Larry Kudlow, the economic guru and former adviser to President Ronald Reagan, said waning productivity is holding back U.S. growth. Corporate profitability is growing the most since 2011, but gross domestic product has barely risen.
“We had big, big profits numbers in the S&P 500. Most of that was overseas, internationally driven,” Kudlow said on CNBC. “If you take out that and the banks, the actual profits are much less.”
He cited yesterday’s GDP report as indicating broader company profitability was waning even as the economy grew by 1.2 percent.
“You got a GDP report that shows profits at large, 4 million to 5 million companies in there. Those are so-called ‘IRS profits,’ and can't be fudged. And they are falling 5.6 percent on a year over year basis,” he said. “They are falling because the balance between cost and prices has not been favorable for quite some time. The missing link is productivity. You get wage increases, but you don't have productivity to offset it.” Productivity is a measure of output per worker.
Earlier this week, Kudlow said President Donald Trump’s proposed 2018 budget will help to accelerate economic growth by 3.5 percent to 4 percent a year.
“Roll back regulations and grow, grow, grow. Three percent, in my opinion, is minimal,” he said on CNBC. “They can do 3.5 percent to 4 percent if they get the tax cuts through ASAP.”
The U.S. economy has grown by 3.2 percent a year on average since 1947, but never exceeded 3 percent during the Obama administration, the first time in history. Trump’s proposed budget is based on tax and spending cuts to strengthen economic growth without increasing the deficit.
Kudlow said he likes the idea of reducing dependence on the government, as Budget Director Mick Mulvaney described the spending plans on Tuesday.
“It’s a taxpayer-first budget,” Mulvaney said. “We are no longer going to measure compassion by the number of programs and the amount spent on those programs.”
Kudlow is host of "The Larry Kudlow Show" and author of "JFK and the Reagan Revolution: A Secret History of American Prosperity," written with Brian Domitrovic and published by Portfolio.
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