- The Washington Times - Saturday, November 19, 2005

Consider, if you will, these signs of the times:

• The boat-building business is booming, with big backlogs for boats in the $80,000-$300,000 price range. Why is this important? Prosperity. People buy luxury items when they have the money to do so. This is a very positive economic-growth indicator.

• A midsized U.S. insurance company has issued a record number of group employee-benefit packages for disability, accident and other coverage to small companies. This is a sign of new- and small-business formation, and yet another indicator of economic growth. This corroborates rise of household employment data, which again has run well above the more traditional establishment payroll numbers put out by the Labor Department. The household survey picks up self-employed and other start-ups that take years to be scored in the payroll survey. This economy is stronger than generally thought.

• Despite energy spikes, hurricanes, and multiple tightening moves from the Federal Reserve, the broad S&P; 500 stock market has actually gained some ground since early 2004. This is a sign of latent economic strength. Standard & Poor’s could be consolidating its base, following the big 2003 run-up, in advance of a huge increase next year.

• The investor class continues expanding, a recent survey finds, with nearly 57 million U.S. families now stockholders. This is an incredibly powerful force for capital formation, economic growth and pro-capitalism politics. Twenty years ago, one-fifth of families owned shares. Now it’s three-fifths.

• The Google revolution on the Internet makes me think of the now 10-year-old overall technologically-driven productivity boom. This growth is conservatively put at 3 percent yearly, suggesting at least a 4 percent annual rate for potential real economic growth. Economist Joseph Schumpeter said years ago that gales of creative destruction generate more than usual growth, profits and real wages, with lower-than-usual inflation and interest rates. Schumpeter’s gales are blowing.

• The Angela Merkel grand-coalition deal in Germany will be a complete disaster for the already anemic German economy. Top personal tax rates will be raised, as will the VAT tax. Scheduled corporate tax cuts will be postponed, and proposed labor-market reforms will be pushed aside. This is unbelievable — worse than Gerhard Schroeder. Say, “Bye, bye Germany.”

• Ben Bernanke is a real smart guy with a good idea for a numerical inflation target. But investors were turned off by his testimony before the Senate. Just a guess: Individual retirement account and 401(k) owners may worry a 1 percent to 2 percent inflation target could be too close to deflation or recession. Folks may be fed up with Fed fatigue over Alan Greenspan’s robo-cop, autopilot tightening moves. If Mr. Bernanke says he will be just like Mr. Greenspan, does that mean the autopilot rate increases will go on forever and doom the stock market?

• George Bush could be bottoming, though it may take several months for this to become clear. But add up all the reasons the Bush stock deserves a “buy” rating: (1) the economy is strong; (2) gasoline prices are falling; (3) the GOP Congress will pass a sizable tax-and budget-cutting fiscal plan; and (4) after another successful election in Iraq next month, at least 35,000 U.S. troops will be withdrawn in 2006.

Lawrence Kudlow is host of CNBC’s “Kudlow & Company” and is a nationally syndicated columnist.

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