Monday, September 20, 2010

Monday items.

At NRO’s Corner, Alan Reynolds points out that even with a static analysis, raising taxes on the wealthy would pay for nine days of the federal deficit.

At Forbes, John Tamny
explains that the estate tax encourages the rich to consume rather than save.

From the weekend, Larry Kudlow sees the Tea-Party as good for markets.

The Heritage Foundation
forecasts the negative impact of the President’s proposed tax increases.

On Forbes, Steve Forbes
interviews Burton Malkiel (part two).

At AEI’s The American, Raghuram Rajan
responds to Paul Krugman’s recent critique.

On Forbes, Rich Karlgaard
covers a union boss accusing businesses of treason for not hiring or investing.

At Reason, Tim Cavanaugh cites Brian Domitrovic’s Econoclasts in comparing the current malaise to the 1970s.

In The NYT, GMU’s Tyler Cowen
advocates inflation, despite rising gold and commodity prices.

On Daily Markets, Cam Hui
blames the international gold standard for the Great Depression.

In his 1999 Nobel Prize lecture, Robert Mundell
suggested it was mismanagement of the gold standard that caused the crisis.

World War I made gold unstable. The instability began when deficit spending pushed the European belligerents off the gold standard, and gold came to the United States, where the newly-created Federal Reserve System monetized it, doubling the dollar price level and halving the real value of gold. The instability continued when, after the war, the Federal Reserve engineered a dramatic deflation in the recession of 1920-21, bringing the dollar (and gold) price level 60 percent of the way back toward the prewar equilibrium, a level at which the Federal Reserve kept it until 1929.

It was in this milieu that the rest of the world, led by Germany, Britain and France, returned to the gold standard. The problem was that, with world (dollar) prices still 40 percent above their prewar equilibrium, the real value of gold reserves and supplies was proportionately smaller. At the same time monetary gold was badly distributed, with half of it in the United States. In addition, uncertainty over exchange rates and reparations (which were fixed in gold) increased the demand for reserves. In the face of this situation would not the increased demand for gold brought about by a return to the gold standard bring on a deflation? A few economists, like Charles Rist of France, Ludwig von Mises of Austria and Gustav Cassel of Sweden, thought it would.

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