Larry Kudlow: This is unhealthy and inflationary

President Joe Biden, once again, selling Bidenomics in Wisconsin today. He got a good 3.3% GDP number for the fourth quarter of 2023, following 4.9% in the third quarter and, if I were he, I would be bragging about it too and the inflation rate has come down. 

All is fair in love, war and politics. Brag when you can. I get it. I’ve been there, but of course, Biden can’t help himself because then he goes hog-wild with dumb things about Donald Trump’s economic achievements. Here’s something Biden said. Take a listen. 

JOE BIDEN: “My predecessor, he chose a different course. Trickle-down economics, cut taxes for the very wealthy and big corporations, increasing the deficit significantly. That’s exactly what happened. // He stripped good paying jobs and shipped them overseas.” 

All these attacks are completely wrong, as I’ve said hundreds of times. Just for starters, Trump’s tax cuts increased average real wages by over $6,000 – while Bidenomics has seen typical family income drop over $4,000. Distinguished studies of the corporate tax cuts showed they produced more investment, higher real wages, more productivity, helped the lower incomes more than the upper incomes and paid for themselves. 

LARRY KUDLOW: CUTTING BENEFITS AND RAISING TAXES FROM ANOTHER FISCAL COMMISSION WOULD BE FISCAL INSANITY     

Then, this baloney about 1,000 billionaires and how they only pay an 8% tax rate. This is wonderful. I’ll do it again. I’ve done it hundreds of times. This is based on an unrealized capital gains wealth tax that was never implemented into law. It just does not exist. There is no such thing, but Biden keeps including the unrealized income and applying that to today’s tax rates in order to get to this phony baloney 8% rate. 

There is no unrealized capital gains wealth tax and, therefore, no income to be counted. It is just a flat-out lie. Staggering! Now, Biden’s GDP improvement in the second half of last year is a good thing and, without stepping on his line too much, to a great extent, the second-half improvement offsets the GDP decline in the first half of 2022. 

Now, Mr. Biden is also right to brag on lower inflation, but what’s troubling about these GDP reports is that the biggest contributor to growth is government spending. 

In fact, in the last two quarters, government spending has grown much faster than any other major category of GDP, including consumer spending. This is unhealthy and, ultimately, it will prove to be inflationary. 

Economist Joe Lavorgna has pointed out that government spending in the last three years under Biden comes in with a cumulative excess of $3.3 trillion above the long-term trend. More or less — 7.5% spending growth, versus 5.5% historical trend-line growth. 

The sum-total of federal spending is rising faster than GDP and deficits for last year FY 2023 and for this year FY 2024 are going to keep coming in around $2 trillion and big-government spending, which stimulates demand, is not being matched by manufacturing or business equipment growth, which basically has been flat to down for almost two years.

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Stay with me, folks. Jean-Baptiste Say, the great French economic philosopher (It may be France’s greatest product down through the years.) argued that supply creates its own demand. We must produce in order to consume. Bidenomics assumes that consumption stimulated by government will do the job. It won’t. 

That is called “too much money chasing too few goods.” That causes inflation to go up. That’s the big risk in the economic story. I don’t deny Mr. Biden’s mini-boom in recent months, but I do deny that his massive government spending will produce a healthy economy in the long run. 

This article is adapted from Larry Kudlow’s opening commentary on the January 25, 2024, edition of “Kudlow.”