The Conservative Anti-Unicorn Caucus

That’s the current name I’m using for the smart conservative writers who beseeching, pleading, with the party’s leaders not to just assume endless tax cuts will cause endless growth. N ational Review’s Kevin Williamson has been doing smart, funny, pathbreaking work on this ; until today I’d missed his response to Ralph Benko, who labels conservatives who don’t think the economy can grow at South Korea rates “prosperity deniers.” There’s a lot in this, and you should read it all, but notice the ad hominem evidence Benko uses.

Mr. Benko summarizes the exchange thus: “Now, the obvious if ambitious goal of bringing economic growth rates from under 2% to 5% has been charmingly attacked  by NRO’s erudite Kevin Williamson as ‘magic unicorns’. This ridicule was elegantly and decisively repelled by his host, Larry Kudlow, who stated, factually and fairly, ‘I did it once, Kevin, and I can do it again.’”

My impression is that Mr. Kudlow was making a joke there.

I just can’t get over the use of Kudlow as the control in the experiment. Kudlow, in November 2007, was predicting a “Goldilocks economy” for three more years.

I think the election-year economy will be stronger than the Fed’s estimate – closer to 3 percent. Too much is being made of both the sub-prime credit problem and the housing downturn. A recent Bank of England study shows that residential mortgage-backed securities in the U.S. total $5.8 trillion. Of that, only $700 billion, or 12 percent, are sub-prime. Even when you add in $600 billion of so-called Alt-A mortgage paper, most of which will not default, the total of these home loans is still less than 20 percent of all mortgage-backed paper.

What’s more, the entire market in sub-prime debt is just 1.4 percent of the global equity markets. On any given day, a 1.4 percent drop in world stocks would erase the same amount of value as the collective markdown of all sub-prime-backed bonds to $0. It’s just not that big a deal.

Not that big a deal – but Kudlow didn’t think it would happen. A month later he was writing this about house prices, in a piece titled “Bush Boom Continues.”

Another factoid worth considering is that mortgage refinancings are soaring at lower rates. Since June, they are up nearly 70 percent, whilemortgage rates on 15 and 30-year loans are down nearly a 100 basis points. That is a very positive, very welcome development that ought to cushion the plunge in home sales, and maybe even prices.

Oh, come on . This is the problem with discussions – the bulls who say we can cut taxes and grow out of anything were proven horrifically, head-explodingly wrong and it doesn’t matter!