That was then.

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Kudlow Is a Troubling Economics Adviser for Trump

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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Donald Trump is reportedly close to picking Larry Kudlow to be the chairman of his Council of Economic Advisers. This will doubtless annoy many economists and policy wonks because Kudlow isn’t an economist -- he didn’t even major in econ in college. He’s an econ commentator, much like me, but without the academic training.

But the general public probably won’t even notice or care that he lacks a doctorate in economics. Unlike “physicist” or “biologist,” all you have to do in order to be considered an “economist” is to declare yourself one. This lack of faith in academic credentials might have to do with the low regard in which much of the public holds the econ profession. But in any case, it means that to most people, Kudlow’s bona fides are just as burnished as those of Alan Krueger, Christina Romer, Ben Bernanke or any of the other former holders of the position.

Academic credentials aside, there are actually some important reasons to worry about Kudlow. One is that the former CNBC host has made some spectacularly bad calls in the past. In December 2007, as the housing bubble was already collapsing and the financial crisis was on the horizon, Kudlow declared that “there ain’t no recession.” One piece of evidence he cited for this optimistic claim was low inflation -- seemingly forgetting that low inflation is usually a hallmark of recessions, not expansions. He concluded with this memorable flourish:

The recession debate is over. It’s not gonna happen. Time to move on. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). The Bush boom is alive and well. It’s finishing up its sixth splendid year with many more years to come.

Now, all commentators make bad calls once in a while and plenty of them didn’t anticipate the financial crisis or the Great Recession. But Kudlow’s miss on the recession demonstrates three things that worry me: overconfidence, partisanship and an excessive focus on the problems of the 1970s.

First, I believe that econ commentators should always try to be circumspect, especially when it comes to macroeconomic issues. Recessions and booms are very hard to predict. Even if you don’t see one coming, it’s good to acknowledge that one could arrive at any time. I wouldn’t want President Trump to ignore the risk of recession because of one or two quarters of strong jobs and productivity numbers.

Second, it’s not good to let partisan ideology color assessments of facts. It’s a natural human tendency, and we all do it to some extent, but it’s an urge that ought to be resisted. Just because a policy benefits a group we’re part of, or comes from a politician we support, doesn’t mean the policy is a good one. In his 2007 no-recession call, Kudlow refers to the “Bush boom.” Did he want to believe the economy was doing well because it would reflect well on President Bush? A Kudlow article from 2002, saying that an aggressive stance in the war on terror would be great for the stock market, seems to display this same tendency (the market fell by 1.5 percent in the year after Kudlow wrote this). In fact, Kudlow’s commentary is consistently partisan, which makes me worry that a Kudlow-helmed CEA would fall victim to wishful thinking. In fact, there are signs of this already.

Third, Kudlow’s odd mention of inflation is a red flag for an excessive focus on the problems of yesteryear. Inflation was a big deal in the 1970s and early ’80s; since then, it’s basically been nonexistent. But in 2009, even as the country languished in the depths of recession, Kudlow was among those warning of the imminent danger of inflation. No such rise occurred.

Now, Kudlow did later acknowledge his mistake about inflation. That’s very admirable. But I worry that Kudlow will be too focused on other old problems, such as taxes. Kudlow has consistently pushed for tax cuts, especially for high earners. But top marginal income tax rates are about half of what they were when Ronald Reagan became president. Once tax rates get low enough, cutting them more does little to stimulate the economy -- witness the Bush tax cuts of the early 2000s, which had little if any noticeable effect on growth. High income taxes are a problem that has already been solved; pushing more tax cuts will just expand deficits, requiring taxes to be raised again later.

Now, Kudlow does have some qualities I find encouraging. His admission of having been wrong about inflation was far more honest, objective and forthright than those of many others who got that call wrong and never acknowledged it. It reminded me a little of my Bloomberg View colleague Narayana Kocherlakota’s similar turnabout. And Kudlow does have some interesting and innovative thoughts that I like, such as the idea to issue very long-maturity Treasury bonds. 

But overall, I think Americans should be a bit worried about this pick. Overconfidence, partisan  thinking and too much focus on old problems are dangers at the best of times. When combined with  a mercurial president like Trump, they may be even more perilous.

(Corrects first paragraph to indicate that Kudlow is the leading candidate to head the Council of Economic Advisers, but no announcement has been made yet.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net