch the same
forecasts I think everybody else does, the blue chips and so forth, and
obviously $60 oil begins to bite, have some impact on the economy. On the
other hand, oil is much less important as a total part of our economy than it
was 15 or 20 years ago. And we're still well below the all-time high in terms
of the real ceiling when you allow for inflation. We have not gotten yet to
the highs we were at back in the early '80s. So we think we'll be able to
weather this, but there's no question energy is a problem, oil in particular.
We did get through the Senate this week, I think, a major success story,
approval to go forward on development of ANWR. We've been fighting for that
for years. This is the first time we had the votes in the House and Senate to
get that done.

KUDLOW: Is it possible that the ANWR drilling fields could yield twice as
much as experts think, the same way the Prudhoe drilling field has? I
mean, when they started Prudhoe--What?--in the late '70s, people were talking
about a nine-month shelf life. It turns out the new estimates have gone from
nine billion barrels of oil to 20 billion. Is it possible that the ANWR field
could produce the same unexpected windfall?

Vice Pres. CHENEY: It's possible. I don't want to--you can't build your
policies, obviously, based on hope, but the fact of the matter is, when we
originally back in '79 and 1980 established the Arctic National Wildlife
Reserve, we set aside a portion of it for possible petroleum development
because we think, in fact, there are oil resources there. There's only been
about one well drilled on it, so there's a lot we don't know here about it
yet, but the estimates are that we should be able to produce at least a
million barrels a day out of it. That's very significant. Obviously that's
about 5 percent of our total consumption today. That's plus. That's oil that
would not come from overseas.

The other thing it's important to remember here, too, is what's happened over
the last several years is our technologies continually improve, and we're able
to recover more and more out of fields than we could previously.

KUDLOW: At cheaper rates.

Vice Pres. CHENEY: Cheaper rates. Whereas you used to get maybe 20 to 30
percent of the oil that's there actually recovered, we're able to steadily
improve on that. So we'll get significant resources out of Alaska, as we
should.

KUDLOW: Are you interested that some state legislators, most notably
Virginia, are now making noises to start drilling their own oil off the outer
continental shelf, the OCS? I mean, that's kind of taking matters into their
own hands, but it could produce more power.

Vice Pres. CHENEY: Yeah. Well, you've got to recognize that as a nation, we
don't drill off the East Coast, we don't drill off the West Coast or the big
areas of the country that are off limits. A lot of areas should be off limits
for environmental reasons and so forth. But the fact of the matter is, there
are significant resources out there we've never developed. We've made other
decisions. When we get to $60 oil and gasoline prices well above $2 a gallon,
I think people may take a more realistic look at what our priorities are.

KUDLOW: All right. Let's turn to Social Security, which is a constant
headline day in and day out. What is interesting to me is, in recent days,
I've seen a whole spate of polls that basically show the public clearly
recognizes there's solvency problem with Social Security. Has President Bush
really won this first round? The Democrats originally denied any need to deal
with Social Security on an urgent basis. Has he won this first round?

Vice Pres. CHENEY: I think he has. But I don't think of it in terms of
winning and losing. What we did--the president set out with a very explicit
mission in mind. He decided we needed to address the Social Security problem,
and he's done, I think, a very good job, because he's very aggressive, going
out on the stump. He's been in maybe 20 states. It's State of the Union time
by the time he finishes next week talking about the problem, and the polls
show the vast majority of Americans understand there is a problem with Social
Security in the sense that we made promises that have never been funded, and
we need to address that issue.

The other thing I sense when I spend time on the Hill and when I'm talking
quietly with members of Congress is, I think, in fact, there's a recognition
on the part of some of our friends on the other side of the aisle that indeed
there is a problem that does need to be addressed. And the Senate this week,
among other things, passed a resolution 100-zip laying out the facts with
respect to Social Security and with the shortfall, which does, in fact, exist.
So there's, I think, growing consensus that there is a problem that has to be
addressed.

KUDLOW: Well, speaking of corralling some Democrats to support a Social
Security reform bill, which I assume will include personal savings accounts,
has anyone given any thought to enlisting former President Clinton, as you
enlisted him in the tsunami effort? He did talk about the urgency a few years
ago. He did talk about private savings accounts. You seem to be enjoying
good relations with him. Is he a potential ally in this fight?

Vice Pres. CHENEY: Well, we haven't had any discussion about that, but maybe
once we get through--he finishes up with his tsunami assignment, he'll be
ready for other duty.

KUDLOW: All right. I just thought I'd put that on the table. So you
wouldn't rule it out necessarily?

Vice Pres. CHENEY: No. I think I really believe, Larry, that eventually
there are going to be a number of Democrats who are going to be active
participants in this process. I think the notion that they would turn their
back on this problem and say to the American people, `One, there's no
problem,' or `We're not going to step forward and be part of figuring out what
the solution ought to be,' I think that's a loser for them. And Harry Reid
was out in 1999 talking about private accounts. The fact of the matter is,
This is a significant problem, and we need to come together as a nation and
solve the problem.

KUDLOW: Is the price of gaining some extra Democratic votes for eventual
passage an increase in the Social Security wage cap; in other words a tax
increase? Is that the price? Is that why it's been put on the table?

Vice Pres. CHENEY: What we've done is we've said, `Look, let's put
everything on the table. You got an idea? Bring it on. We want to hear from
you.' And there's a lot of intellectual ferment out there that I think is
exactly what we wanted to create. And we've got a lot of old ideas that have
been around for a long time such as raise the retirement age or increase
taxes. The interesting proposition came forward in the last week by Robert
Pozen in terms of the different concept about how you'd address the
indexing question. You can go back and look at ideas in the past from Pat
Moynihan, Tim Penny, other Democrats who have been involved. So I think
there's a good healthy debate started. What the president's said: Put
everything on the table. He hasn't endorsed any one particular solution other
than personal savings accounts. We believe that ought to be a part of any
final resolution here. But, you know, we really want to have a wide-open
national debate. We think we need to have that kind of debate with the
Congress as well before you come to a consensus.

KUDLOW: What do you say to the critics of this wage cap business? I mean,
after all, when you do the math, a wage cap increase would punish successful
earners, would punish small businesses up to $10 million, according to some
estimates, would actually overturn the effects of the tax cuts of 2003 and by
some calculations would roll back economic growth incentives, kill jobs. I
mean, what do you say to that?

Vice Pres. CHENEY: Well, those sound like good arguments against it, Larry.
I'm not here today to endorse it or support it. The president has not
supported it. Again, though, what position we need to be in, when somebody
throws something on the table, we don't want to start--reject this, reject
that. Now is not the time to do that. Partly, we'd get involved in
negotiating with ourselves, and it also discourages people from coming forward
to being part of the process.

Now this is an issue that has been very, very difficult for politicians to
deal with over the years. We did it in 1983 when you and I were here
previously, got a good package that basically was passed on a bipartisan
basis, Tip O'Neill involved, President Reagan and so forth. We need to be
able to produce a package again this time. There's some obvious things we
think ought to happen, personal retirement accounts. There are other things
that you and I, I'm sure, have strong views about. I'm in the position that
the president's in, which is bring it up, put it on the table. We're not
going to yell at anybody for putting out an idea that we don't necessarily
support or agree with. And we aren't going to begin the process by rejecting
all kinds of options out there. Let's start talking about it.

KUDLOW: One of the options out there, as I'm sure you know, is a
Ryan-Sununu bill, which is a bold proposal. Take all the employee payroll
tax...

Vice Pres. CHENEY: Right.

KUDLOW: ...and put it right into private savings accounts. It's been scored
by the Social Security actuaries as very sound. Surpluses would reappear in
2025, and all the unfunded liabilities would disappear after that. It's the
ultimate lockbox. I mean, individuals would hold the key. The government
would be put out of commission on this. I'm surprised you didn't go for the
Ryan-Sununu bill.

Vice Pres. CHENEY: Well, we haven't gone for any one bill yet. I had
Congressman Ryan at this very table this week talking about his proposal
together with a number of other members from the House. There are a lot of
ideas out there kicking around. Charlie Stenholm supported one in the past,
and Jim Colby. You know, there's a long list, and we want them all on the
table as we begin this process. And I think you have to have that kind of
open process if you're going to get people to buy into it.

KUDLOW: All right. Another one, Senator Frist appeared on KUDLOW & COMPANY
last week, and he had a side-by-side comparison. He used the thrift savings
plan here in Congress in Washington...

Vice Pres. CHENEY: Right.

KUDLOW: ...which, over the life of the plan, 1987 to 2004, including the big
market crash of 2000 to 2002, still, after inflation, 6.5 percent per year
rate of return. And then they looked at the internal rate of return of Social
Security, 1.6 percent.

Vice Pres. CHENEY: Exactly.

KUDLOW: Why aren't people in the administration selling private accounts by
showing side-by-side, this is 6.5 percent, and this is only 1.7 percent. I
mean, wouldn't that crank up the younger people, get them out there and
saying, `Hey, this is what we want'?

Vice Pres. CHENEY: I plan to do exactly that on Monday when I'll be out in
Bakersfield, California, with Congressman Bill Thomas, the chairman of the
Ways and Means Committee. He and I are going to go out and do a joint Town
Hall together. I just went over those numbers this morning. You're right. A
thrift savings plan, five different options and alternatives range all the way
from a little over 4 percent to almost 11 percent return over the last 10
years, depending on which plan you pick. The fact of the matter is, it works.
It works very well for federal employees, members of Congress. We've also got
a lot of plans out in the country where state and local employees are not in
Social Security. They're in separate plans very similar to the thrift savings
plan resembling the kind of option we want to make available to Americans born
after 1950.

Again, it's important to emphasize, if you were born before 1950, you're
already retired, about to retire, the plan is going to be the same for you.
There's going to be no change in your status. But for that younger
generation, folks who know that we've never funded the promises we've made to
them, they have, I think, a right to a system that will work for them, and
personal retirement accounts provide a big part of the answer.

KUDLOW: I mean, the substitution of market-generated benefits is much more
reliable than government-generated benefits. I mean, that's the whole history
of it.

Mr. Vice President, we only have a few seconds left. I want to ask you,
there was a phenomenal column in The Wall Street Journal yesterday or the day
before by Leslie Gelb of the Council on Foreign Relations who coined a new
term: Cheney envy. And basically a lot of people are envious, not only at
the tremendous success of the president's policy to spread democracy through
the Middle East and worldwide, but also your honchoing internally of those
policy-type issues. Let me ask you, sir, with Cheney envy in mind, I know
you've closed the door about running for president, but if the president
himself were to ask you to run, as the steward of the Bush-Cheney policies,
the freedom and democracy abroad, the tremendous economic and domestic reforms
here at home, if the president asked you, would you reconsider your
door-closing on a race in 2008?

Vice Pres. CHENEY: I've made it very clear, Larry, that my tour here is tied
to him. I agree to come back to government. I've had a great 25-year career.
He persuaded me to come back after eight years in the private sector. I've
loved it, hadn't regretted it for a minute, but I'm here to serve him as long
as he serves. Now I looked some years ago myself at the idea of running for
president. I decided then not to do it. I came back this time and work with
him in part because I'm not running for president in '08, because my agenda is
his agenda. I think if I were a candidate, then you'd begin to get the
traditional divisions develop inside the West Wing, the president headed down
one road and the vice president worried about how he's being received in
Ottumwa, Iowa, and the Iowa caucuses four years hence. It doesn't work that
way.. It's worked very well for us. I'm absolutely committed to doing
everything I can to help him succeed, but I'm also committed four years from
now. I don't plan to be here. I'm going to be out on the road or back with
my grandkids or fishing streams I've not yet fished.

KUDLOW: All right. Mr. Vice President Cheney, thank you for coming on
KUDLOW & COMPANY.

Vice Pres. CHENEY: Thank you, Larry.

Cheney on Kudlow & Company

The first half of tomorrow’s Kudlow & Company will be an interview with Vice President Dick Cheney on social security, taxes, $60 oil, and Lebanon.

Tonight’s Lineup

Senator Bob Bennett on social security reform

Senator Chuck Hagel on John Bolton and social security reform

Interior Secretary Gale Norton on ANWR

Mark Mills on oil

Plus a bearish stock market technician, Michael Kahn, along with the incomparable Mike Holland.

The Budget

Members of the U.S. Senate are reneging on their promise to cut wasteful and unnecessary federal budget spending. And I'm talking Republicans here.

Senator Saxby Chambliss of Georgia is whittling down the farm subsidy cuts, which are corporate welfare and agriculture welfare queens. Minnesota Senator Norman Coleman is trying to stop more corporate welfare cuts, by preserving community development block grants. Oregon Senator Gordon Smith is preventing Medicaid cuts, which represent wasteful overspending, not real health services. This makes my blood boil.

Supply-side tax cuts have done their job by growing the economy and throwing off 10 percent increases in tax collections. But the Republican Senate is not doing its job to hold back the budget, which is still growing at 7 percent.

You know what? Taxpayer money should be protected, not wasted. Republicans are supposed to be the fiscal conservatives.

Next week we're going to have two sharp Washington budget analysts tell us why Congress should be cutting $100 billion per year. But for now, it's an outrage that the Senate is reneging on President Bush's modest spending restraint proposals.

Wolfowitz

There’s no question Paul Wolfowitz would make a fine World Bank president. But let’s be clear: the issues confronting the Bank are financial and economic in nature. Crucially, the Bank has to quit making loans to third world countries with totalitarian leaders who steal the money and never undertake appropriate reforms. New steel mills and mining factories will only work within the context of a free-market environment that emphasizes private property laws and other conditionality requirements, such as tax, regulatory, and trade liberalization. Bank lending policies must emphasize capitalist conditionality. And hopefully Mr. Wolfowitz will ask why the Bank should make loans to dictators and despots. In other words, freedom and democracy should be a condition of bank aid. Bank policies should be consistent with Mr. Bush’s broader pro-democracy and pro-freedom foreign policy vision. Wolfowitz may be just the right person to do this, just as John Bolton may be just the right person to successfully push for UN reforms. Potentially, these are two great appointments by President Bush. For another look at these issues, see this morning’s Wall Street Journal editorial on the subject, including Alan Meltzer’s report in 2000.

Jurors, Take A Bow

Congratulations to the twelve men and women of the jury that convicted Bernie Ebbers of accounting embezzlement, securities fraud, and cooking the books.

In all these corporate scandal trials, jurors never get enough credit. But this group made a major contribution to free market capitalism. Their conviction of Mr. Ebbers was a great victory for investors and the general public. The Ebber’s jury contributed to a new era of rising standards for corporate ethics.

Free market capitalism must be based on the rule of law. By enforcing the law, the twelve Ebber’s jurors did far more for honest accounting and healthy, functioning markets than thousands of regulatory pages, such as the onerous Sarbanes Oxley. The brave jurors dealt a serious defeat for CEOs who want their subordinates to commit crimes while they maintain plausible deniability. The dumbo defense is finito.

The vast majority of Americans in business are clean and honest entrepreneurs who innovate, build businesses, and create jobs. Business is the backbone of our economy despite the fact that there will always be a few rotten apples. That the Ebber’s jury convicted one of the most rotten apples will strengthen business and improve our free enterprise system. Jurors, take a bow. You deserve it.

Tonight on Kudlow and Company

Tonight on Kudlow and Company, we have the spectacular Claudia Rosett appearing from Beirut, Lebanon, where anti-Syrian sentiment is running explosively high.

Our Right Wing Panel will include Steve Moore, Holman Jenkins, and Amity Shlaes.

Columbia professor Jagdish Bhagwati is a contrarian on foreign aid, outsourcing, and the dollar.

Pollster John Zogby will talk about President Bush's political realignment over Social Security.

We'll also talk markets with Joe LaVorgna and Morris Mark.

Please tune in.

Investor Class

Pollster John Zogby raises the possibility of a Republican realignment backed by the investor class over President Bush’s attempt to reform social security. Even if Bush loses the battle, he may still win the war. Zogby suggests a “tectonic shift” among self-identified investors, who went for Bush 61% to 39% in last year’s presidential election. The ownership society could be a very powerful political force.

Claudia In Beirut

Our friend ace reporter Claudia Rosett is filing stories from Beirut on the million-strong Lebanese democratic protest, where the crowd chanted over and over “Freedom, Sovereignty, Independence.” She is reporting for the New York Sun’s front page. It’s great stuff, a terrific read. Ms. Rosett, who is by far the best reporter on the UN Oil-for-Food scandal, is expanding her journalistic excellence with great stories from Lebanon. She suggests the possibility ythat the freedom and democracy movement in Lebanon could spill over all the way to Damascus. Now there’s a great thought. I’ll bet that Natan Sharansky would agree.

Liberal Bias

From an Investor’s Business Daily editorial: in 2004 36% of the stories on President Bush were negative, compared with only 12% on Kerry. Only 20% of the Bush stories were positive, versus 30% on Kerry. This from the Columbia University Graduate School of Journalism’s Project for Excellence in Journalism.

Lockbox

Steve Moore and Larry Hunter want to stop the government raid on social security surpluses right now. They propose the immediate creation of personal investment account funds with the $100 billion surpluses expected for social security over the next ten years. “Stop the raid; start the accounts.” Begin building a real pension lockbox. The funds could be invested in stock market indexes or bond market indexes. But the government would have to stop spending money that is not really theirs. Another good idea.

China: Steady

David Malpass expects continued 8% growth in China and no yuan appreciation. Chinese inflation appears to be slowing. Long-term interest rates are dropping. He does not expect imminent hostilities with Taiwan. While I am inclined to agree with Dave Malpass on the economy, I will wait to see if China moves constructively to help the US in North Korea, and my Anglospheric bias still points to India as America’s real political and economic friend in that part of the world.

Japan: Rising Sun

Top Wall Street economist Michael Darda is optimistic about the Japanese economy and stock market. He believes that inflation is over and a process of reflation has taken hold. The yen prices of gold and metals are rising. So are Bank of Japan monetary reserves. Corporate profits are rising nicely, opening the way for a rebound in business investment. Provided that the Ministry of Finance doesn’t embrace root canal economics by raising income and sales taxes, the Japanese stock market is very undervalued. Darda wishes for a supply-side solution to the Japanese economy such as emulating Eastern Europe flat-tax policies, including a big tax cut on capital formation. Good advice.

Spending Is The Problem

Very few people follow the monthly Treasury statement of budget revenues, outlays, and deficits. They tell an interesting story on the economy and the budget.

Last week we got the February 2005 results. The key point: tax collections are soaring at a 10 percent pace. Income taxes are up nearly 10 percent, corporate taxes by over 50 percent. Social Security and Medicare are up by a slower 6 percent.

So, the impact of lower tax rate incentives put in place in mid-2003 immediately spawned a faster economic growth pace. And about a year later, by mid-2004, the expanding economic pie started throwing off big tax collection gains.

Another key point. Non-withheld tax revenues from capital gains and dividends are rising 9 percent fiscal year-to-date. This is the Laffer curve at work. At lower tax-rates, more investment is generating enough revenues to pay for the tax cuts.

Static budget analysis never captures the true dynamic effects of our economy.

Final point: What's the big deficit problem if revenues are rising so well? You guessed it -- overspending. Fiscal year-to-date budget outlays are rising over 7 percent, which is over four times the core inflation rate. For you deficit hawks out there, spending is the problem. Keep tax-rates down for growth, but why not lop off $100 billion of unnecessary and wasteful spending.

Tonight's Lineup

Tonight, on Kudlow and Company, we have a spectacular lineup, including Senator Charles Grassley, and bloggers John McIntrye of RealClearPolitics, Jeff Jarvis of Buzzmachine, and Roger Simon. Check it out.