Larry Kudlow: The Trump agenda is not inflationary



The Trump agenda is not inflationary. The New York Times in a long piece has now officially decided that the real inflation threat is Donald Trump and his policies. They are wrong. So, let’s review the bidding for a moment. Over Trump’s four-year term, the level of consumer prices rose by a scant 7.7% for his whole term, which comes to 1.9% annually. 

Meanwhile, during Joe Biden’s nearly completed term so far, the level of consumer prices rose 20% – or 6.1% annually. President Trump is pledging to essentially reprise his successful first-term economic policies of “drill, baby, drill,” tax cuts, deregulation, and punishing unfair trade policies. So, ask yourself: if those same policies didn’t generate high inflation in his first term, why would they in a second? Of course, the New York Times takes the Biden view that inflation was transitory, caused by COVID and Vladimir Putin. 

So, how about this thought? Mr. Biden is running $2 trillion budget deficits as far as the eye can see, with near-record peacetime spending as a share of GDP, all this with a relatively low 4% unemployment rate, and a still stubbornly high inflation rate. 

AMERICANS’ INFLATION EXPECTATIONS CREEP HIGHER AGAIN, KEY NY FED SURVEY SHOWS 

Even John Maynard Keynes would turn over in his grave at massive deficit spending with high inflation and low unemployment. Oops. The Times forgets to mention that. 

The article does mention that the U.S. is producing oil at roughly 13 million barrels per day, but that’s where we were under Trump five years ago and we should be running at 15 or 16 million barrels per day, but for the fact that Biden has put the clamps on federal drilling and exploration in Alaska, New Mexico and offshore. 

Were we energy dominant today, instead of relying on our enemies like Russia and Iran, oil prices would be closer to $40 than $80 and oil costs impact hundreds of everyday consumer goods and health care services, which would have a profoundly disinflationary impact on the economy, bringing down interest rates and personal borrowing costs along the way. 

The Times does concede that Trump deregulation lowers business costs. Good for them, I suppose, but their biggest mistake was on the Trump tax cuts. The fact remains: lower marginal tax rates on individuals and businesses increase the production of goods, raise real wages and enhance productivity (output per hour). Now, those are all counter-inflationary effects.  

When marginal tax rates were slashed under JFK, Reagan and Trump, inflation never uttered a serious peep. Not all tax cuts are the same.  Temporary tax credits to spur one-time consumption spending would be inflationary because there’s no supply effects from business, but permanently lower tax rates create incentives to produce and invest, and that actually can lower inflation in many cases. 

Then the Times suggests that Biden’s open border catastrophe is really a good thing, because it lowers wages. Well, if there’s even a scintilla of truth to this, that’s one heck of a price to pay for blowing up sovereign boundaries with criminality alongside sex and drug trafficking.

Plus, Joe Biden has allowed in over 10 million illegals since taking office – but inflation soared. Trump wants to deport the criminal illegals, if not more. You can’t have it both ways. 

Employment data suggests that foreign-born jobs have sky-rocketed, while native-born jobs have plunged, but with a very low employment-to-population ratio, closed borders would enhance native-born jobs, assuming government benefits don’t interfere with work effort and then, on the question of tariffs, the Times continues the myth that tariffs cause higher inflation, even though the evidence shows that inflation did not rise during the Trump tariff increases on China’s unfair trading practices. 

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Consumers may choose to boycott tariffed goods and services if the price is too high, or China has to slash the prices of their tariffed goods. So, the marketplace provides offsets. Don’t forget Trump had. Tariff reductions or tariff barrier reductions with places like South Korea, Australia and Japan that actually lowered costs. We should’ve learned that, but some old-line economists are too hide-bound to understand that solving unfair trading practices is an issue by itself unrelated to inflation. 

The principle cause of inflation is too much money chasing too few goods. Joe Biden’s massive spending and the Fed’s enabling of that spending is a real inflationary problem, while regulatory and tax threats have smothered small business production. Trump is suggesting his successful economic policies can be repeated if he is re-elected. There’s no empirical reason to doubt him.

This article is adapted from Larry Kudlow’s opening commentary on the June 10, 2024, edition of “Kudlow.” 

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