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It’s been years—15 perhaps—since CNBC Senior Contributor Larry Kudlow testified before Congress. He stopped doing it because he didn’t think anyone was listening to him.
At least one person was listening. Congressman Kevin Brady (R-TX), chairman of the Joint Economic Committee, thought Congress needed to hear his thoughts on the economy and coaxed him to return to the Hill for its hearing, "The Recovery at Five Years: An Assessment.” With stints working in the Reagan administration and on Wall Street, Kudlow had plenty to say about the state of the recovery.
Before testifying I had a few minutes to chat. I asked him if we’re in a recovery. “Barely,” he answered, “When you track things like business investment, incomes, even the jobs story—employment rates, participation rates, the rise of part-timers, wages—I acknowledge a recovery.”
However, as he told the committee, it's been “sub-par.” He said, “At roughly 2 percent average real growth over the past five years, it's the slowest rebound since World War II.”
He offers two causes for the slow recovery: a high corporate tax rate and Obamacare.
On taxes, Kudlow said, “We’re getting badly hurt by an uncompetitive corporate tax rate. Really hurt. We’re losing jobs. Almost every one of the major countries has a lower tax rate” than the United States.
One result has been headline stories of American companies buying foreign ones then moving the headquarters outside the United States to enjoy the lower tax rate.
[U.S. Chamber Chief Deputy Economist J.D. Foster goes into the twisted policy prescriptions some in Congress are advocating to counter these “tax inversions.”]
Ideally, Kudlow would “abolish the corporate tax altogether.” However, “My second choice is to drop the rate down to something like 20%.”
As for the health care law, Kudlow had nothing nice to say about it: “I think Obamacare has been a substantial job killer. And I think a lot of this part-time business can be traced to Obamacare.”
I asked Kudlow about recent research on the decline in entrepreneurship. Are we more skittish now?
“Throughout the whole economy, there’s still a lot of risk-aversion,” he said, “There’s a huge demand for cash and safety. I think that’s a function of what happened in ’08.”
For some reason, I’m not sure I understand, but there is an aversion to risk. What I call the “animal spirits” have been dormant after having a great run in the 80s and 90s. It just seems like that kind of unbridled entrepreneurship is not around.
To revive those animal spirits, Kudlow borrowed three ideas from Nobel Prize-winning economist Edward Prescott and UCLA economist Lee Ohanian [subscription required]:
- Lowering the corporate tax rate
- Lightening the regulatory load
- Reforming our immigration system
On number three, Kudlow observed, “A lot of entrepreneurship comes from the [immigrant community]. What is it? 40% of the Fortune 500 were started by immigrants.” He’s correct.
Despite being unhappy with the economic recovery, Kudlow remains bullish on America:
I’m always optimistic about America in the long run. I came out of the 70s. I was a kid, my first job out of Princeton. It was bad. That was turned around. So we can turn this around.