CNBC commentator calls for 'King Dollar.' But is it enough?

Larry Kudlow has been pounding the table for a stronger US dollar as the way to beat the recession. But now that the dollar has bottomed out, why isn't the recovery sticking? Lowering taxes might be a good place to start.

Carolyn Kaster/AP/File
In this January 2011 file photo, President Barack Obama laughs with former President Bill Clinton in Washington. The economy has swung wildly back and forth since Clinton lived in the White House, as the dollar has fluctuated between periods of weakness and strength.

If you've been anywhere near a TV tuned to CNBC circa 7 to 8pm over the last year or so, you've likely heard Larry Kudlow pounding the table for a stronger US dollar as the solution to America's decline.  The reality of the dollar is that it bottomed over three years ago and over the past 6 months it's been on fire (relative to a certain collapsing demi-currency that shall not be named).

But even though Larry's gotten his "King Dollar" at long last, it's still not doing the trick in terms of helping the economy.  Here's what he thinks is missing (via CNBC):

I can think of two major reasons for the latest economic stall—even inside an overall recovery rate that’s only half the normal pace of post-WW II recoveries. First is the deflationary impact of a sharp, nearly 10 percent rise in the exchange value of the dollar relative to the euro.

That’s imparting a deflationary influence on the economy, where both import and producer prices have recently turned negative. The good side of commodity deflation is that oil and retail gas prices have fallen considerably; the bad side is that manufacturers may hold back production and that debtors have to climb out of deeper holes.

As someone who always touts the merits of a strong King Dollar, why am I complaining now that we have one? That’s my second reason for the latest economic stall: King Dollar is not being accompanied by lower tax rates.

The original supply-side growth model argued for a strong dollar and lower taxes, where the former keeps prices stable and the latter provides fresh growth incentives. But instead of easier taxes, a huge tax-hike cliff looms. Big problem. Wrong model. Anti-growth.

Obviously the problem isn't current low tax rates, it's the perception that tax rates are undoubtedly about to go higher in the future - regardless of who gets elected, I'm afraid.

One minor rebuke to Larry's point is that under Clinton, we had high taxes, low interest rates and a solid dollar (with the accompanying disinflation in oil, food costs etc) - and that seemed to work out just fine.  I'm not suggesting we can go back to that environment - the world is a different place now 15 to 20 years later.

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