Tuesday round up: Steil and Hinds on the dollar; Domitrovic on the IMF; McKinnon sees stagflation.

From The Financial Times, Benn Steil and Manuel Hinds explain that the dollar’s reserve status is bad for the world and for the U.S.

At Forbes, Brian Domitrovic suggests the IMF has little purpose without fixed exchange rates.

In The WSJ, Stanford’s Ronald McKinnon sees stagflation in the economy.

Not having an exchange-rate constraint, the Fed can conduct a more independent monetary policy than other central banks can. How it chooses to exercise this independence is crucial to the stability of the international monetary system as a whole. For more than two years, the Fed has chosen to keep short-term interest rates on dollar assets close to zero and—over the past year—applied downward pressure on long rates through the so-called quantitative easing measures to increase purchases of Treasury bonds. The result has been a flood of hot money (i.e., volatile financial flows that are subject to reversals) from the New York financial markets into emerging markets on the dollar's periphery—particularly in Asia and Latin America, where natural rates of interest are much higher.

Wanting to avoid sharp appreciations of their currencies and losses in international competitiveness, many Asian and Latin American central banks intervened to buy dollars with domestic base monies and lost monetary control. This caused a surge in consumer price index (CPI) inflation of more than 5% in major emerging markets such as China, Brazil and Indonesia, with the dollar prices of primary commodities rising more than 40% world-wide over the past year. So the proximate cause of the rise in U.S. prices is inflation in emerging markets, but its true origin is in Washington.

In India’s Free Press Journal, S.S. Tarapore discusses the gold standard and that nation’s economy.

In The Washington Times, Richard Rahn reports on a destructive banking regulation that would require U.S. banks to report the names of foreign account holders to their home governments.

From Alhambra Investments, Joe Calhoun suggests Fed Chairman Bernanke has turned the U.S. into a nation of speculators – again.

At CNBC, supply-side foe Peter Peterson talks about the need for higher taxes to fight the debt, but doesn’t mention growth:

Bloomberg notes Grover Norquist’s clout in opposing tax increases as part of a budget deal.

The Washington Post reports Paul Volcker saying that we need tax reforms that raise more than 19 percent of GDP.

Cato’s Steve Hanke challenges Keynesian claims about deficits and growth.

The Washington Post explains how Chinese manufacturers evade U.S. tariffs.

On Forbes, Ralph Benko sees politics behind a recent IRS rules change to tax donations to 501(c)(4) organizations.

Chris Powell of GATA comments on our WSJ article on Mundell.

At Asia Times, David Goldman disagrees with some elements of Mundell’s analysis.

The National Foundation For American Policy reports that children of immigrants drive U.S. achievements in science and math.

In The NYT, Bruce Bartlett critiques the Fair Tax.

Weekend update: Lewis on the gold standard; Kudlow on dollar weakness; Mueller on the inconvertible dollar.

From Forbes, Nathan Lewis explains the principles that make the gold standard work.

At NRO, Larry Kudlow argues the dollar has been falling due to the Fed, not due to the government shutdown.

TGSN features a John D. Mueller speech in which he argues the dollar standard leads to monetary-related recessions, elevates the budget deficit, and enables permanent trade deficits:



At RCM, Louis Woodhill critiques Rep. Paul Ryan’s budget plan for providing lower growth than is required to recover from the recession.

From The Hoover Institution, Charles Wolf, Jr. explains why yuan revaluation is a bad idea.

The NYT profiles deficit hawk Peter Peterson, noting his early opposition to Reaganomics and his financing of bipartisan deficit advocacy:

Its most effective use of its founder’s fortune may be the millions of dollars in grants it has given over the years to think tanks like the Heritage Foundation and the Center for American Progress, run by John Podesta, Mr. Clinton’s former chief of staff. “Everyone I know in the ‘budget community’ is trying to get Peterson money,” said Stan Collender, a longtime budget expert at the consulting firm Qorvis Communications.

At The Daily Beast, Reagan budget director (and former Peter Peterson associate) David Stockman advocates shutting down the government.

On NRO, Mona Charen reviews Richard Brookhiser’s new documentary on Alexander Hamilton.

Wednesday update: Swanson profiles Cochrane; Benko recounts fiat money's political disorders; Laffer talks inflation.

From Forbes, Bret Swanson surveys the compelling opinions of University of Chicago economist John Cochrane.

AT TGSN, Ralph Benko recounts the dollar standard’s three political disorders (here, here and here).

On The Kudlow Report, Art Laffer discusses the producer price index’s surge:



At RCM, John Tamny advises Japan to avoid bad economics as it strives to recover.

In The Journal, James Grant reviews Douglas Irwin’s book on Smoot-Hawley.

From Bloomberg, Caroline Baum notes Bastiat’s counter to Keynesian ideas about government projects creating prosperity.

From Mises.org, David Stockman unleashes on the 2008 bailout and the dollar standard:

Viewed more broadly, the carnage on Wall Street in September 2008 was the inevitable crash of a 40-year financial bubble spawned by the Fed after Nixon closed the gold window in August 1971. As time passed, the Fed's market-rigging and money-printing actions had become increasingly destructive — leaving the banking system ever more unstable and populated with a growing bevy of Too Big to Fail institutions.

The 1984 rescue of Continental Illinois; the 1994 Mexican peso crisis bailouts; the Fed's 1998 life-support operation for LTCM — were all just steps along the way to the fall of 2008.

Then, faced with the collapse of their own handiwork, Washington panicked and joined the Fed in unleashing an indiscriminate bailout capitalism that has now thoroughly corrupted the halls of government, even as it has become a debilitating blight on the free market.

In The WSJ, Newt Gingrich and Peter Ferrara advocate making the Bush tax rates permanent.

At The Journal, Stephen Moore reports congressional conservatives are unsatisfied with the pace of spending cuts.

On the Peter Peterson funded Fiscal Times, James C. Cooper cites weak dollar advocate Fred Bergsten (of the Peterson Institute for International Economics) calling for dollar depreciation to boost exports. The irony is, the biggest barrier to US exports is the dollar standard Bergsten helped create in the 1970s.

At Mises.org, Frank Shostak argues economic growth doesn’t cause inflation.

Tuesday summary.

At TSGN, Kelly Hanlon quotes Lew Lehrman making a crucial point:

Jacques Rueff spoke of American “deficits without tears,” because the American budget deficit and balance-of-payments deficits were -- they still are -- almost automatically financed by the Federal Reserve and the reserve-currency system -- through the voluntary (or coerced) buildup of dollar balances in the official reserves of foreign governments. These official dollar reserves were, and still are, immediately invested by foreign authorities, directly or indirectly, in the dollar market for United States securities, thus giving back to the United States, at subsidized rates, the dollars previously sent abroad as a result of the persistent United States balance-of-payments deficit and budget deficits. To describe this awesome absurdity, Jacques Rueff invoked the metaphor of an overworked tailor to the King, yoked permanently to fictitious credit payments by His Majesty’s unrequited promissory notes.

The WSJ reports Fed Chairman Bernanke is concerned about the oil price but not enough to change his policy direction.

On The Kudlow Report, Steve Forbes discusses the falling dollar:



On Forbes, Charles Kadlec argues that enterprise – not greed – is good.

From Asia Times, David Goldman reiterates that currency-related food price spikes are behind the Middle East revolts.

Also on Kudlow, John Tamny suggests legalization of insider trading:



At The Washington Times, Richard Rahn examines the non-monetary ways in which the Obama Administration is raising energy prices.

Cato’s Dan Mitchell promotes a new video on tax competition.

From the archives, John D. Mueller recounts the achievements of supply-side economics founder Robert Mundell.

It isn't possible to appreciate Mundell's work without knowing that he began as a junior member in a colloquy that had been going on for decades when he arrived; but he soon established himself as an equal, or more. Mundell recognized in the early 1960s that the Keynesian revolution in economics, dominant among American and British economists after the Second World War, contained some serious shortcomings. 'The Keynesian model is a short run model of a closed economy, dominated by pessimistic expectations and rigid wages. This model is not relevant to modern economies," he wrote in Monetary Theory (1971).

In seeking an alternative to Keynesian theory, Mundell had to return to much older sources, such as the eighteenth-century ideas of David Hume and the 19th-century general-equilibrium theory of Leon Walras. 'The object," Mundell explained, "is to combine the essential features of the specific models of Hume, [Irving] Fisher and Keynes in a more general theory of interest, inflation, and growth of the world economy. I do not claim to have resolved all the problems associated with a new approach, but only to have helped build, with able predecessors and contemporaries, a better foundation for monetary theory."

In doing so, Mundell could draw on a Continental European tradition including economists like Robert Triffin and Jacques Rueff, which had always maintained the classical teachings; but many of their writings were (and remain) unfamiliar to English-speaking economists, and were not expressed in the mathematical form that became standard at about the same time as Keynesian macroeconomic theory. (It's interesting that the return of American and British economists to the fold of classical economics was mediated largely by Canadian-born economists like Mundell and Harry Johnson.) As Mundell noted at a 1967 international monetary conference, "I do not know why it has taken so long for Anglo-Saxon economists to admit the truth of the elementary proposition [Rueff] is making: that there is an adjustment mechanism that is automatically operative under fixed exchange rates if it is allowed to operate." It's fitting that in 1983 Mundell was awarded the Jacques Rueff Prize in Paris by the Jacques Rueff Foundation and the Lehrman Institute.

From Reason, Shikha Dalmia suggests Americans have nothing to fear from India and China’s growth.

At The Financial Times, conservative Keynesian Peter Peterson – funder of the Institute for International Economics – advocates a fiscal rebalancing through deep spending cuts and tax increases.

From NPR, liberal economist Dean Baker argues for growth (through spending) and against balanced budget obsession.