Some good news today, in two parts. First, more Americans are working. That is unambiguously good. Corporate payrolls up 471,000 in July, with a 5.2% year-to-year wage increase, 6.2% if you're a blue-collar worker.
The unemployment rate is down to 3.5%. The small-business oriented household survey, not quite as strong: +179K.
So, in the first half, economy was negative in recession. We'll see about Q3 after the good jobs report. We've still got a big inflation problem, although market price indicators have tailed down.
The Fed has got more work to do to drain its balance sheet and bring its Fed funds target rate above the inflation rate. I don't know where that will land, but 2.5% is still way too low. My guess is base core inflation is probably around 5 to 6%, but let us cheer that more Americans working.
By the way, if we had decent supply-side economic policies with lower tax rates and deregulation, we would have nothing to fear from 5 to 6% wage increases, but we have a heavily overregulated economy and plenty of threats and more is coming.
Think of the right policy as tax cuts and king dollar. The former generates growth incentives, the latter holds down prices. That's the optimal policy mix. Second piece of good news: capex investment is being carved out of the Manchin-Schumer monstrosity.
Courtesy of Senator Kyrsten Sinema, probably the worst part of this dumb bill has been removed. Taxable profits will replace minimum corporate book profits, at least as far as 100% expensing of plant equipment and technology is concerned.
There is no legislative text yet so we don't know everything that we're going to need to know about this deal, but the kill shot to business investment has been removed, as far as I can tell. So, hats off to Senator Sinema. I'm sure she watches our show nightly, taking notes constantly, as she removed the most economically damaging part of this goofy bill.
Also, the carried interest provision, which taxes private equity funds on a capital gains basis with a three-year holding period, has also been removed. Of course, that still leaves the IRS DC swamp rat provision to attack small businesses and conservative groups. Also remaining are drug price controls, that by the way the CBO is actually scoring as a price hike, not a cost reduction and, of course, the war against fossil fuels — we'll call it $430 billion worth — giving the EPA new power to regulate greenhouse gases and Lord knows what else.
Then we have the social spending that includes new Obamacare subsidies. That will cost about $250 billion, on top of the $430 billion fossil fuel war, plus of course the $285 billion CHIPS+ bill.
So, if you add it up, it's close to a trillion dollars of spending. It will not be paid for. It may well boost inflation and there are assorted tax-hike cats and dogs left in this little piece of left-wing, woke utopia that we don't really know much about.
Like I say, it's a dumb, goofy bill. America doesn't need it. Only the far left wants it. It will not help the economy. It will not reduce inflation. It will create a lot more deficits and debt and, if you hadn't already guessed, it's not my cup of tea.
At least there's no investment tax on small businesses. At least there's no confiscatory wealth tax and at least the capex expensing will remain a tax-free deductible. So, in the last moments of left-wing progressive woke rule in Washington, I guess I can say it could've been worse. I know the wokesters wanted it much worse, but, you know folks, this is a pathetic bill and it's a pathetic agenda and it's a pathetic Democratic Party.
Nothing to beat inflation. Nothing to grow the economy. Nothing to close the border. Nothing to solve the crime wave. Their agenda is nothing. Pathetic, but I also know the cavalry is coming and it would be great if we could save America and kill the rest of this bill.
This article is adapted from Larry Kudlow's opening commentary on the August 5, 2022, edition of "Kudlow."