Lawrence Kudlow is in contention to head the CEA

Here is the WSJ piece, or try this, excerpt:

Mr. Kudlow is a strong supporter of supply-side economics, a prevailing economic philosophy of the Reagan administration that says reducing marginal tax rates will spur growth, create jobs and boost tax revenue for the government. Last week, he said the U.S. should issue debt with a maturity of up to 100 years to lock in low borrowing costs, supporting a view echoed by other Trump economic advisers.

Kudlow (formerly a senior fellow at GMU and Mercatus) is also pro-trade, and on monetary policy he has expressed sympathy for market monetarism and nominal gdp targeting.  And Scott Sumner comments on Kudlow’s earlier recommendations for the Fed.

Update: Many informal sources are suggesting this will indeed happen, though there is not yet a formal announcement.  I would consider this still unconfirmed.

Comments

Even though I thought he was ridiculous on CNBC, in general I agree with most of those ideas.

Agree though I never associated him w/ mkt monetarism .....always thought he was critical of QE/efficacy of monetary policy/.

If in the stage of my career that Kudlow admitted (in 2013) that his prior (very vocal) expressed views on the subject of the economy were, shall we say, no longer applicable, I would have no clients because I would have admitted that I'm an imbecile. Kudlow needs to stay on his program and out of public service. For our sake. Cowen's link isn't what you may think. Kudlow isn't even an economist (he "left" Princeton before getting a Master's degree).

Yeah, supply side economics does not work. But that doesn't matter because it has strong political support. Factual support is not necessary in our post-truth society.

'Kudlow isn’t even an economist'

So what? As noted, he was formerly at a place that itself is at GMU, and really, what better credentials does one need than that to offering public policy advice? Though one should note that Kudlow started off as a Distinguished Scholar at a place that is not itself not part of Commonwealth taxpayer funded GMU. And that there is absolutely no information to be found on the web using google ( including at https://www.creators.com/author/lawrence-kudlow ) that Kudlow was ever a senior fellow at GMU.

One has to enjoy such a cleverly written press release from the past - 'Leading economist and public affairs analyst Lawrence Kudlow has joined the Mercatus Center at George Mason University as a Distinguished Scholar. Leveraging the Mercatus Center's successes in advancing regulatory and governmental accountability, as a Distinguished Scholar Kudlow will build on his extensive government, corporate and media experience to promote increased corporate accountability and responsibility.

Kudlow is nationally known as a commentator and syndicated columnist on economic issues, and as co-host of CNBC's popular "Kudlow & Cramer." Previously he has served as chief economist for Bear Stearns, Associate
Director for Economics and Planning at the Office of Management and Budget, and staff economist for the Federal Reserve Bank of New York. He is also the author of American Abundance: The New Economic and Moral Prosperity.

"The Mercatus Center applies a striking and persuasive academic rigor to public policy problems, and they have been extremely successful in advancing the causes of regulatory and governmental accountability," said Kudlow. "I am
delighted to build on the Mercatus Center's well-laid foundation and look forward to advancing the study of corporate accountability and responsibility."' http://www.prnewswire.com/news-releases/notable-economist-larry-kudlow-joins-mercatus-center-76934137.html

One has to love the term 'persuasive academic rigor' when it comes to a Mercatus Center press release quoting a man with an undergraduate degree in history.

Even more telling is how the director and general chairman of the Mercatus Center cannot be bothered to give Kudlow his apparently proper title of 'Distinguished Scholar,' and conflating the Mercatus Center and its 'scholars' with GMU, an actual institution of higher learning.

Almost as if Prof. Cowen is looking forward to living in a post-factual world.

"Last week, he said the U.S. should issue debt with a maturity of up to 100 years to lock in low borrowing costs, supporting a view echoed by other Trump economic advisers...."

That strikes me as strange in combination with a sympathy for "market monetarism". Apparently, he doesn't have faith that the market can correctly price 100 year Treasuries. Or, stated differently, he thinks he knows better.

What would be the rate of this 100 year Treasuries? Is there any way to know or estimate or reasonably guess what the market would accept, if they were issued right now?

Ask Larry Kudlow. Apparently he knows. He apparently also knows that, whatever they are priced at, it would be a "good deal" for the US of A.

A 100 year bond would significantly reduce the risk of a destabilizing funding crisis in which borrowing costs and deficits soar at the same time.

There's a reason why people choose 30 year fixed rate mortgages instead of 5/1 ARMs.

1. Thirty years is not long enough? As a first step, Treasury has the ability to change the current mix on bonds and bills of the existing duration ladder.

2. Do you think the rate on a 100 year bond would be higher than a 30 year bond? If so (I don't know), would this not increase borrowing costs in the short run and lead to higher deficits in the short run? Is the idea to hasten a financial crisis?

3. The quote indicates that the idea is to "lock in low rates". What if rates go lower?

4. If there is anyone who can bear risk, I would suggest it is the United States with a fiat currency (not completely analogous to a homeowner).

This reminds me of the frequent argument that we should borrow now to finance infrastructure "while rates are low". Apparently, those rubes that are buying Treasuries (and therefore setting the market rates) have not gotten the news that borrowing costs are inevitably or even probably going to rise pretty soon. I've yet to hear the argument that we should postpone infrastructure projects until rates are *lower* and I suspect that is because these arguments are not based on economics, but politics.

Bottom line: I'm not convinced that government risk is lowered by issuing 100 year bonds and that was not part of the rationale put forth by Kudlow, in any event---it was merely that "rates are low" (compared with what?).

I will grant you (and Kudlow) this: it would provide a great(er) incentive for government financial repression.

"Buy 100 year bonds now, while rates are low" is not a super good sales pitch.

Vivian, the infrastructure argument is not a market timing argument. It is a straightforward econ 101 argument: lower rates mean big infrastructure projects are cheaper than they would have been in, say, 2007 and so we should, on the margin, execute some of these projects. Set marginal benefit equal to marginal cost.

But what if those low rates are not really that low?

http://subprimeregulations.blogspot.com/2016/11/professor-summers-fixing-potholes-using.html

@Ricardo

LOL

Lower rates now versus 2007 *is* a timing argument, albeit a very bad one. Let's wait until tomorrow when rates are lower is also a timing argument. Common sense (apparently not a feature of all 101 courses) is that if one did not make an investment in the past, the only remaining questions are if and whether to do one today or tomorrow. Yesterday's rates are irrelevant.

Vivian, discount rates are not zero. Declining costs of borrowing mean marginal investments that would be unattractive at higher rates make sense at lower rates. This is basic stuff.

RIcardo,

Your non-response to the substance of my objection is very revealing. No one disputes that rates are lower now than they were in 2007. The issue is whether they will be higher or lower tomorrow than they are today.

Ricardo writes “Declining costs of borrowing mean marginal investments that would be unattractive at higher rates make sense at lower rates”

Not necessarily so. Declining costs of borrowings could also reflect a recessionary climate that makes those infrastructure projects much less needed or at least much less profitable.

Beats the other CNBC star Peter Navarro!

Jim Kramer for Fed chair

Who cares if supply-side policies increase tax revenues?

Well, it does not, so no one needs to care.

It depends, but it's not a reason to do so even if it's good to have an idea of the direction and maybe even magnitude of the effect.

Perhaps you could define a successful supply side policy as one which, after discounting for the cost of financing, pays for itself with more taxes in the future. Which is a different question from whether it's beneficial at the aggregate level of an economy.

"...says reducing marginal tax rates will spur growth, create jobs and boost tax revenue for the government."

We should just reduce marginal tax rates to zero and boost tax revenues to the government to infinity.

Debt problem solved and we won't have to issue centuries!

ROFL +100!!!!

LOL, good one.

I suppose we could boost revenue to the government even beyond infinity, by paying corporations, rather than charging them taxes. Oh, wait, we're already doing that, with government subsidies and tax credits given to lots of companies. But somehow the government's revenues have not been approaching the place beyond infinity. What went wrong here?

Cutting tax rates has made paying workers too expensive, so tax credits for hiring workers is required to accomplish the job creation of the 60s from allowing investments to be expensed or depreciated in a fraction of the assets productive life, coupled with carry back of expenses from paying workers to prior years to reduce taxable profits to get tax refunds to pay half the current labor costs.

Only conservatives think high profits from paying lower labor costs create jobs that are higher paying. It's free lunch voodoo economics which derives from totally misusing price elasticity theory by assuming price elasticity is forever and always high. The Laffer curve is an elasticity curve, except since circa 1985, the maximum revenue occurs at a tax rate of zero.

Coupled with that is the new definition of efficient markets as being when profits are 100% of revenue and all labor is idle, or working in death camps with the least food cost.

I wonder how soon before we go back to the gold standard. To call Kudlow an economist is demeaning to the profession (if it ever was one).

It's not demeaning to 'the profession', its just a mischaracterization of him.

I have generally regarded Kudlow as a complete flake. However, his advice (online) to Tiger Woods showed considerable insight. See "An Open Letter to Tiger Woods". Perhaps he will do well at the CEA...

Was his advice "do more hookers and blow" like he was doing at Bear Stearns before they bounced him out?

Cuz at least we know Tiger listened to the first part of his advice...

gab,

Go read what Kudlow actually wrote. It's all online. Of course, it's not “do more hookers and blow”. It amounts to "if you have done hookers and blow don't even try lying about it". Kudlow's advice is actually rather sane and it is based on his own unhappy past.

It wouldn't surprise me if he had sensible things to say in general. However, he's not an economist. The CEA was created by statute in 1946 so that the President could hear from people for whom economics was their vocation. The CEA (or the National Economic Council) may be dispensible institutions. In that case, scrap them, don't put inappropriate people in those positions. Kudlow might be a good pick for a seat on the Securities and Exchange Commission, because that's an industry he knows something about, though he's out of the loop on innovations in the last 20 years.

glad to hear he could offer solid advice to an incredibly rich professional golfer. perhaps he could try advising forty somethings without high school educations in eastern Nebraska that can't do farm work due to non-work related injuries. What do those people do?

Was his advice “do more hookers and blow”

He's 69 years old and went through a career crash 21 years ago. Why would he tell someone to do that?

You're merely proving to the commentariat here that you have no sense of humor. My real point, which anyone should be evident, is that the guy had a great job and blew it up his nose. His judgment is poor and he shouldn't be giving anybody ANY type of advice, economic or otherwise.

Now that I think about it, he's perfect for the job...

"which should be evident" not "which anyone should be evident"

You’re merely proving to the commentariat here that you have no sense of humor.

No, you're proving you fancy that tasteless remarks are funny.

It's a matter of public record he had a career crash in 1993. You know about it, because he's written about it, as did the New York Times. Like most men in old age, he has his regrets. He's not reducible to his humiliations, and no one who wasn't fundamentally puerile would think he was.

I know about it because I was at a luncheon at which he was to be the featured speaker and he was either too high to talk or too high and he forgot.

And no, I don't think he's reducible to his humiliations, even though that makes no sense in the English language. I've always thought he was a dolt who knows very little economics AND he's got bad judgment which he has displayed in the past.
Like I said above - he's perfect for this administration.

I know about it because I was at a luncheon at which he was to be the featured speaker and he was either too high to talk or too high and he forgot.

That had to have been 25 years ago. Sorry, not buying.

There was this one in 1994, but he said he was sick.

"Then this year, on Tuesday, March 1, Mr. Kudlow was scheduled to speak to a large group of institutional investors in Boston. Two hundred people turned up for lunch at the Hotel Meridien. But Mr. Kudlow, the featured speaker, failed to show.

Given Mr. Kudlow's recent troubles, a lot of people at Bear Stearns and on Wall Street were suspicious. But Mr. Kudlow said last week: "I was sick. It was not a relapse. I know there were rumors."

Why would he not have called to say he didn't feel well and wasn't coming? "Unfortunately, there was a communications gap," he said. "I wish I could make amends to every person who was there. That was not the reason for the resignation."

Just because one is 69 and went through a rough patch it doesn't mean one learned a thing.

I see the attraction for the borrower locking in low borrow costs, but what is in it for the lender? Won't his investment lose value when borrow costs inevitably rise again? Expecting three generations to get paid in toto, isn't he locking his heis in low capital remuneration, too (even in the case of institutional invedtor, it still seems a sub-optimal investing strategy, and 100 years seems to be a longer period than the average board can plan for or care about).

Simple. Have the Fed monetize the debt in century bonds.

Unfortunately it could only handle a third of the Federal debt by converting the bonds it hold to century bonds it did not trade.

Anyway, they wouldn't there.

Further confirmation that TV is where the President learns about the world.

Maybe the CIA can get a cable slot, and a weather girl to diagram hacking attempts.

They would have to be on Fox News or Breitbart or Alex Jones though. These are the president elect's trusted "news soruces."

Is Trump just trolling me now? Monica Crowley?

Kudlow is a lapsed investment banker. He really is not suitable for that post. The CEA was intended to be staffed with professional economists - either academicians or corporation economists with equivalent training.

Sure, he may not have an economics degree, but he's a TV personality who has been married 3 times and talks pretty loud. He's basically Trump but with a better fitting suit.

He's been married to the same person for 30 years. His first marriage was annulled after a year. His second wife was a divorcee he was married to for about 4 years. Both marriages were childless.

So in other words, he's been married three times

No, in other words, he's not Trump with a better suit.

To say 'he's been married 3x' when he's been married to one person for 85% of that time, when you haven't a clue if he's ever been the plaintiff in a divorce suit, and when one of his previous wives had a past, is to mislead.

Actually the whole point of an annulment, the whole distinction between that and a divorce, is that he has only been married twice. By definition if he got an annulment, he was not married.

It is a simple rule. Henry VIII wanted an annulment. He did not get one. He opted for the divorce.

The whole point in canon law; don't think it matters in statutory law, bar obscure provisions of estate, powers, and trust law.

In front of an ecclesiastical tribunal, he'd have had to have gotten a declaration of nullity re both marriages to regularize his current marriage.

I just wonder who Larry Kudlow has in mind to lock in with low returns on investments for 100 years?

Foreign central banks would probably be willing buyers of such a product. Insurance companies and pension funds would like these bonds too.

Why not issue a couple billion worth and see what the market looks like?

Why? I am asking seriously: why? If the trend is of rising interest rates (otherwise it wouldn't make sense trying to lock in the low capital cost), why would someone want it for a hundred years? Who needs a hundred-year hedge (even most institutional investors boards are not that far-seeing, I fear). And if interests go up, doesn't the bond price go down?

I suspect that you two have different rates in mind. And probably both those rates are higher than the number Larry has in his head.

We should not ignore the fact that the "low" nominal interest rate on public debt is partly a results of regulatory subsidies.

http://subprimeregulations.blogspot.com/2016/11/olivier-blanchard-agrees-there-is-need.html

So, Tyler emphasizes a few issues where he has not completely ridiculous views such as on monetary policy and trade. OTOH, this BA in history has had a simply awful track record on forecasting much of anything about the economy. Back in Dec. 2007 he was declaring that we had no chance of a recession. Later he was all in for how we were going to have a hyperinflation any minute. Then there are his ancient forecasts about how cutting tax rates would not only boost the economy but also revenues. Sorry, the budget deficit went way up under Reagan (and also under G.W. Bush), but, hey, those supply siders just stay in style no matter what.

He should nominate Sylvester Stallone instead. Equal quality.

Supply siders have political support, which makes factual support unnecessary.

Regarding "awful track record on forecasting", so how well did the last CEA do on forecasting unemployment with fiscal stimulus?

I'm just glad that Trump isn't thinking about appointing Paul Krugman!

...Sorry, the budget deficit went way up under Reagan (and also under G.W. Bush)...

Not sure how this invalidates supply side. Tax revenue did go up under Reagan, and the economy grew.
If Reagan and the Dems in congress both wanted to spend all that new revenue, plus a whole lot more, how does that invalidate the first?

100 years or 1000 years what difference does it make? We will never pay it off, we will never pay it down and as soon as interest rates return to historical norms we will be unable to pay the interest on the debt.

'We will never pay it off'

Well, a certain Alan Greenspan was convinced that the U.S. could always write a check for 1 trillion dollars. However, he also noted that the actual value of that 1 trillion dollars would be another question entirely, but as for writing that check? No problems at all. So sure, the U.S. can actually pay off all its dollar denominated debt any time it wishes.

A few years ago Kudlow put Scott Sumner on a 6-person short list as the best people to replace Bernanke.

I tried to find something he had written for an economics journal in Google Scholar but I came up dry. Have I missed something? He seems to have done no formal academic work in economics but that could be excused if he has done something that passed the normal reviewing tests applied to economic analysis.

A 100 year bond would probably come at a rate of 3.5-4% judging from the current 30 year of 3.2%.

I don't see how that is locking in currently low rates. The overall trend in rates has been lower for a long time now from the high 70'/80's rates.

Also long term bonds from a long time ago (perpetuals) I think often had face rates of 4%. The historical average rate on gov bonds is probably pretty close to if not below the 4% rate it would likely take Uncle Sam to sell 4% rates now.

I don't see the reason to sell 100 year bonds. They seem likely they would be priced pretty fairly for both sides according to history.

A 100 year bond would probably come at a rate of 3.5-4% judging from the current 30 year of 3.2%.

I don't see how that is locking in currently low rates. The overall trend in rates has been lower for a long time now from the high 70'/80's rates.

Also long term bonds from a long time ago (perpetuals) I think often had face rates of 4%. The historical average rate on gov bonds is probably pretty close to if not below the 4% rate it would likely take Uncle Sam to sell 4% rates now. I think Venice was a big issue of perpetual bonds and a few other countries in the past.

I don't see the reason to sell 100 year bonds. They seem likely they would be priced pretty fairly for both sides according to history.

How long has it been since someone has been Chair of CEA and not had a degree in economics?

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