tonight on "the kudlow report." americans are getting richer but it's not because of the fiscal stimulus from washington. that according to john taylor who will battle against cnbc's steve liesman who completely disagrees. plus we have the former ceo meg whitman. can she save california? and obama's gift to russia. president obama abandons a missile defense shield, selling out our eastern european friends, kowtowing to russia. this is not the time to look weak on the international front.

think president reagan, not president carter. and socialized soviet style health care? what are we going to do about the shortage of doctors. and how do we grow the health care sector? the private sector to promote economic growth across the country. think free market capitalism. and then whef olympia snowe. will she vote for the baucus package? that's a big question in washington. john harwood has an important interview. fasten your seat belt, everybody. "the kudlow" report begins right now. good evening, everyone. i'm larry kudlow. welcome back to "the kudlow report" where we believe capitalism is the best path to prosperity, even in health care. americans are getting richer. but not because of the fiscal stimulus from washington. if you don't believe me, just

take a look at this week's op-ed. the stimulus didn't work. we're honored to be joined by the man who penned that piece. john taylor is now economics professor at stanford university. senior fellow at the hoover institute and here to take him on is our very own cnbc senior economics reporter, steve liesman. john taylor, temporary spending, transfer spending, rebates for taxes didn't do the job on consumption as advertised? is that what you're telling us? >> that's what the data is telling us. that's what we see when we look at consumption and income. the rebate payments were put out to people. it raised personal income but didn't jump start consumption at all. it's just what happened last year. the same kind of thing. and it's what economic theory would tell you. >> steve liesman. they didn't get it right according to john taylor, the

former undersecretary of the treasury and distinguished scholar of the hoover institute. >> i have deep respect for professor taylor, who has taught me an awful lot. but i'm not in agreement on this article. retail is up. the new metrics y s pointed out the sorry are up. and, in fact, you wonder in your piece, was there anything for capital spending? in fact, there was $14 billion of additional depreciation for businesses. three imminent forecasters all put the numbers between two two or three percentage points. finally the big thing professor taylor is the lack of a counterfactual. you don't see what would have happened in the absence of the stimulus. i think you would somewhere failed yourself at your university if you turned in this paper with the absence of a

counterfactual. >> the dogs that didn't bark. but john taylor, you did point out that capital goods and business investments was the biggest surprise in the second quarter which fell only 1% compared to a 6% shot in q1. does the spending disprove or prove the fiscal stimulus case. >> i think it proved it was the private sector responding. if you look at new orders, they were plummeting during the panic of last year. they reached a bottom around december, january. they've been flat and they picked up a bit, but there's no evidence that the kind of things steve is mentioning, you mentioned private sector forecasters. that's what they forecast with their models the stimulus would do. they're not comparing -- >> no, they did. -- >> what we're doing is looking at the payments that were made to people. incomes went up and you can see right in our chart there's no noticeable movement pop i think we have the chart, by the way.

>> take a look at the chart. >> hang on one second. let's just stop at that one point. john taylor, you're saying the payments were made, disposable personal income did, in fact, go up temporarily, but consumer spending, which is pce, the orange line on the chart did not. is that the heart of your argument for the second quarter, john? >> that's the heart of the argument on the rebate side, if you like. but there's much more to it than that, but that's the first part of the argument. it's very clear in the data. there's nothing you can say about it. you can quote forecasters, by without a model, these are just the numbers. but there's more to the numbers, steve. >> i want to take a brief because. we are creating some wealth. the federal reserve said there's a little wealth creation. >> we're up $2 trillion on wealth. it comes from equities, up $1.1 trillion.

mutual funds, $486 billion. real estate even gained a little bit. $324 billion. now, let's put this in context. total net worth is down since sometime when it reached a peak in '07 by $13 trillion. now it's down only $11 trillion. so there's a long ways to go. we can join hands and be happy by about the fact that net worth is up. they have a long way to go to fe feel as good as they felt. >> the stock market rally in the second quarter is probably going to add another couple trillion dollars to wealth. john, let me ask you again. did the fiscal stimulus package have a thing to do with the rise in the stock market and this improvement in wealth? >> i see no connection whatsoever. you saw things bottoming out with respect to the indicators we were looking at before the stimulus prakage. you've got to think of some other stuff to make this happen. and again, private sector is what made this happen.

if you looked at the government spending part of it, it's a very small part of this. >> what about the transferrings to the state that kept some of the state employees at work. what about the issue here that when you compare what private sector forecasts were in november, that they are higher here in post stimulus world. and in the nations with the most stimulus, they had the most change from those forecast, which means that basically the stimulus had to be responsible or likely responsible for that difference and why the results are being -- >> those are three quick questions, steve. so first on the states, let me just give you a number for california where i'm sitting right now. $3.5 billion was the amount of infrastructure spending for california. $10 million has been spent so far. >> you're talking about -- >> you're talking about private sector forecasts. those are forecasts. >> the money sent to the states to keep people employed.

>> the states can not possibly -- i don't understand this transfer stuff. john taylor, look you ear smart. i'm going to ask you. i never understood this. i want to clarify this. if the government decides to spend $800 billion, or whatever they spend, $60 billion, $80 billion in the spring and winter quarters, and they borrow a like amount, if not more, from the credit markets, from the private supply of savings, how does it -- borrowing from peter to transfer funds to paul creates no new money. it's just shifting from one pocket to the other, john. i have never understood how this stimulates anything, except a lousy u.s. credit rating. >> well, that's why the multipliers are so small in the models that i look at exactly, larry. the multipliers, the numbers that people say focus on how much more government is going to matter.

we're going to get away from the models and look at the facts. >> consumer spending actually fell in the second quarter. it actually fell. that was your other point. >> but retail has been up three of the past four months. which data are you looking at? we had a big surprise. wouldn't you expect the number to continue? you would have multiplier effects that would go on into subsequent quarters and end up in the third quarter? >> what we saw in these months is a big increase in incomes for the rebates, and no corresponding increase in consumpti consumption. and as larry is saying, real personal consumption expenditures declined in the second quarter. that's the most recent quarter we have. >> hang on. i want to ask you, john, if it's true that borrowing peter to pay paul does not create a dime of new money. now the federal reserve can create money, john taylor.

and are they part of the recovery story along with the return to business health and some deleveraging by consumer. the fed does create new money and they have created quite a lot of it, have they not? >> they certainly have. a tremendous amount. and of course, they lowered interest rates as well. so that's stimulative. there's no question about it. and quite frankly, you can have some stimulus. i never said it was zero. larry, your logical arguement is very convincing. there's still some things that the government can do, but it's small, and in this case, spread out over so long. you can't plausibly see that it's done anything so far. o owe. >> it's the fed creating new money. if you're looking for stimulus, steve, why don't you look to the

fed? >> because normal credit channels whereby this money would go from excess reserves to being loaned out are clogged up right now. monetary policy is having less effect than it normally would. i think that's one of the reasons why. guys, if the fed supported the fiscal stimulus -- >> why? what happens when its velocity or the turnover money comes up and bites you in the keister? as is happening now? >> larry, the expectation for a lacklustre recovery is also the reason the fed chairman is happy some of this money plays out over time, because we're looking for higher than expected unemployment rate. >> they're happy with these budget deficits from all this spending? >> on a near-term basis, i believe they support them. what they want is fiscal rectitude in the outlying years. >> john taylor, let me have a rectitude in this forecast for you, please. we are seeing a roaring stock market, leading indicators up. just today, unemployment jobless claims dropped und550,000.

john, is there a v-shaped or some kind of 4% recovery coming in your judgment? >> if you call v, four, that's about right. i think it's certainly going to be above three in this quarter that's coming to a close. and probably pretty good in the fourth quarter as well. i'm pretty bullish on what's happening here. >> private sectors have a way of -- >> i don't care how we get there. >> the price of gold and debt klein of the dollar, i'm calling it incipient inflationary pressures. >> to your two of spades bid, $1,000 gold, i counterbid 340 on the ten-year. you tell me in the much larger, much smarter -- >> all that tells me is one thing -- sell the ten-year thank

you, excellent piece, john. >> thank you. always good to talk to you. >> steve was revved up all afternoon for this. great to see you. hope you come back soon. coming up, who can clean up california's economic mess that was at least in some part created by the governator, arnold schwarzenegger. well, meg whitman has thrown her hat into the gubernatorial ring. she joins us in a cnbc exclusive. can she save california. stay right here on "the kudlow report." first in business worldwide it's the fed that creates money, not the government in washington. goodwrench... we roll out the blue carpet for drivers of these great gm brands.

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sue herrera has the full report on the golden state's economic mess. hello, sue. ben bernanke may think the

recession is over, but that's not true in california. according to a report, california will continue to struggle through 2011. unemployment is currently at 11.9% and is expected to peak at 12.2%. this's the highest since world war ii. but home places have seemed to stabilize. federal stimulus funds are putting high tech into high gear. the same cannot be said for the government of the golden state, ending its legislative session last week. after months of steal mate, a budget deal was reached on july 20, closing that state's $26 billion budget short fall. the month of delay forced the state to issue $850 million in ious and they are now up for redemption. it's left the state with a $12.6 billion cash deficit. larry, the state may be on the road to recovery, but this is a

movie we've seen many times. although this time, the $37 million residents are hoping the reforms stick and the ending is different. of course, much of that is dependent on the u.s. and the broader world economy. back to you. >> thank you very, very much. is help on the way for california? is meg whitman lean up cal's economic mess? the golden state gubernatorial candidate joins us in a cnbc exclusive when we return. please stay right here.

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>> meg whitman joins us now exclusively. welcome back. great to see you. >> nice to see you. how you doing? >> so it's a big mess out there. california is in a death spiral physically and economically. how can you save it. let's to three things at 100% than 20 things at 50%. that has to be jobs. we have the fourth highest unemployment rate in the country. we've got to create more jeens keep jobs in california. we not only have a revenue problem. we have a spending problem. and we have to tackle the status

of our k through 12 education system. california is now ranked 48th out of 50 states. so let's fix those three things. if we fix those, we can tackle anything. >> let me ask you on the jobs question, first and foremost. good jobs and recovery can help you out as you know. what about the tax burden? 12% tax rate. the biggest in the country. aren't they all moving to nevada. what are you going to do about taxes? we are bleeding jobs and people are leaving the state for arizona, colorado, texas, utah, because it's an easier place to do business and the taxes are lower. ultimately, we have to lower taxes. but the only way you solve the revenue problem is more employers, more employees paying more taxes. that's the only sustainable way to do it. then you've got to attack the cost structure in the state of

california so we can be competitive with those neighboring states. we cannot raise tacks on california. >> how can they get away with repeatedly taxing so-called rich people. they're all going to governor perry in texas. >> yeah. well, i think we should look at the tax situation in california. we need to get government spending under control and saving money for a rainy day. the tax revenues go up and down in california. let's run this more systematical systematically. let's get the costs under control. it's not a bad idea how we even it out.

>> how are you going to change the culture and sacramento which is chok full of unionization, thinking bureaucratic thinking, taxpayers and businesses never even enter into it. you're meg whitman. you're a great success at ebay, but these are hardened politicians who are accustomed to new faces. they want to chew you up and spit you out with all due respect. how are you going to change the culture? >> great leadership often leads to great results. sot first thing is you've got to focus on the legislature on spending, jobs and education. you've got to get your top 400 people on the same agenda with the same issues. then you've got to use the veto

pen. in california, the governor has line item veto. and this is how you communicate to the legislature what you will and will not put up with. you also can use the proposition process to your advantage. take issues directly to the people. but in the end, this is the ultimate test. the next governor of california has to have a spine of steel, know exactly what they believe and be incredibly consistent on how it's done. >> speaking on the regulatory side of this -- i appreciate the veto pen. there's a cap and trade system in california. it's driving business crazy. they say it's driving up costs of power and fuel and electricity. that's one of the reasons they're leaving the state. there were also rumors that the budget initiatives would include some offshore drilling off the coast of santa barbara, which some people would say would actually help environmentally and sure would get state revenues. so cap and trade? are you going to repeal it? offshore drilling, will you go

with it? >> so the biggest issue we face from an environmental perspective is we want good environmental regulation in california. it's why we live here. but we have to balance sound environmental regulation with a practical approach to business. we need jobs, we need businesses, and we cannot drooi them out. and we're going to have to evolve and put a moratorium, i believe, on ab-32, which brings greenhouse gas emissions down to 1990 levels and is actually supervising this cap and trade program. because in a situation where we have the fourth highest unemployment rate in the country, where we are bleeding jobs to states that don't have those regulations it doesn't make sense. >> so you would roll back cap and trade, that's basically what you're saying? >> we have to look at it very carefully, but as long as it is driving businesses out of california, we can't go forward on this. we can't have standards of arizona or oregon because people

will leave the state. >> even the whack cos at santa barbara, they passed it 3-2. the sludge won't go up on the beaches and you can have a lot of revenues. how about offshore drilling. >> historically i have said i'm not for offshore drilling but in the last five years there have been a lot of advances to extract oil in a much safer way environmentally. we should look at this again because it's the right thing for energy prices are in california, it's the right thing to help america get off foreign oil. we have to look at it again, given the economic situation we face, not only in california but in the united states of america and the technology changes have been immense in the last five years. >> i each not going to ask you if you're going to win. i hope you're going to tell me you are going to win. but i do want to ask you one political question. you've got some stiff competition. mr. steve poisner. he's a very successful tech, entrepreneur, wealthy chap. he's the only republican

statewide elected officer as the state insurance commissioner. how do you beat him? what's your single biggest chrissism? how will you run against him? the primary? >> well, i think caliifornians are fed up with politicians. they want an outsider. someone who has run a large organization, someone who has actually created jobs. and as you know at ebay, we were the creator of millions and millions of jobs. we created a level playing field. we made a small number of rules, got out of the way and let small businesses grow and thrive. i think an outside-in perspective of someone who's run a large organization, who knows how to create jobs, who knows how to manage costs, deploy technology to improve services, i think actually people in california are ready for an outsider to come in. career politicians haven't -- >> you're an outside the beltway candidate what ch is pretty cool. he says you don't have enough experience to do the job. i don't want to delay boar the point.

but it looks like, pardon the phrase, a two-horse race. are you going to accuse him of being an insider from sacramento. is that going to be your principal, political thrust? >> you know, i'm going to spend the vast majority time talking about what i think to the party here, which is enormous experience, having run very large organizations, deeply understandable how small businesses are created, and small business is the key to recovery in california. if we can change the business climate where people want to start businesses here and grow businesses here, then we have a way out of this. what i've said is we cannot afford to lose another job to a neighboring state. we have to be the very best place to grow and start a business. i think people will understand what i bring to the party is is a deep understanding of the economy, of jobs, and of small business. and that's what we're going to talk about. >> meg whitman, i wish all the best of luck. we really appreciate you coming on. hope you come on again during the course of the campaign. >> thanks, larry. nice to see you. coming up, president obama

abandons the missile defense shield. he's selling out our yeern european friends. he may be kowtowing to russia, and to iran. top notch foreign policy expert larry korb and michael dean are going to debate this breathtaking change of policy announced just this morning. keep it right here. here you go. whoa! that's some serious insurance. ding-ding-ding! ding! ding! fun fact -- progressive is the number-one truck insurer. yeah, great service at the right price. and nowadays, my business depends on it. do you have anything like that for my car? yes! our car insurance comes with 24/7 claim service, and you can save hundreds. so, what you haulin'? oh, eight-year-olds to soccer practice. nine! oh, precious cargo.

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president obama kills the missile defense system. s he ignoring the iranian nuclear threat? is he kowtowing to russia? joining me now, larry korb, a senior fellow for the center of american progress. and michael ladean, author of "the iranian time bomb." speaking of the iranian time bomb, are there massive cheering going on in iran as a result of this decision? >> yes, i'm sure there is. although a lot of people are acting as if we made this con seg to the russians in order to make them more pliable on the

question of sanctions on iran. if that is true, it's another example of yet another administration taking a side problem and have it drive a central issue. because both of these things should stand on their own. the question of iran is important on itself and defending europe against a possible iranian missile attack is also a separate question. >> okay, larry that's where i understand it this missile shield was going to be placed. advanced radar. today you have an announce. coming out of vienna, the top atomic watchdog says that iran can make the nuclear bomb. >> wait. the new system is going to be in place in 2011. the old system wouldn't be in place until 2018.

it's going to deal with the short-term and medium-range missiles. the new system is also in addition going to be able to defend europe will be able to defend israel. the other one wouldn't. i mean, what happened today the secretary general of nato said this is a terrific idea. most of the people who look at this say you're putting a system where you know the technology works, as opposed to one where you're still not sure that it works. i think this makes a great deal of sense because it deals with the immediate threat, which you just talked about the iae is talking about. >> a lot of people are saying this does not deal -- the so-called new system does not deal with the long-term iranian threat. and furthermore, that the defense department is cut back on these weapons shields. that, in fact, there is no add-on. there's a reduction going on.

what do you make of that? >> well, if it is true, look, i will always yield to larry analyzing defense systems. he knows a lot more about these things than i do, but if it is true, what we are giving the europeans seems to be basically mobile patriot systems, anti-missile systems, if this is actually better for them and gives them more security than the one we had before, then the whole build-up to this announcement has been frightfully botched, don't you think? people needed to be prepared for this. congress should have been briefed about it. the europeans acted as if a rug had just been pulled under them, at least initially. now they're acting as if it's no big deal because they don't want to be seen to have been embarrassed or humiliated. >> and russia has said, they bitterly opposed george w. bush when he put these plans in place. they bitterly opposed it when they saw president obama in europe earlier this year.

it looks like president obama in his first year has in, effect given russia what they wanted, larry. >> wait a second. he did what's best for the united states. will that have a spinoff with russia? certainly. russia saw the radars in the czech republic and the missiles in poe lantd as a threat to their own nuclear security, but just because it has that effect doesn't mean you shouldn't do it. this was recommended by the joint chiefs of staff, our intelligeninte intelligence community and supported by bob gates in terms of dealing with russia. now, i think you have to be careful, i agree with michael. the announcement kind of came out of the blue. i think we should have called in the president of the czech republic at midnight and tell him -- i don't think that was well handled at all. >> what is madison guaranty saying in iran? iran is essentially a military-run government. that's what we have learned, michael. you have written about this.

what are those guys saying. these short-term, this short-term missile defense is not going to defend against iran. no one is making that case, michael dean. >> at least if all the public statements are correct, iran has been developing solid fuel missiles, which are longer range missiles. they have shown they have technology that you can put on icms. so i think it looks to the iranians as if we've taken a step back and we're trying to appease iran by getting the russians to join with us on sanctions. >> larry korb, doesn't this pull the rug out from our relationships? you're talking about poland, the czech republic, you're talking about georgia. you're talking about the ukra e ukraine. what kind of signal does this send in international political circles. the u.s. has just turned their back on them. >> wait a second. the people of poland and the

czech republic, we put pressures on the leaders to accept it. >> i thought they requested this time and time again. they wanted what bush was going to give them. >> no, no, no, no. there's no doubt the leaders spent political capital on this. but you have a new government in the czech republic and if they put this up to a vote, the people in those countries have voted -- >> what does it say for ukraine. what does it say for poland and georgia which just withstood a russian invasion? >> you're going to be safe from this than in the long term. >> do you believe that? they will be more safe in georgia and the ukraine as a consequence of this decision? >> they all believe they've been abandoned, i'm sure. >> i'm afraid that's the bottom line. larry korb. good to see you. next up on "the kudlow report." corporate credit markets are heating up. another positive recovery omen. rebecca jarvis will tell you

what it means for stocks. it may mean that we've got to prelehman, 1,200 on the s&p 500, 11,000 on the dow. and later on in the program, the battle over obamacare. aka socialized soviet style health care wages on what are we going to do about the shortage of doctors and why is it no one is talking about growing and expanding the entire health care business. think free market capitalism, think doctors, nurses, hospitals, drug companies, bioteches. this is america's leading industry. why are we shackling it? "the kudlow report." natural gas is a cleaner burning fuel,

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oh no, it's fun... you know, if you are trying to cut costs, fedex can help. we've got express options, fast ground and freight service-- you can save money and keep the heat on. great idea. that is a great idea. well, if nordic tuesday wasn't so much fun. (announcer) we understand. you need to save money. fedex s in tors are turning to bonds, which is a bullish move for stocks. hello, rebritish columbia ka. >> bond land is ripping and we're seeing billions of dollars flow into corporate credit. historically speaking this portends very positively for stocks. companies like kodak and amr successfully raising capital. refinancing, reworking their covenants. it's all a lot of positives. while a lot of capital is being prepared right now, if the trend continues, the excess liquidity

will eventually go to grow the businesses, things are also looking good from a technical perspective because the last time corporate debt was at these levels the s&p 500 was trading at 1,400. and other positive signal here is that the cost of default protection is at its lowest levels since may of 2008. citigroup expects a default rate of 7.5% to 8% of the next 12 months and if that's the case, the market is still fundamentally cheap. the biggest unknown in the mix continues to be the consumer comeback. but things look like they are moving in the right direction, larry. >> all right, rebecca. i think this credit rally is so darn important, folks. we are now back to pre-lehman levels which tells me the dow jones gets back to 11,000 or more. the s&p 500 gets back to, i don't know, 1,200, maybe 1,300. rebecca mentioned 1,400. so bullish. all right, coming up, four

moderate senators including key republican olympia snowe are now signalling support of the baucus bill. we will have an important interview with senator snowe. but first up, let's check in with dennis kneale. >> last night, a liberal democrat accused me of making up information. he demanded to know the source of my information. and tonight i got him back on. i've got an answer for him. also, stock, bonds, gold, oil. they're all up, all at the same time. something's got to give. which will fall first? and last? $2 trillion, that's how much extra new wealth america created in the second quarter. i'll tell you what it really means. >> dennis kneale, we're "the kudlow report." we're coming right back. hey, ite you're back after that accident. well...i couldn't have gotten by without aflac! is that different from health insurance? well yeah... ...aflac pays you cash to help with the bills that health insurance doesn't cover. really? well, if you're hurt and can't work, who's going to help pay for gas?

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>> there are some folks who said well, this is a government takeover of health care. we've got public universities and private universities. nobody says that we're taking over private colleges. what we're doing is giving students a choice. you should have a choice the same way in your health care. >> all right, that's president obama making a big push for his government takeover of health care today. he's still hoping to get some gop backing. john harwood spoke with one of those moderates. republican senator olympia snowe. here's the report. hello, john. >> the senior republican from maine may be the most important member of the u.s. senate on

health care. she's not yet saying how she's going to vote but everybody is looking for signals and body language as to whether she wants to work with barack obama and democrats to get this dpen done. if you want to see a reason for the white house to be optimistic, consider this signal she sent when i asked whether she consider os bama a big government liberal? >> it's interesting, i don't. almost the opposite. he's been very realistic in his views on health care, understanding the implications. >> do you see him as a moderate? >> more moderate than liberal. >> are you satisfied that the cost control, cost containment in the bill is adequate? >> i do. and, you know, we were odd manhattan in our -- you know, our positions and views that it should be budget neutral and if anything should bend the cost curve. and then the overall cost of, you know, the escalation, you know, of inflation in health care, and it does begin that

trend in the first ten years. >> are you optimistic? >> well, you know, it's hard to tell. probably more optimistic than less. >> if a bill is a whole bunch of democrats and one prin, olympian snowe -- >> well, i think that -- well, obviously i'm a republican, but, you know, i would like to have more republicans gsh. >> you would like to, but do you have to? >> i'm going to support the right policy. >> how important is your republican identity to you as a legislator? >> i've always been a republican for the traditional principles that have been associated with the republican party and i haven't changed as a republican. i think more that my party has changed. >> and that last comment, larry, about the distance senator snowe feels between herself and her republican party may be significant because democrats may be coming to her to cast the 60th vote to overcome a fill buster to get this health care legislation to the floor, larry. >> thank you very much for the

interview. now, perhaps the bigger question, is america facing a large doctor shortage? but is socialized soviet-style health care the answer? and how do we grow the health care business. that's the key point. here now, dr. mario mota. we also have craig carpell who woet the op-ed, we don't spend enough on health care. this is one of my big issues. we don't have enough doctors and nurses be i don't want to limit private health care spending any more than i want to limit automobile production 100 years ago. what's wrong with this system? why do we have to spend less on health care? >> well, somehow health care became a human right. now we're told insofar as it's a

human right we have to spread it to the whole population. if it was not viewed as an expense government but as part of the household budgets of americans, the whole issue of health care expense growth would not have come up. >> what's wrong with that? you sounded far minute like you were saying it was right to limit health care. >> no. >> but your second response is it's not right. this is -- you know, the health care industry, private -- i want to say private, created $400,000 jobs in the last 12 months of a terrible recessionaire downturn. . >> i would like to see health care become the engine of growth and prosperity. look in ancient times, you have the hunter gatherer and agriculture gatherings designed to produce food and clothing. then in the 20th century, you had a huge suburban

homeownership dream driven by the need for shelter. now we have food, clothing and shelter. what do you do for that point? you go for health. you have to be healthy, but instead of guarding the health industry as a sector that could be driving the rest of the economy, it's regarded as a drag on the rest of the economy. i just don't buy it. >> doctor, you're in a state in massachusetts done in an obama-like health care plan. and we've been covering this story from investors business daily and elt where that there's a shortage of doctors. you have it firsthand in massachusetts. can you tell us about it? >> well, we do have a shortage of physicians. it's interesting. when the government looks at our numbers they claim we have enough because we have a large research institution and industry in massachusetts. so a number of physicians who don't actually see patients are listed as practicing physicians. so when you look at the actual practicing physicians, we don't have enough. >> so what's going to happen

here? just like in massachusetts? you add a lot of people to the roles, are there enough doctors to cover them? just like the rest of the country. if we added 50 million uninsured, are there enough doctors to cover them? or are prices going to go sky high with government rationing? >> i think that's a misconception. i really do. the 40 million who don't have insurance now are being covered but they're being covered late in their illness and they're getting no preventive care. >> i appreciate that. we could debate those numbers. and i agree with you. you probably know them better than i do. there's probably a lot of arguments about that. president obama would probably not agree with you. doctors are already dropping out, are they not? they have too many mandates and

they have to practice defensive medicine because of the tort lawsuit problem. doctors are dropping out of the system, are they not? >> yes. many physicians are. there are many who are retiring early. and that's especially acute in primary care. people don't understand the extreme pressures of primary care. they're working 80, 100 hours a week and much of that is administrative paperwork, nonsense keep busy work in order to get what the patients need. and that's not a very satisfying life. and it doesn't pay very well. >> i understand. i would like to see more doctors and nurses and hospitals. i would like to see more biotech. i would like to see more pharma. i would like to see more technology. how do we get there? isn't this really a supply side growth problem, rather than a government bureaucratic soef yell-style control problem? >> absolutely, larry. the entire concept of shrinking the health sector or keeping the health sector at its current

level is ideologically driven. once government decides it's going to take over the health system, then it needs to keep costs under control. if instead you regard the health sector as private, allow it to grow in an organic way, we have economists who just came out with a study. they've been modeling this thing for 20 years. what they find is that an equilibrium level for what americans really want is about 30% of the gdp devoted to health care. right now we have 17%, yet we're told this is a huge crisis. >> we could double this and create all those millions more jobs. by the way, bob fogel just said the same thing. we could double private health care spending and still not get into any trouble whatsoever. i mean, i just don't get there. i want more health care and i want more doctors. thank you. coming up, much more on "the

kudlow report." tomorrow morning i'll be on the call with melissa francis, 11:00 a.m.

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