Larry Kudlow: ‘More welfare without work’ is the ‘radical Democratic battle cry’
So far this year we have official estimates for economic growth and inflation for the first three quarters or nine months of 2022. The results are very poor.
First, the economy has not grown. Through the third quarter, real GDP is essentially flat for the year. Second, the inflation rate has come in over 7%. So, a flat-line economy, with a 7%+ price increase. Those are numbers. They are factoids. That’s all there is. Now, there’s some evidence that inflation is slowing in the most recent figures, maybe to around 5% using a base rate the Federal Reserve follows. But, then again, the Cleveland Fed has a median CPI that is still around 7%.
As I’ve said before, the index of leading indicators is plunging, the M2 money supply growth has crashed actually from about 30% to near 0%, and the yield curve in the Treasury market between 3-month T-bills and 10-year bonds has inverted. Right? The short rates are above the long rates.
The likelihood of a recession in 2023 is very high. Now, all that might bring inflation down a recession, but it’s a very blunt and painful way to do it.
So, we have this lame-duck Congress, which, unfortunately, may well embark on a lame-duck spending spree that, if enacted, will reverse what little inflation progress has been made. As the Wall Street Journal editorializes today, federal spending has increased by roughly $5 trillion in the last two Biden years. That’s what put the pressure on the Federal Reserve to go on a money-printing binge. The recent fiscal and monetary restraint may be badly broken. That’s my worry.
In their last gasp, House Democratic liberals are dealing for at least $150 billion in new spending for a so-called giant omnibus bill and that would wreak havoc on proper budget processes and end what little fiscal restraint currently exists. It could well be more, including a $1.6 trillion child tax credit expansion which would provide parents with kids well over $100 billion a year with no work requirements. That’s right. More welfare without work, which has become the radical Democratic battle cry.
Then there’s more COVID money and Ukrainian aid and maybe some tax extenders. All in, according to the WSJ editorial, non-defense spending would rise another 10% on top of last year’s 7% and defense spending would increase nearly 10% on top of last year’s 6%.
This is not restraint. This will not restrain inflation. This will not provide any tax and regulatory supply-side incentives by reducing the burden of centrally planned big government. The rumor is the Republicans in the Senate are going to go along with this spending spree. Rumor is the GOP Senate leadership will make a deal on the so-called omnibus spending bill. This is at the heart of the inflationary fiscal breakdown that we have experienced in recent years.
Four people will gather in a room and make a deal covering a couple thousand pages, maybe a couple of trillion dollars of new spending and no one will know what’s really in that package until it’s voted on and printed up and even then, it will take months, if not years, to know what’s there. There will never be any true oversight or monitoring of how the taxpayer’s money is being squandered by a small, selfish, cadre of leaders who have very little interest for the public well-being and economic prosperity.
There is no budget resolution for the next year. There are no committee meetings for the 12 appropriation bills. No expert witnesses to debate the merits of the policies or the spending levels. In other words, no regular order. And the Democrats, with Republican cooperation, are going to try to get this done in the lame-duck session before the public can wake up to the fiscal damage and the potential for yet more inflation, more sinking real wages, higher grocery and energy bills and a deeper recession.
This is no way to conduct economic policy. It’s a $6 trillion budget and it just keeps growing and it’s time somebody — somebody, presumably Republicans — put an end to this fiscal insanity and return to proper policy and budget-oriented processes. I mean, it’s just a big problem, folks and I want to warn you about that. Hats off to the Journal’s editorial, it’s something we’ve talked a lot about on this show and that’s my riff.
This article is adapted from Larry Kudlow’s opening commentary on the December 1, 2022, edition of “Kudlow.”