Larry Kudlow: Why the Fed Has Never Understood Supply-Side Economics

The Supply-Side Approach to the Fed

• 💡 The core argument is that a supply-sider should run the Federal Reserve, emphasizing that taxing less leads to more of something, including work, investment, growth, and production.
• 🎯 Producing more goods is seen as a direct way to lower prices, a concept supply-siders understand that tax incentives can generate faster growth with lower inflation.

The Fed's Misunderstanding of Inflation and Incentives

• ⚠️ The Federal Reserve is criticized for never understanding that tax incentives drive growth and lower inflation.
• 🧠 The Fed's belief that more growth always increases inflation is seen as a fundamental misunderstanding of incentives to work and the Laffer Curve.
• 📉 This misunderstanding has historically led the Fed to do more harm than good.

Monetary Policy and the Dollar

• 💰 The ideal scenario includes a reliably stable and sound dollar, where scarce dollars produce a strong greenback, and overabundant dollars devalue the currency.
• ⚖️ This aligns with the Laffer-Mundell model, which advocates for tax cuts and tight money.

Leadership at the Federal Reserve

• 🎯 Five finalists are mentioned for the top job at the central bank: Rick Ryder, Mickey Bowman, Chris Waller, Kevin Hassett, and Kevin Walsh.
• ⏳ President Trump is expected to make a decision after Thanksgiving, as J. Powell's term ends next May.
• 🚀 The institution is described as being in bad need of change, with a preference for a true supply-sider to lead.
• 📈 It is posited that tax cuts and tight money can deliver 4-5% growth with virtually zero inflation.