Weekend edition: Laffer and Moore on state taxes; Forbes on Romney; Spitznagel on the Fed.

From The WSJ, Art Laffer and Stephen Moore argue states without income taxes are economically healthier.

At Forbes, Steve Forbes urges Mitt Romney to defend free markets vigorously.

In The WSJ, Mark Spitznagel explains how the Fed enriches the top 1%.

On The Kudlow Report, David Malpass analyzes the slow recovery:



At Forbes, Peter Ferrara analyzes progressive economic fallacies.

In The WSJ, Stephen Moore reports a Florida Tea Party dust up.

From The Manhattan Institute, Diana Furchtgott-Roth explains that raising investment taxes will result in less investment and push capital overseas.

At NRO, Larry Kudlow highlights the slow 2.5% growth rate.

The NY Sun applauds the Shadow Open Market Committee.

At The Mises Institute, Frank Shostak doubts that Ben Bernanke saved the economy from another depression.

From The Peterson Institute, C. Fred Bergsten argues for a lower dollar, tax increases (though not on businesses or incomes), and trade barriers on China unless it raises the yuan. Around 1:06, he suggests President Nixon’s 1971 import surcharge to “rebalance” world exchange rates was a success:



The Examiner reports US Rep. Eric Cantor (VA) citing supply-side economics in support of his small business tax cut bill.

At The American, Steve Hayward doubts the instability of the oil-to-gold ratio.

Monday items: Mundell on the euro/dollar; Ip and Roberts debate Keynesian stimulus; Goldman sees two economies in America.

From Central Banking, Robert Mundell provides a fascinating overview of the euro and the dollar situation.

At Forbes, John Tamny suggests politicians should do less.

The WSJ notes a week’s worth of unhelpful economic messages from the Obama Administration:

Monday: "Warren Buffett right about taxes, says Obama." The week began with a one-two tax punch from Warren Buffett and President Obama. The Omaha stock-picker wrote an op-ed begging Congress to raise taxes on millions of Americans who make less than he does, and the President used the first stop of his bus tour, in Cannon Falls, Minnesota, to agree.

"I put a deal before the Speaker of the House, John Boehner, that would have solved this problem," Mr. Obama said, "and he walked away because his belief was we can't ask anything of millionaires and billionaires and big corporations in order to close our deficit." So America's main job creators are still on notice that a tax increase is in their future in 2013, if not sooner.

In The Washington Post, Greg Ip argues Republican skepticism of easy money and Keynesian spending is the new voodoo economics.

At Café Hayek, Russ Roberts fires back.

On Asia Times, David Goldman suggests there are two American economies.

From last week on The Kudlow Report, Jimmy Pethokoukis discusses the President’s growth plans:




From Bloomberg, conservative Keynesian John Taylor blames President Nixon’s wage and price controls – not the dollar's float from gold – for 1970s inflation.

In The WSJ, Harvey Golub responds to Warren Buffett’s tax-hike advocacy.

At Barron’s, Jim McTague describes Ron Paul’s economic message as gloomy.

In The WSJ, Mary Anastasia O’Grady links the Fed’s easy money to high commodity prices, which may help re-elect Argentina’s leftist government.

The Weekly Standard reports US Rep. Paul Ryan (WI) passing on a White House run.

Wednesday summary: Rick Perry's Fed comments continue to garner attention; Salsman provides a history of gold; The WSJ notes the impact of higher taxes in Maryland.

RCP features Rick Perry continuing to critique the Fed.

Politico notes former Bush Administration officials critiquing Perry.

At Yahoo Finance, David Stockman endorses Rick Perry’s Federal Reserve criticism:

Reuters reports Michelle Bachmann joining the anti-Bernanke fray.

At Forbes, Richard Salsman provides an interesting history of the gold standard.

On First Trust, Brian Wesbury and Robert Stein suggest inflation is rising.

From The Kudlow Report, Brian Wesbury and Don Luskin debate inflation:




On RT America, Lew Rockwell discusses the Nixon Shock.

From 1971, Alan Reynolds blasts Nixon's price controls.

CNBC’s Squawk Box Europe features a good discussion of the gold standard:




The WSJ responds to Warren Buffett’s tax increase advocacy.

In The Washington Post, Jennifer Rubin reports Bill Bennett supports US Rep. Paul Ryan (WI) running for president.

The WSJ notes the decline of wealthy tax filers following last year’s soak-the-rich tax hikes in Maryland:

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

From 1979, Ronald Reagan announces his campaign for president (h/t: James Pethokoukis):




A new website promotes the Swiss gold franc.

At COAL, Paul Krugman notes bond vigilantes are only going after countries without their own currencies.

Monday items: Multiple authors mark the fiat dollar's 40th birthday; Tamny debates the dollar; Buffett advocates higher taxes.

A number of articles today mark the 40th anniversary of President Nixon severing the dollar from gold:

• The WSJ, Lewis Lehrman
• Forbes, Brian Domitrovic
• The Washington Examiner, Jeffrey Bell
• CNBC, Ralph Benko
• RCM, John Tamny
• TGSN, an open letter, multiple signatories
• The Telegraph (UK), Edmund Conway
• AEI’s The American, John A. Allison and John L. Chapman
• The NY Sun, editorial page

On The Kudlow Report, John Tamny debates gold and the dollar:




The Heritage Foundation advertises an October conference on dollar stability.

On Asia Times, David Goldman defends Wall Street against populist scapegoating.

In The NYT, billionaire investor Warren Buffett advocates higher taxes on the wealthy.

Also on Kudlow, Stephen Moore discusses Buffett’s article:

 


From The Freeman, Mark Skousen disputes the idea that consumer spending drives the economy.

At COAL, Paul Krugman sees inflation fears fading.

Wednesday summary: The gold/oil ratio suggests a correction; The WSJ opposes QE3; Jenkins advocates breaking up the eurozone.

Nasdaq reports gold passed $1,800 today, while oil hit $82, a 21:1 ratio. This divergence from the historical 15:1 relationship suggests a substantial correction one way or the other. Assuming a dollar upswing, gold would need to fall to near $1,200 to reestablish the normal relationship, reigniting the deflationary concerns emanating from the euro/dollar exchange rate foreseen by supply-side guru Robert Mundell. Fear of a sharp dollar rise may explain the market’s positive response yesterday to Goldman-Sachs’ report that Fed Chairman Bernanke was preparing a third round of quantitative easing. When Reuters clarified this morning that the report was speculation rather than inside information, markets tanked. (On this last point, hat tip to Rush Limbaugh.)

The WSJ opposes QE3 as positive wealth effects likely will be offset by negative income effects due to higher commodity prices.

On The Kudlow Report, David Malpass analyzes the health of banks and the economy:




In The Telegraph (UK), Garry White notes the August 15 anniversary of the Nixon dollar shock.

At TGSN, Kathleen Packard reports on President Nixon's decision to close the gold window 40-years ago. (Continued here, here and here.)

At an NRO symposium on the debt downgrade, former Kemp staffer John Mueller suggests demographics caused the market to peak a decade ago and that debt and currency issues will be solved by a return to the gold standard.

In The WSJ, Holman Jenkins, Jr. advises Europe’s solvent nations to leave the eurozone.

The euro was a noble idea—actually two noble ideas, one of which made sense: that a common currency might be a force for competitive adjustment across Europe. Alas the noble idea that captivated Europe's elites and was sold to the man in the street was a different one: The euro would solve "the German problem," never mind that "the German problem" had already been solved by the invention of nuclear weapons.

Hans-Olaf Henkel, as reputable a German business spokesman as you can find, a former head of IBM Germany, a former leader of his country's main business federation, once fervently supported the euro but now calls on Germany and its solvent neighbors to exit the euro system in favor of a new currency (a Deutsche mark in all but name).

In The WSJ, former Fed Governor Kevin Warsh and former Gov. Jeb Bush (TX) advocate a new grand strategy focused on long-run growth, but omit currency reform from their analysis.

From First Trust, Brian Wesbury and Robert Stein see reason for optimism on the economy.

At Forbes, CEI's Wayne Crews argues the logic of Say’s Law refutes Keynesian demand-side analysis.

On Squawk Box, US Rep. Ron Paul (TX) predicts the end of the dollar standard and links currency to violence in England, protests in Israel, and revolutions in the Arab world:




The WSJ suggests hooliganism and weak policing, not commodity prices and economic austerity, caused the British riots.

From Tax Notes, Bruce Bartlett examines revenues lost from the Reagan tax cuts (click the download box).

At Yahoo Finance, Nobel Laureate Joseph Stiglitz promotes more Keynesian spending stimulus:

Businessweek on Nixon's dollar shock.

At Bloomberg Businessweek, Roger Lowenstein provides an excellent – and surprising, coming from the mainstream media – report on the breakdown of the Bretton-Woods gold-linked dollar, including laying blame on monetarists Milton Friedman and George Shultz, and linking today's economic problems to the floating dollar.

From his 1999 Nobel Prize lecture, Robert Mundell explains the circumstances that led to the demise of Bretton-Woods and the Great Inflation of the 1970s:

The adoption of my policy mix [by JFK after 1962] helped the United States to achieve rapid growth with stability. It was not intended to and could not solve the basic problem of the international monetary system, which stemmed from the undervaluation of gold. Nevertheless the problem of the U.S. balance- of- payments was intricately tied up with the problem of the system. With very little excess gold coming into the stocks of central banks from the private market, and the US dollar the only alternative component of reserves, the U.S. deficit was the principal means by which the rest of the world was supplied with additional reserves. If the United States failed to correct its balance of payments deficit, it would no longer be able to maintain gold convertibility; on the other hand, if it corrected its deficit, the rest of the world would run short of reserves and bring on slower growth or, worse, deflation. The last scenario hinted at a repetition of the problem of the interwar period.

Two basic solutions were consistent with preserving the system. One solution was to raise the price of gold. The founding fathers of the IMF had put a provision in the IMF Articles of Agreement for dealing with a gold scarcity or surplus: a change in the par values of all currencies, which would have changed the price of gold in terms of all currencies and left exchange rates unchanged. In the 1968 election campaign, candidate Richard M. Nixon chose Arthur Burns as his emissary on a secret mission to sound out European opinion on an increase in the price of gold. It turned out to be favorable and Burns recommended prompt action immediately after the election. Nothing, however, came of it.

The other option was to create a substitute for gold. This course was in fact adopted. In the late summer of 1967, international agreement was reached on an amendment to the IMF articles to allow the creation of Special Drawing Rights (SDRs), gold-guaranteed bookkeeping reserves made available through the IMF, with a unit value equal to one gold dollar, or 1/35 of an ounce. Somewhat less than SDR 10 billion were allocated to member countries in 1970, 1971 and 1972, but they proved to be inadequate—too little and too late--to meet the main problems of the system.

On August 15, 1971, confronted by requests for conversion of dollars into gold by the United Kingdom and other countries, President Nixon took the dollar off gold, closing the "gold window" at which dollars were exchanged for gold with foreign central banks. The other countries now took their currencies off the dollar and a period of floating began.

But floating made the embryonic plans just forming for European monetary integration more difficult, and in December 1971, at a meeting at the Smithsonian Institution in Washington, D. C., finance ministers agreed on a restoration of the fixed exchange rate system without gold convertibility. A few exchange rates were changed and the official dollar price of gold was raised but the act was almost purely nominal since the United States was no longer committed to buying or selling gold.

The world thus moved onto a pure dollar standard, in which the major countries fixed their currencies to the dollar without a reciprocal obligation with respect to gold convertibility on the part of the United States. But U.S. monetary policy was too expansionary in the following years and, after another ineffective devaluation of the dollar, the system was allowed to break up into generalized floating in the spring of 1973. Thus ended the dollar standard….

With the breakdown of the system, money supplies became more elastic, accommodating not only inflationary wage developments but also the monopolistic pricing of internationally traded commodities. Each time the price of oil was raised in the 1970's, the Eurodollar market expanded to finance the deficits of oil-importing countries; from deposits of $223 billion 1971 they would explode to $2,351 billion in 1982(International Monetary Fund, IMF International Statistic Yearbook, 1988 p. 68).

Inflation in the United States had now become a major problem. It had taken twenty years, from 1952 to 1971, for U.S. wholesale prices to rise by less than 30 percent. But after 1971, it took only eleven years for U.S. prices to rise by 157 percent! This mainly peacetime inflation was greater than the war-related inflations from World War II (108 percent over 1939-48), World War I (121 percent over 1913-1920), the Civil War (118 percent over 1861-1864) or the War of 1812 (44 percent over 1811-1814). The greatest inflation in U.S. history since the War of Independence took place after the United States left gold in the decade after 1971.

Wednesday items: Brooks and The WSJ on tax expenditures; Ferrara on jobs; Goldman on the market rally.

In The NY Times, David Brooks urges Republicans to accept elimination of tax expenditures in exchange for spending cuts.

The WSJ argues Republicans should accept elimination of tax expenditures only if they are tied to tax rate reductions.

At Asia Times, David Goldman continues to see deflationary forces at work in the economy.

On The Kudlow Report, Peter Ferrara debates the jobless recovery:




On Alhambra Investments, Joe Calhoun downplays the market rally.

From First Trust, Brian Wesbury sees economic progress coming.

On Kudlow, David Goldman discusses the economy’s health in light of the market upswing:




IBD analyzes the cost of jobs created by recent years’ stimulus.

At his blog, Stanford’s John Taylor rebuts the claim that larger spending stimulus would have led to better results.

On Salon, Andrew Leonard makes the surprising argument that the current era proves supply-side economics doesn’t work.

TGSN features an amusing William Safire story about Nixon closing the gold window.

Wednesday update: Melloy on the true inflation rate; The Post reports from Bretton Woods; Tamny critiques Rep. Ryan's plan.

From CNBC, John Melloy notes that inflation is near 10% using 1970s methodology.

The Washington Post reports from the monetary conference in Bretton Woods, NH.

From the archive, Richard Nixon ends the Bretton Woods agreement by suspending dollar convertibility (h/t: Free Banking):


On NRO, Larry Kudlow counsels concern but not panic over the weak dollar.

At RCM, John Tamny critiques the Ryan plan:

So while the falling dollar since 2001 and the certain cruelty the latter foists on the vast majority of Americans (Ryan, quite unlike Reagan, made no mention of the dollar in his Wall Street Journal piece promoting the plan) remains the unsung factor when it comes to an unhappy electorate, high levels of spending loom large, and a return to 2008 levels reveals a Republican leadership still well out of touch with the an increasingly skeptical base.

But if we move away from spending for now, it should be noted that seemingly like all other Republicans who've made promises of fiscal prudence ahead of large advances in government, Ryan is committing the fatal error of bringing deficit reduction talk into a discussion that shouldn't include it. To mention deficits is to implicitly suggest a problem of revenues, but there's no such problem. We have deficits because Republicans (including Ryan) and Democrats have been spending way too much for way too long.

In talking up deficit reduction Ryan gives the Democrats the opening they need to bring "revenue enhancers" into the discussion; meaning marginal tax rate increases.

At Bloomberg, Amity Shlaes suggests the alternative to tax increases is the Ryan plan.

In The WSJ, Stephen Moore reports on the budget debate.

On The Kudlow Report, Stephen Moore debates the President’s tax hike proposal:



At TGSN, Ralph Benko notes the Founding Fathers’ preference for precious-metal backed money.

From Café Hayek, Russ Roberts counters Joseph Stiglitz’s comments on the wealthy.

Monday round up.

On The Daily Reckoning, Nathan Lewis notes that wheat is cheap in real terms but expensive due to the low dollar.

At New World Economics, Lewis explains the British gold standard from 1778-1844.

On the Kudlow Report, Stephen Moore debates the President’s plan for big new spending:



In Forbes, John Tamny relieves Nixon Fed Chairman Arthur Burns of responsibility for that era’s dollar devaluation.

On Bloomberg, Kevin Hassett suggests a shift to a consumption-based tax system.

The NY Sun editorializes that if President Obama wants to imitate JFK, he should eschew targeted tax breaks in favor of lower tax rates:



In The Houston Chronicle, Houston branch Federal Reserve Bank Paul Hobby opposes efforts to investigate the Fed saying, “No one who studies the global economic issues today would forfeit this nation's ability to conduct monetary policy through a central bank.”

At The Washington Examiner, Robert Patterson (a friend) cites former Kemp-staffer John Mueller’s argument that lower birth rates have damaged the economy.

Tuesday summary.

On NRO, Larry Kudlow explains that continued volatility between the dollar and euro is damaging the world economy.

At Forbes, Brian Domitrovic recounts how Sen. George Mitchell derailed George H.W. Bush’s drive for a capital gains tax cut in favor of higher taxes, dooming Bush’s presidency.

On The Kudlow Report, Heritage’s Curtis Dubay debates tax rates:




In The WSJ, Seth Lipsky reviews Nixon Fed chairman Arthur Burns’ diary.

At Alhambra Investments, Joseph Calhoun expresses cautious optimism on the economy.

Also on Kudlow, Brian Wesbury discusses the stock market’s weakness:




In Forbes, Wesbury and Robert Stein see the economy improving.

On NRO, Reihan Salam explains the negative budget impact of raising upper income tax rates.

NRO’s editors cite Art Laffer in opposing Sen. McCaskill’s (MO) millionaire tax rate increase.

The economic facts are a good deal more complicated. As the always-sensible Reihan Salam reports in the current edition of National Review, economists expect that raising taxes at the top end would reduce economic growth significantly. Democrats will call that a Republican talking point, but it is consistent with the findings of the nonpartisan Congressional Budget Office, currently under the management of Douglas Elmendorf, a Democratic appointee. The CBO numbers suggest that a partial preservation of the Bush tax rates — meaning a compromise that raises taxes on “the rich,” in this instance defined as those earning $250,000 or more — would reduce real GNP by 1.2 percent, as lower revenue necessitates more government borrowing, slowing down long-term economic growth. But an across-the-board extension would reduce real GNP by only 0.6 percent, cutting the economic losses in half. Another way of saying that is that the growth effects of extending the tax cuts at the affluent end of the scale would make up half of the forgone real GNP associated with the tax cuts. That isn’t Arthur Laffer’s analysis, it’s the Democratic-led CBO’s.

From the Mises Institute, Frank Shostak rebuts Nouriel Roubini on the gold standard. (Hat tip: Ralph Benko.)

At Capital Gains and Games, Bruce Bartlett continues to drift from classical economics by endorsing floating currencies.

Thursday items.

On RCM, Charles Kadlec explains that higher tax rates on the rich are equivalent to domestic tariffs on doing business with high-income individuals and small businesses.

The NY Sun editorializes on the history of JFK, Nixon and gold.

On The Kudlow Report, Larry discusses the weak dollar’s impact on the oil price:



In Foreign Policy, Keynesian Barry Eichengreen analyzes the present currency war.

From 2004, Jude Wanniski and Eichengreen correspond on currency and gold.

Larry Kudlow wonders if this week’s Gallup poll led to the market rally.

At WSJ video, Stephen Moore examines job losses:



At The Journal, Tadashi Nakamae suggests the U.S. is repeating Japan’s monetary errors.

From 2009, Alan Reynolds debunks Keynesian analysis of Japan’s deflation.

On CNBC’s Netnet, Ash Bennington analyzes Art Laffer’s recent WSJ piece.

At Intermex Financial, Ricardo Valuenzuela posts a 2005 Wanniski book review on American entrepreneurship in Jude’s memory.

Clinton on the Gold Standard.

President Clinton made an interesting comment at the recent Peterson Foundation Fiscal Summit.

Discussing the economy's evolution over the past four decades, Clinton said, "And ever since we went off the gold standard, which was necessary for economic management purposes... economic inequality has increased."

Clinton is wrong that we needed to float the dollar for "economic management purposes," but that aside, this is a smarter analysis than you'll get from most conservatives these days -- at least since the passing of Jack Kemp, Bob Bartley and Jude Wanniski -- and is dead right.

Nathan Lewis, a Wanniski protégé, recounts in his excellent book that the average worker's weekly wage, measured against gold, today is something like 60 percent of what it was in 1971, the year Nixon ended the gold standard. (And he was writing in 2007, when gold was $400 lower.) Simply put, though the economy as a whole has recovered, wages for most Americans have never caught up with the dollar's 90 percent devaluation of the 1970s.

This is not to endorse the Left's critique of supply-side economics and inequality -- to the contrary: low taxes and sound money are essential to rebuilding American wealth across the classes -- but it might be smart for conservative reformers to acknowledge that all these years later we're still dealing with the catastrophic decision to float the dollar. (To say nothing of the weak and unstable dollar's role in the recent bubble and financial crisis.)

Rather than endlessly denying that inequality has increased, conservatives should embrace Clinton's comments and make the case for sound money and fixed exchange rates, once bedrock principles of the Right. For the lower 1/2 of American workers -- and most of the global poor while we're at it -- nothing would raise living standards more.