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Larry Kudlow: Bernanke Was Right and I Was Wrong About Inflation

In recent years, the “growth vs. austerity” debate has been raging in academic and policy circles. In recent weeks the growth crowd have been claiming victory, citing:

  • Research showing Carmen Reinhart and Kenneth Rogoff’s seminal work on debt-to-GDP levels contained numerous errors and was not so conclusive as originally believed. (Related: Did Harvard Economists Make an Excel Error that Led to Economic Austerity?)
  • The European Commission granting Spain, Portugal, Greece, Italy and France, among other nations, greater leniency on planned adoption of budget cuts and other austerity measures.
  • PIMCO’s Bill Gross told The Financial Times: “The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not. You’ve got to spend money.”

As a former advisor to Ronald Reagan and diehard supply-sider, Larry Kudlow is no Keynesian. “I am for government austerity” and believe “a smaller government with budget cuts is pro-growth,” the syndicated columnist and host of CNBC’s The Kudlow Report tells me in the accompanying video.

Kudlow credits the sequester with helping boost the stock market to its recent string of record closes. And he says “pro-growth corporate tax reform” is the key to getting the U.S. economy back on a robust growth track.

“I think money would flow into the U.S.” if corporate taxes were lowered and simplified, he said. “Business are holding back because they’re very worried about taxes coming from Obamacare, for example; there’s also a lot of money parked overseas and [corporate executives] worry about double and triple taxation on that."

Notably, our conversation was taped ahead of Apple CEO Tim Cook’s testimony on Capitol Hill regarding these same issues and none of this should be a surprise to those who’ve followed Kudlow’s work over the years. (Related: Apple’s Tax Dodging: Bigger Scandal Is Congress Knew About It, Says David Cay Johnston)

Somewhat surprisingly, however, Kudlow did give a tip of his hat to more stimulus.

“I love what they’re doing in Japan – the monetary part,” he says. “Europe should do what Japan is doing on money . The ECB is way too tight and they should open up the spigots, cut interest rates and pour money into their economy.”

Furthermore, Kudlow repeats a mea culpa about U.S. monetary policy. “Bernanke was right,” he says. “He put the money in and those of us who expected inflation were wrong.”

In admitting as much (repeatedly), Kudlow shows he’s not doctrinaire about the best policy prescriptions or unwilling to let the facts get in the way of his opinions. In this regard, the conservative stalwart stands out from many others in the inflation camp.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

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