Recovering Even As Gov't Control Looms

IBD Editorials ^ | September 1, 2009 | LAWRENCE KUDLOW

[Kaslin]

Believe it or not, sometimes good news on the economy can be bad news for stocks.

It's a distant point, but one worth considering in view of conservative pessimism over President Obama's plans to spend, tax, borrow, and control the economy. I share these worries. But the U.S. is still a free-market economy, and it will be so at least until the health care and energy sectors are nationalized. And free-market economies are resilient and self-correcting.

While so-called spending-and-deficit stimulus may be an economic depressant, Friedmanite monetary stimulus — which has been substantial — is gradually exerting a powerful impact on economic growth.

At the same time, businesses have become lean and mean, with radical cost cutting of inventories, employment, and hours worked. That's setting up a big profits surge, which is the biggest economic stimulus of all.

Consumers also have retrenched, as is appropriate with falling home prices, a rough stock market correction, and a slowdown of incomes. But from the ashes of recession, these corrective forces lead to the next recovery.

In Hayekian and von Misean terms, bad investment and spending decisions are being remedied through the free-market corrective process. And greased by easy money, today's market correctives may produce a much stronger V-shaped recovery than the stock market consensus expects.

That's the message of this week's blowout manufacturing report from the Institute of Supply Management.

[Kaslin]

[ActrFshr]

Good points there. We may benefit from the stimulus and lower taxes in the near term, but starting in 2011 we’ll have to start paying for our current luxuries with higher taxes, higher deficits, higher interest rates, and higher regulations. Canada will then be complaining about all the immigrants from the USA.