A Kemp-Roth Leadership Litmus Test

A Kemp-Roth Leadership Litmus Test

In 1977, Democrats had a 149-seat majority in the House (292-143), 61 votes in the Senate, and Jimmy Carter as president. The country was in decline. It was the worst economy since the Depression, far worse than it is today. The mainstream economists and the DC establishment were woefully unable to deal with the defining issue of that era: inflation. If there was ever a time to despair, it was then.

Jack Kemp, serving just his 4th term, didn’t sit on a committee relevant to economic policy, yet is the namesake of the most consequential (in a positive way) legislation in perhaps 50 years. Kemp proposed across the board tax cuts, knowing a surging economy would help tame inflation.[1]  Kemp was not deterred by the Democrat’s stronghold, nor fazed by the establishment saying his views were outside the mainstream. What did he do? How did he do it?[2] And, importantly, what can we learn that is relevant to the selection of the next Speaker of the House?

  • Attempt #1: February 23, 1977

Kemp offered his "across-the-board tax reduction for every American" as a substitute to the first budget resolution for FY 1978 (Jimmy Carter's $50 rebate). His effort went down 148-258. But, it was a new beginning. It stopped the pendulum’s swing.

By using the official forum of the House Floor to sell the benefits of economic growth, Kemp established that tax cuts and growth should be part of the national narrative. Media coverage and public engagement followed. Strategically, he walked out with a scorecard and 148 more votes than he had the previous day.

Will our next Speaker allow a vote on something leadership deems to have no chance to pass? Under Speaker Boehner, it’s doubtful a Kemp-Roth type bill would have seen the light of day. Will the next Speaker welcome such “new beginnings”?

  • Attempt #2: March 15, 1978

Kemp offered Kemp-Roth as an amendment to the Humphrey-Hawkins full employment bill (which gave the Fed its dual mandate). Depending on one’s perspective, he lost again 194-216, or he won 46 more votes.

  • Attempt #3: May 3, 1978

 Kemp-Roth, combined with limits on the growth of spending, passed the House of Representatives as the Holt amendment to the first budget resolution for FY 1979. Leadership was furious and forced eight members to change their votes. On the recount Kemp-Roth went down 197-203.  The following month, Proposition 13 in California, a property tax cut that the establishment opposed, but Reagan supported, passed. In addition, the Steiger-Hansen bill, which cut the capital gains tax from 49% to 28%, also passed in June, despite being deemed as having no chance just months earlier. The pendulum was in full counter-swing.

  • Attempt #4: Early August 1978

A Kemp-Roth amendment to a Ways and Means tax bill went down 177-240.

  • Attempt #5: August 16, 1978:

The Holt amendment to the second budget resolution lost 201- 206.

  • Attempt #6: Early October 1978:

A Kemp-Roth amendment to a Senate Finance Committee tax bill lost 36-60. 

  • Attempt #7: October 9, 1978

The Nunn amendment, better known as the son of Kemp-Roth, which combined the Kemp-Roth tax rate reductions, but phased them in, with limits on the growth of spending (essentially the Holt amendment), swept the Senate 65-20, when Republicans had only 38 votes.

Three days later the House voted 268-135 (when Republicans had only 143 seats) to instruct its conferees to support the Nunn amendment in the House-Senate Conference on the Tax Bill.

Kemp-Roth was killed in the Conference by the Carter Administration and business lobbyists. When an unpopular president overrode the will of the people on what had become a popular bill, it vaulted Kemp-Roth into the national spotlight. Reagan seized the opportunity and made tax cuts the centerpiece of his budding presidential campaign. The rest we know. Reagan won and signed Kemp-Roth into law as the Economic Recovery Tax Act.

We are facing very similar circumstances today as Kemp did in 1977. We have a lousy economy and an unpopular president. The mainstream economists, academia, the media, and the political establishment are all failing to address the defining issue of this era: ending 44 years of stagnant real income for the bottom 90% (the “striving majority”). We are told by “experts” this is a new normal, deal with it.

It’s ironic (or tragic) that the defining issue of Kemp’s era is related to the defining issue of ours. The same Keynesian economists who failed to grasp inflation in the 70’s, concluded afterward that it was caused by a so-called “wage-price spiral.” To them, rising wages caused inflation. In other words, inflation was no longer a monetary phenomenon characterized by too much money chasing too few goods. Instead, they insist it is a labor market phenomenon characterized by too many people working and prospering. And we are supposed to wonder why we have wage stagnation?

The Kemp-Roth legislation of our time is a bill requiring the Fed to stabilize the dollar. This removes the Fed from labor markets and prevents them from targeting wage growth. As the nearby chart shows, since the formation of the Fed, we have had 3 periods, totaling 48 years, in which the dollar was stable (1922-1929, 1948-1971, and 1982-2000). A stable dollar has produced 4.02% economic growth and 3.74% average annual real income growth for the bottom 90%. This is exactly what we need. Compare that to the 2.68% growth of the volatile dollar periods in which income for the bottom 90% declined by .7% per year.

Before arriving in Washington, the vast majority of members of congress serve in state or local government, where they gain dollar_value.pngexperience with taxes, regulation, budgets, spending, etc., essentially everything EXCEPT monetary policy. They run their campaign, and win, on their track record and experience which, by definition, excludes Fed policy. Once in Washington, it is difficult to engage on the subject. To overcome this “factory installed blind spot,” we need not just a Jack Kemp, but a Speaker who will allow amendments and debate on the House floor.

Imagine if a congressman was given the opportunity to amend the debt ceiling legislation with a bill to stabilize the dollar. He or she would have an official platform to establish that we can solve our debt problem with across-the-board prosperity, but then ask whether such prosperity can ever happen as long as the Fed thinks wage growth is undesirable.

The dollar is a unit of measure, the fundamental unit of value for the world economy, and it is imperative that it be just as stable and reliable as other units of measure like the foot, hour or pound. This will bring the issue to the forefront and represent another new beginning. Perhaps a presidential candidate would seize the opportunity.

Nobody knows how many attempts it will take to ultimately pass such a bill. But we should demand from every candidate for Speaker that we will at least have the opportunity. Only then will we discover how many Jack Kemps we may have in this congress. Only then can we enjoy another American victory over Washington.


1 Note: Inflation is a surplus of dollars relative to demand for them. Reducing the supply of dollars is one way to treat it, but increasing the demand for dollars through tax cuts is the preferable way. Fed Chair Volcker deserves credit for “breaking the back of inflation,” just not all the credit. The record shows he struggled until the tax cuts were implemented.

2 This legislative chronology comes from remarks made by former Kemp advisor Dr. Paul Craig Roberts at a Heritage Foundation panel “The 10th Anniversary Celebration of the Kemp-Roth Tax Cuts – The Importance of America’s Victory over Washington.”

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The Fed and the Financial Crisis


The Fed and the Financial Crisis

Rich Lowrie

On Monday, June 1st, Restore America’s Mission is hosting a panel discussion at the National Press Club on the causes of the 2008 financial crisis. Only by understanding the policy mistakes that led to it can we hope to avoid repeating them. This is crucial if we expect to fuel a 21st century recovery for all Americans.

I am pleased to represent Put Growth First and join fellow panelists Peter Wallison of American Enterprise Institute, Steve Moore of Heritage Foundation, Peter Ferrara of Heartland Institute, and Matthew Vadum of Capital Research Center.

The panel’s featured presenter is Wallison, AEI’s Financial Policy Studies Fellow. In his new book, Hidden in Plain Sight – What Really Caused the World’s Worst Financial Crisis, and Why it Could Happen Again, he shows how government regulation produced a combustible mix that led to the crisis and, therefore, why we should be alarmed that the policy response to it has been an onslaught of more regulations.

In a nutshell, the government essentially forced banks, through the Community Reinvestment Act, to make subprime loans, then changed Fannie Mae’s mandate allowing it to acquire said loans. Fannie’s quotas quickly rose and by 2008, 31 million of the nation’s 55 million mortgages were subprime, and 76% of those were on the books of the government. What could go wrong?

Our contribution to the panel will be on Federal Reserve policy from two separate but related perspectives. First, as shown in the table below, the dollar declined 53% from Fed Chair Ben Bernanke’s infamous “helicopter” speech in 2002 (in which he said PGF_-_NPC_1.jpgthe Fed could print money and figuratively drop it from helicopters) to just prior to the financial crisis. This decline pushed up the price of real assets, including housing. When home prices outpaced the ability to pay, it created demand for “creative” financing, which the Fed helped supply with artificially low interest rates. Then, soon after the Bear Stearns collapse, there was a worldwide scramble for dollar based liquidity, which the Fed failed to meet.  Hamstrung by backward looking indicators, the Fed presided over a de facto tightening of monetary conditions at exactly the wrong time by allowing the dollar to soar 119% over 8 months. This choke hold was the spark that ignited Wallison’s combustible mix.

In the classical sense, the dollar is a unit of measure, like the foot, hour and pound, whose value should be just as stable. When it is not, it causes malfunctions in the economy, much like if measurements of time and distance “floated” and were volatile.

The second point is also tied to the Fed’s neglect of the dollar. Namely, Fed policy is the primary driver of stagnant real PGF_-_NPC_2.jpgincome for the bottom 90% (aka. the “striving majority”) over the last 40 years. This is because they have come to treat wage growth as a “cause” of inflation. As the nearby chart shows, when we’ve had robust economic growth, the Fed has embarked on a rate-tightening cycle as the benefits of growth were beginning to lift income of everyone.  Rather than be puzzled by income stagnation, we should ask “Can we ever have the kind of across-the-board prosperity we all want, the kind capable of solving our fiscal crisis, if we continue to let the Fed think wage growth is bad?”

It wasn’t always this way. When the Fed last had a mandate to stabilize the dollar, 1948-1971, real income for the striving majority rose 86%. It was the golden age of the middle class when a rising tide lifted all boats. A stable dollar meant stable material costs, lower risk premiums, and more productive investment so productivity could keep pace with wage growth. Further, profit margins were stable and we did not experience a single financial crisis.

What changed? For starters, the very definition of inflation did.  No longer viewed as a decline in the real value of the dollar, it became known as an increase in a lagging price index.  To keep the index from going up, the Fed targets the largest input cost to the goods and services that comprise the index: labor costs (i.e., your income). This is rooted in the Phillips Curve, which posits inflation is “caused” by too many people working and getting a raise, despite the fact it has been debunked by several Nobel laureate economists.

This much stagnation, for this many people, for this long is the force undermining confidence in free enterprise and inviting all the big government attacks upon it. When fewer people benefit from growth, demand for pro-growth policies wanes, and PGF_-_NPC_3.jpgdemand for government to “do something” climbs, resulting in a negative cycle that feeds itself. Had the previous trend of ’48-’71 continued, real income for the striving majority would be 2.5x greater today. If that were the case, would there be any justification for the government to subsidize housing in the first place, let alone anything else? We wouldn’t have spending, deficit, debt, and government dependency problems either.  The above chart shows the contrast between a stable-dollar & prosperity vs. the floating-dollar & stagnation.

To borrow a phrase from Wallison, also hidden in plain sight is that the Fed treats wage growth as inflation, which is the root cause of our troubles.

May 29, 2015

** Value of dollar calculated in terms of the monthly closing price of the CRB Index (Commodity Research Bureau)



Rich Lowrie is co-founder of and Senior Advisor to Put Growth First. He is former Senior Economic Advisor to presidential candidate Herman Cain and former chairman of the campaign’s Economic Policy Advisory Committee. He is the co-author of the 9-9-9 Plan, and of the book “9-9-9 An Army of Davids.” He is managing director of a Cleveland based wealth Management practice.  

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Is Income Growth for the Bottom 90% Prosperity or Inflation?

If you believe income growth for the bottom 90% is prosperity please Sign the Petition.

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Dismantling the Most Dangerous Equation in the World

Why does Paul Krugman and other “Keynesians” always get economic policy wrong?  They believe consumption drives the economy.  In other words, they think it is possible to consume something before it has been produced.  In real life, we all must produce before we consume, or in order to consume.  Production pulls consumption along the way an engine pulls the caboose.  But don’t think for a second that just because they travel at the same speed, the caboose could be pushing the train!  From an economic policy perspective, it never makes sense to put fuel in the caboose. Ever! No_Equation.png

How could seemingly smart guys be so wrong?  In their defense, it is what they were taught. 

A major culprit in perpetuating the myth that consumption drives the economy is the standard textbook equation for measuring GDP. This equation only measures what was produced and is inadequate for understanding how GDP gets produced.

The standard textbook equation goes like this:  GDP=C + I + G + (X – M) where C=Consumption, I=Investment, G=Government Spending, and (X-M)=Exports less imports. 

This simply counts GDP.  Counting GDP differs from making GDP; just as counting money differs from making money. Or, just as a pay stub only accounts for where a paycheck ends up, it is useless for determining how to actually earn a paycheck in the first place.

To extend this analogy further, imagine a comparable equation that measured your personal income. It would be equivalent to the above equation, except it represents your income instead of the nation’s income. It would say your income (I) = direct deposit (D) + savings (S) + benefits (B) + taxes (T) or I=D+S+B+T. This is essentially the layout of your pay stub. It says nothing about how you earned the income, and offers zero insight into increasing your earnings.  

Now, imagine if those same “intellectuals” who claim that increasing government spending increases GDP, looked at the equation and concluded to increase “I”  (your income) you just have to increase “T” (taxes). Would you take them seriously? Ever?

It’s an optical illusion that increasing government (G) is one way to increase GDP. Government doesn’t produce output, so increasing government can only mean that more of the existing output is redistributed. It is a necessary part of the equation because, to properly count production, we must account for production taken by government that would have otherwise fallen into another category.

Another optical illusion is that increasing consumption will increase GDP.  This is the equivalent of someone looking at your pay stub and saying to maximize your income all you have to do is just increase “D” (the amount of your direct deposit).  Welcome to the Ivory Tower my friends.

Finally, it creates the optical illusion that imports (I) are inherently negative since they subtract from GDP. They are subtracted from GDP only because they are already included in consumption so the subtraction merely prevents double-counting. We should welcome imported goods as long as they compete on a level playing field with domestic goods.

Because the most dangerous equation in the world is standard issue in every basic economics textbook it’s no wonder the country has spending and debt problems, a non-recovering economic recovery, stagnant wages, and joblessness. What it costs to “learn” this stuff in college pales in comparison to the cost to society when it is misapplied.  Memo to the “intellectuals:” rather than double down on a failed model, get a new model. 

Fortunately, there is a much better way to look at the economy if the goal is to maximize GDP. Enter the Woodhill Equation.

Introducing the Woodhill Equation

The Woodhill Equation properly respects the fact that production drives the economy, and identifies a clear-cut path for maximizing GDP. I named it after entrepreneur, economic growth guru, Forbes columnist, and fellow economic adviser to the Herman Cain presidential campaign, Louis Woodhill. Had it been standard issue in every textbook over the last 40 years, GDP would be at least $25 trillion today instead of $16 trillion,[1] we would have a budget surplus despite the reckless spending, and median income would be more than $80,000 instead of $48,000.  If that were the case, how many of our current problems would still be problems?  Given that, aren’t our so-called problems really only symptoms of our true problem: a lack of robust economic growth, caused by leaders who are clueless about economic growth.  

Rather than looking at who consumes GDP, the Woodhill Equation looks at what produces it and how. More precisely, it looks at the stuff that produces the stuff that makes up GDP. It looks at the economy as a whole the way an investor might look at a single company using a return on assets calculation. Only in this case, the numerator is not profit or revenues but rather GDP. The denominator is still total assets, but they represent the nations’ asset base rather than an individual company’s.

To arrive at the numbers, you separate GDP and assets into residential and non-residential components. Next, divide the residential component of GDP by residential assets to calculate the “GDP return on residential assets.” Then divide the rest of GDP by non-residential assets to calculate the “GDP return on non-residential assets.” The Bureau of Economic Analysis reports separate figures for residential assets[2] and non-residential assets (e.g., commercial buildings, machines, equipment, computers, structures, etc.)[3]  Residential GDP is reported in table 7.4.5[4] as Gross Housing Value Added. The rest of GDP is deemed to be non-residential. At this point, simple division allows us to calculate the GDP return on residential assets and the GDP return on non-residential assets.

The Woodhill Equation states that GDP is a function of the “GDP return” on residential assets plus the GDP return on non-residential assets. Over the last 60 years[5], the return on residential assets has averaged 7% and the return on non-residential assets has averaged a whopping 48%.  Thus, we can express the Woodhill Equation this way:



 Now we’re in a position to understand how to maximize GDP, which should be the goal of every economic policy. The first thing that leaps off the page is the 48% GDP return on non-residential assets. The next thing that becomes apparent is the low yield on residential assets by comparison. (Does this shed new light on the financial crisis, which was about government-directed “investment” in the residential sector that caused a misallocation of resources away from higher-yielding non-residential assets?) 

The Woodhill Equation proves there’s only one definitive way to expand GDP: Increase the stock of non-residential assets. This
is best accomplished via business investment.


Non-residential assets not only define the productive capacity of the economy and its growth potential but also support employment. For every $210,000 of non-residential assets, one average job is supported. Higher-paying jobs are supported by more assets, and lower-paying jobs require fewer assets.

At this point, we can work backward to solve both our growth and employment problems. To increase GDP ($16 trillion) by an additional 1% requires $160 billion more GDP. Since every dollar of business investment generates 48 cents of GDP, $333 billion of additional business investment ($160/.48) will increase GDP by 1% more. Want to increase GDP by another 2%? Business investment of an additional $667 billion will do that. That much business investment will also create 3.2 million new average jobs. To create the 15 million jobs necessary to reach full employment would require roughly $3.1 trillion of new business investment over time. (This amount is roughly what has been squandered on failed stimulus programs that put precious fuel in the caboose rather than the engine.)

By now, it should be intuitive. If we want to expand GDP, we start by expanding the productive capacity of the economy, the equipment and machines that produce GDP. This is entirely consistent with the way that households and businesses grow and prosper, by converting after-tax income which is not spent into capital, which is then used to accumulate productive assets. The economy is merely the sum-total of those entities and neither a business nor household can spend or tax its way to prosperity.

Although the official recession ended in June 2009, this recovery is the weakest in terms of employment and GDP growth as Recovery.pngmeasured against other sharp recessions in the post-WWII era.[6] Although many excuses have been given, and much blame dished out, there is really only one culprit that makes this the worst recovery. As you may have guessed by now, this is also the worst recovery in terms of business investment, which drives both GDP and jobs. The graph to the right compares the decline and rebound in investment for the current recovery to a composite of the other sharp recessions in 1949, 1973, and 1981.

The dotted line shows what the current recovery would look like if typical of the other recoveries.  

This suggests business investment should be about $3.125 trillion today, instead of the present level of $2.525 trillion. Applying the Woodhill Equation, we see this difference of roughly $600 billion would mean 1.8% more GDP growth and about 2.86 million more average jobs per year.

current_recovery_vs_48_(2).pngThe fact that the current recession was sharper is no excuse for the lagging recovery. Typically, the sharper the decline, the sharper the recovery, as illustrated in this chart comparing the 1949 decline and rebound in investment to the current cycle.

Notice the declines are similar, making the lack of recovery in this cycle more damning, not less. Had we matched the recovery,
 investment would be one-third higher today, roughly $840 billion more, equating to 2.5% more GDP growth and 4 million more average jobs per year.

Unfortunately, among other problems, the U.S. stacks its monetary system, tax code, and regulatory apparatus against investment. Our wrong-headed policy, espoused by those using the wrong economic model in the first place, punishes most harshly the very thing that drives economic growth.

“Tear Down This Wall”

As in all of nature, growth occurs when a fertilizer comes in contact with a seed. In the economy, the fertilizer is capital and the seeds are the ideas and solutions incubating in the minds of our entrepreneurs. Unfortunately, government policy creates a wall separating those with ideas from those with capital. It makes no sense to wall off those with ideas — they are the source of innovation, new business formation, job creation, and wealth generation. The wall is composed of a tax system that retards new capital formation and double-taxes whatever capital does form. The wall is fortified by a monetary system that scares capital away from productive investment into hedges that shelter it from the chaos caused by an unstable unit of measure (i.e., a floating paper dollar). The wall is guarded by regulators who treat the union of capital and ideas as though it is a hostile act. Finally, the wall is sealed by a veneer of political correctness that says the wall represents progress.

All of this takes place without regard to the patent unfairness of the way it damages the economy, employment prospects, and income of those needing help the most. If we want economic growth, if we seek full employment and rising income, we must, to borrow a phrase from Ronald Reagan: “Tear down this wall.”

[1] Assumes continuing growth of 3.9% over the last 40 years rather than 2.8%

[2] http://www.bea.gov/national/FA2004/details/index.html Bureau of Economic Analysis, Detailed Data for Fixed Assets and Consumer Durable Goods, Section 1: Residential Detailed Estimates.

[3] Bureau of Economic Analysis, National Income and Product Accounts, Table 5.9. Changes in Net Stock of Produced Assets. 

[4] National Income and Product Account Tables, Housing Sector Output, Gross Housing Value Added http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=280

[5] These figures have been calculated using GDP before the recent revisions which included certain intangible assets.  If intangibles are incorporated in accordance with the new GDP figures, the GDP return on non-residential assets is roughly 44%.

[6] Comparing the sharp recessions of 1949, 1953, 1957, 1973, 1981 and 2007 using tools provided by http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/index.cfm

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Tea Party Movement Must Fight For Economic Growth

The Tea Party Must Fight For Economic Growth

By Louis R. Woodhill

June 30, 2014

The Tea Party movement (TPM) began as a spontaneous uprising against federal government overreach.  Like all true grass roots movements, the TPM is inchoate, unfocused, and disorganized.  Politicians have tried to harness TPM energy to help win elections and/or further their agendas, with mixed results to date.

The TPM is Jacksonian (after Andrew Jackson) in its impulse.  Those Americans whose life plan calls for working and providing for themselves and their dependents tend to be Jacksonians.  They believe that a growing federal government, and especially an ever-expanding federal welfare state, means diminished prosperity and prospects for people like them.  And, they are right.

The TPM was a reaction to the federal bailouts of banks and auto companies in late 2008 and early 2009, President Obama’s early-2009 “stimulus” bill ($842 billion), and Obamacare (2010).  However, a major source of public anxiety and TPM energy was the publication by the Congressional Budget Office (CBO) of its “Long Term Budget Outlook” (LTBO) on June 30, 2010. 

The 2010 LTBO forecasted (fiscal) Armageddon, with federal debt as a percent of GDP rising from 62% in 2010 to 947% in 2084.  The CBO forecast produced responses ranging from futile (the Simpson-Bowles “Chairmen’s Report”) to politically disastrous (Paul Ryan’s 2011 budget plan).

Now, let’s fast-forward three years, to the CBO’s September 2013 LTBO (which is their most recent long-range projection).  

In the CBO’s “Alternate Fiscal Scenario” case (which they consider much more likely than their “Extended Baseline” case, which assumes politically implausible spending restraint), America’s (fiscal) world comes to an end, as shown in the chart below.

Read the rest at Forbes Magazine's Unconventional Logic Blog.

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An Open Letter to Paul Krugman

June, 2014

Dear Dr. Krugman,

I read your review of Timothy Geithner’s Stress Test with the typical amusement that so many of your writings engender. 

Have you ever stopped to think that your whole economic model, that demand drives the economy, could be wrong? When was the last time you contemplated that? Ever?

To assist you, I set up the Put Growth First Challenge. Consider it the world’s first-ever empirical study to once and forever prove whether production (supply) or consumption (demand) drives the economy.

Here’s the deal. I will ship you to one of Alaska’s beautiful but uninhabited islands. As the island’s only market participant, you will show us non-Ph.D.-types how exactly you can consume anything without first producing it. You may take with you only the clothes on your back, but nothing else that has already been produced.

Trail cameras will be set up all over the island to capture this phenomenon and footage will be posted to www.putgrowthfirst.com. The rules stipulate you can’t use a magic wand to consume something which has not yet been produced, so cameras will be there to “trust, but verify” your compliance. 

The cameras will also fulfill an important educational role. In my 25 years of business experience, and a lifetime of being both a producer and consumer, I have never observed a single case of something being consumed before it was produced. Despite my valiant attempts to educate myself on economics, I still don’t understand how demand could possibly drive the economy.   

Lastly, the cameras are for entertainment too. I picture you standing there demanding fish so you can consume it.  When that doesn’t work, you will DEMAND fish.  When that fails, you will REALLY, REALLY demand it.  You will demand things so hard your fists will clench and a vein will pop out of your head or something.  That’s the money shot I’m looking for. Hello viral video.

In your textbook economic model, is a fish supposed to jump out of the water, filet itself, float through a fire until tender, flakey and juicy, then tear itself into bite size pieces, glide into your mouth, jump up and down against your teeth, then slide down your throat?  All this, simply because you demanded it? Really? I gotta see this! In my model, you have to catch a fish first (ie. engage in an act of production), before you can consume it.

As Hilary Clinton might ask, “What difference does it make?” It makes all the difference in the world. Production has to happen first, only then can we get paid, and then, and only then, may we consume. Production pulls along consumption the way an engine pulls the caboose. Just because they travel at the same speed, don’t be fooled into thinking the caboose is pushing the train. In your model, if pouring fuel in the caboose doesn’t work, you recommend pouring even more fuel in it.  

At some point, after your arrival, but before the time at which steadfast adherence to a failed model will cause your starvation, your God-given survival instinct will overcome your mighty intellect and you will produce something (first) so you may consume it (second). Thus, Mother Nature will convert you to a supply sider even if you never figure it out on your own.

Assuming you make it back to the mainland, we’ll throw a ticker tape parade to celebrate your conversion to the supply side. Boy, the fun you will have. The next time the Hope and Change crowd calls for taking a bucket of water from the deep end of the pool and pouring it in the shallow end, rather than calling for an even bigger bucket, you can join me and we’ll ridicule them together while they stand around and hope the water level will change.  LOL. Besides, taking something out, then putting it back in, is called doing the Hokey Pokey. ROTFLMAO!

If we start hanging out together, I can teach you what I’ve named the Woodhill Equation (which I named after my friend Louis Woodhill). This says that GDP is a function of 45% times non-residential assets, plus 7% times residential assets. (It’s similar to a return on asset calculation, but using GDP relative to the nation’s asset base.) It is how the world works. It means that GDP is produced by assets that accumulate as a result of investment. Thus, investment drives GDP. Because even an Ivy Leaguer knows 45% is greater than 7%, together we can proclaim the best way to grow GDP is through non-residential business investment, not consumption or demand or redistribution.

The standard textbook equation of GDP=C+I+G+(X-M) creates an optical illusion that you and the other “serious” economists fall for every time: that increasing consumption could increase GDP. That equation shows what happened to the GDP that was produced, the same way your pay stub shows what happened to the income you earned. Your pay stub can’t tell you how to make more money any more than the above equation can tell us how to expand GDP.  If we become friends, let’s plan a party to toss that most dangerous equation in the trash heap of history.  Replacing it with the Woodhill Equation will help everyone else see that this is the worst economic recovery since the Depression precisely because this is the worst recovery in business investment, not because the bucket is too small.

Importantly, you’ll be able to go back and revise the line in your Stress Test book review from “…there’s a growing consensus among economists that much of the damage to the economy is permanent, that we’ll never get back to our old path of growth” so that it instead reads “…there’s a growing consensus among economists using the wrong model that much of the damage to the economy is permanent, that we’ll never get back to our old path of growth. But those of us using the right model clearly see that the only thing holding us back from robust economic growth are monetary, tax and regulatory policies that are holding back non-residential business investment.”

I look forward to partnering with you to restore robust economic growth.

Best Regards,


Rich Lowrie

Co-Founder, Put Growth First

p.s. Refusal to #TakeTheChallenge is an admission that your model is wrong.



  • I have invited some of my hunting buddies to accompany me to the island to hunt bears for sport under the pretense that, in doing so, we are protecting you.  You may not redistribute anything from us.
  • If Sarah Palin joins us on the hunt, don’t be intimidated by a smart, accomplished, attractive woman.  She’s cool.  DO NOT scare her away!!
  • This offer is transferrable to Robert Reich or to any of your flat-earth brethren if you decide sparing yourself some potential embarrassment is more important than saving the economy.
  • Upon your conversion to the supply side, you agree to reimburse all of our expenses.  If you don’t convert, at least you’ll stay isolated where you can do no further damage to economic growth.
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To Fix Income Inequality Fix The Fed

Rich_Lowrie_of_Put_Growth_First.jpgPerhaps the most pressing question of our time is whether wage growth for the bottom 90% should be welcomed as a sign of across-the-board prosperity, or combated as though it is inflation.  Hopefully the 2014 elections will shape up as a national referendum on this issue.

As the nearby chart shows, after each of the last three major tax cuts, the Fed stamped out the prosperity to prevent further wage gains of the bottom 90%.  As a result, real income for this group is lower today than it was more than 30 years ago.  Meanwhile, it is up more than 75% for the top 10% over the same span.  

The longer the bottom 90% experiences stagnant real income, the more people will be willing to consider redistribution and entertain the notion that maybe something is wrong with free enterprise.  Too many people work hard but don’t feel free enterprise is working for them.  If left untended too much longer, it will tear apart the fabric of the country.  This is also the reason that tax cuts have lost some luster, and why there is an element of truth to the refrain that tax cuts benefit the rich.  Of course, it has nothing to do whatsoever with tax cuts, and everything to do with the Fed.  



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Can we create a mandate for change?

Rich_Lowrie_of_Put_Growth_First.jpgIf the great football coach Vince Lombardi was alive today, he could modify his famous speech, “What it Takes to Be Number One,” to address our fiscal problems:

Growth is not a sometime thing. Growth is an all-time thing. You don’t grow once in a while, you grow all the time. There is no room for stagnation. Stagnation is a game for losers, played by losers.

When Republicans don’t stand for growth, they don’t stand a chance. If authentic growth is not an option, the electorate chooses redistribution over austerity. Austerity surrenders to stagnation and puts Republicans on a losing battlefield where cutting entitlements is too easily framed by the opposing team as redistribution from the poor to the rich. How’s that working for us?

Federal finances are ultra-sensitive to economic growth. Chuck Kadlec, economic advisor to the late Jack Kemp and more recently to Herman Cain’s presidential campaign, pointed out in his recent Forbes column that every one-tenth of one percentage-point increase in the real rate of economic growth reduces the deficit over 10 years by $314 billion.

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