James Pethokoukis

Politics and policy from inside Washington

Walking on the supply side with Obama

January 5, 2011

Larry Kudlow likes what he see so far:

The point is, if Team Obama is moving towards an entrepreneurial incentive model of growth, and away from the false consumption model of big-government spending, it’s very good news. Already we have seen a new free-trade initiative. And there’s even talk of broad-based, personal-income tax-rate flattening that could be part of a big-bang tax-reform package.

And the congressional momentum is decidedly toward lower spending. Without question there’s going to be a huge budget-cutting exercise led by Paul Ryan in the House and Jeff Sessions in the Senate. Sen. Jim DeMint wants a showdown over the debt ceiling in order to force some kind of balanced-budget amendment. And Sen. Bob Corker has taken the bit in order to build a bipartisan group to make sure that Republicans a spending cap in exchange for raising the debt ceiling.

Keynesians do not understand the pro-growth benefits of lower government spending. But any time government resource absorption is reduced, potential investment for the private sector is unleashed.

Yes, once again, we must trust but verify. And there are going to be huge battles ahead over Obamacare and EPA regulation, both of which are anti-growth. But for starters in the new year, carrying over from the November elections, at least fiscal policy appears to be moving in a positive pro-growth direction.

No wonder stocks rallied almost 100 points in the first 2011 trading day. The Gipper must be smiling about all this.

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