Wednesday round up: Stoll on a split among supply-siders; Kudlow on Cantor's growth agenda; Ferrara on inflation.

At Future of Capitalism, Ira Stoll reports supply-siders are split on whether to emphasize fiscal or monetary policy.

From NRO, Larry Kudlow applauds Republican House leader Eric Cantor (VA) for rolling out a pro-growth agenda, but notes Cantor omitted the dollar from his proposal.

The Kudlow Report covers Portugal’s rejection of additional budget austerity:



At The American Spectator, Peter Ferrara worries about inflation.

On Gordon Liddy’s radio show, John Tamny discusses the dollar.

From TGSN, Ralph Benko recounts the dollar standard's three economic disorders (here, here and here).

In The WSJ, Stephen Moore reports on labor’s electoral maneuvers in Wisconsin.

On NRO radio, Douglas Irwin discusses his book on Smoot-Hawley but seems to miss Jude Wanniski’s point that the market meltdown began in 1929 due to expectation the legislation would pass.

At Minyanville, David Stockman rails against the Federal Reserve.

From 2009, Gabriel Fagan, James R. Lothian, and Paul D. McNelis find the gold standard era’s prosperity hard to beat.

Weekend round up: Lewis on currency boards; Danker on Utah's hard money legislation; Mitchell opposes raising taxes to lower the deficit.

From Forbes, Nathan Lewis argues that a currency board system tied to a specific gold price would fix the dollar.

Also at Forbes, Rich Danker suggests Utah’s bill to make gold and silver legal tender is the first tangible evidence of a populist revolt against Washington's weak dollar policy.

On The Kudlow Report, Stephen Moore discusses high oil prices:



At Forbes, Bill Flax links high oil prices to the weak dollar.

From New World Economics, Nathan Lewis continues his analysis of bank reserves.

Cato’s Dan Mitchell supports Grover Norquist’s argument that higher taxes will not lower the deficit.

At Heritage, David Weinberger cites Alan Reynolds on income inequality:

First, as Reynolds points out, shifting tax rates have influenced how income has been reported to the IRS. For example, after individual tax rate reductions throughout the 80s and 2000s, businesses shifted from corporate tax returns to individual tax returns, since they would pay less in taxes shifting income to the lower individual rate. This resulted in increased reported income at the top, when in reality there was a lot of income shifting – though not necessarily gaining – which Reynolds found to account for “more than half of the
apparent increase in the top 1 percent’s income share since 1986.”

Second, Reynolds argues that the Piketty-Saez tax return study excludes many transfer payments for low-income families, because these payments don’t show up in IRS data. These include things like Social Security, Medicare, food stamps and other lower-income subsidies. Excluding these payments shrinks the percentage of total income for lower income groups, making it appear to expand the percentage of total income top earners collect. Of course, employer health care contributions, which tend to favor upper-income earners and therefore offset some of the transfer payments to lower-income individuals, also need to be taken into account. But overall, middle- and lower-income earners receive
more subsidies than upper-income earners.

Third, tax rates also affect capital gains realizations. Prior to the 1987 capital gains tax increase, capital gains accounted for “18 percent or less of all the broadly defined income reported on the top 1 percent of individual income tax returns in the early 1980s,” according to Reynolds. However, starting in 1987, capital gains realizations as a share of the top 1 percent of incomes dropped to an average of 7.3 percent for the next decade.

From Cato, Robert F. Mullgan reports the institute's William Niskanen is working to rehabilitate the Phillips Curve.

On Forbes, Reuven Brenner suggests government art subsidies weaken the culture.

At Fiscal Times, Bruce Bartlett reviews Douglas Irwin’s Peddling Protectionism on the Smoot-Hawley tariff.

Domitrovic on Warsh's Smoot-Hawley analysis.

Econoclasts author Brian Domitrovic responds to David Warsh's recent dismissal of Jude Wanniski's theory that the Smoot-Hawley tariff bill triggered the Great Depression:


David Warsh has said imponderable things about supply-side economics in the past. Mundell won the Nobel "for the work he had done in the 1950s,” in contradiction to the Nobel citation and any plain reading of the citation’s works cited. Similarly, it takes defiance to adduce approvingly Ben Benanke’s fawning before Milton Friedman, given that Anna Schwartz has specifically called Bernanke out for grossly misreading A Monetary History.

I too hope that one day “An ambitious historian of thought may someday make it clear that a spillover from a strange guerilla battle at the University of Chicago…caused the ‘supply side’ movement to take the form it did – but only after the news pages of the WSJ…quietly chose up sides.” But I think we should add something, namely, “…so as to make Econoclasts obsolete.”

I’ve fingered through the new book enough to say that it looks like Warsh has put words in Douglas Irwin’s mouth. Why we would expect anything else I don’t know. Warsh zeroes in on Jude Wanniski while Irwin discusses the man in Peddling Protectionism about a tad more than I discuss Warsh in Econoclasts. A little bit, but in all quite lost in the cascade of everything else.

As for the “political pop culture,” in the shibboleth lesson the score gets evened with pop philology. The fact remains that Jude Wanniski profoundly advanced the discussion on the Great Depression, and this is not to suggest that he was anything but correct.

Here was the problem in 1930. Farmers were still getting killed, as had been the case for decades, and they had set up quite an extensive lobbyist shop in Washington. These operatives had been banging on Congressional doors in the interest of a tariff in favor of their clients to little effect for some time, but in 1930 two big things were added to the arsenal. The first was industrialists looking at their year-over-years from 1929 to 1930. They wanted to do something big and quick to goose the bottom line. They saw the tariff lobbying establishment in DC and joined it. When people of their caliber came a calling (not just the farmers), Congress listened.

But also, and boy does Warsh miss this, given progressive taxation (even at the low Mellon rates), the deflation that had kicked in made the decreases in federal receipts more than real. Hoover was in desperate straights to raise revenue to finance the debt, and here’s a tariff with renewed prestige with the eastern businessmen in tow. In other words, the persistence of progressive taxation had something to do with the passage of Smoot-Hawley. And when Smoot-Hawley didn’t work as a revenue source in the face of negative bracket-creep, marginal rates were tripled in 1932.

So to say S-H didn’t cause the Depression is not quite on the mark. It was part of an array of faulty moves on the fiscal side that accelerated the slide in the absence of the raising of the price of gold. No Milton Friedman here, mind you, but lots of Mundell at the Nobel podium.

Then there's Warsh’s obliviousness to the international banking effects. In 1925, the US had guaranteed the Versailles reparations scheme. The deal was that Germany would trade in the US and use half the dollar receipts to pay off the loans from the US banks that had covered the reparations once and for all.

Well, if you’re going to make the viability of the US banking system dependent on international trade, you’d better not pass Smoot-Hawley and expect that system not to hit quite a rough patch. It is inconceivable that had Coolidge somehow been president in 1930 he would have permitted the destruction of one of his VP's masterstrokes, the Dawes plan. And this is not to mention the banking failures down the prairie that have been shown in the lit to correlate to the tariff. Douglas Irwin mentions Jude Wanniski en passant for three pages, and David Warsh says this changes everything. I am sure I am not alone in preferring a new seriousness on this important issue.

Challenge to Wanniski's Smoot-Hawley theory.

From Economic Principals, David Warsh claims a new book overturns Jude Wanniski’s Smoot-Hawley/Great Depression hypothesis.

From the archive, Wanniski explains his theory.

At his blog, Paul Krugman applauds Warsh.

From Econtalk last year, Thomas Rustici supports Wanniski’s view.

Wednesday items.

The Washington Post reports the House of Representatives has voted to raise tariffs on China if it doesn’t raise its currency's value.

At Zero Hedge, Tyler Durden lashes the “House of Idiot Representatives.”

At Café Hayek, Don Boudreaux comments here, here, and here.

On The Kudlow Report, former GW Bush advisor Glenn Hubbard and China basher Peter Navarro discuss the need to improve U.S. exports through a lower dollar relative to the yuan:




At Smart Money, Don Luskin worries the China tariffs could trigger a trade war on par with Smoot-Hawley.

From 1999, Jude Wanniski argues the Smoot-Hawley tariff caused the Great Depression.

At The Financial Post, Alan Reynolds responds to income inequality claims:



At NRO, Larry Kudlow critiques the Fed’s monetarist policy.

On Asia Times, David Goldman suggests China’s slow accumulation of gold will help keep U.S. interest rates low.

At The WSJ, Stephen Moore examines the middle-class impact of expected tax increases.

At the National Center for Policy Analysis, Bob McTeer reports a recent Art Laffer comment:

I was on a program recently with Arthur Laffer, who said some things about the Laffer Curve that I wasn’t fully aware of. There was no handout, but, as I recall, he said that careful examination of IRS tax records indicates that below the highest income levels there is no Laffer-Curve effect i.e., marginal tax-rate reductions at those levels would not fully pay for themselves. On the other hand, at the highest income level, there is a strong Laffer-Curve effect, since “the rich” can afford accountants and tax lawyers to avoid or defer taxes.

Also at The Journal, Moore suggests the current Congress is responsible for rising deficits.

In Australia, Steve Forbes advocates a flat tax or reduction of the top tax rate.

UK Telegraph columnist Ambrose Evans-Pritchard regrets supporting the Fed’s monetary expansion.

Weekend items.

On the Kudlow Report, Jim Glassman analyzes the economy.

At SmartMoney, Don Luskin examines China's economy.

In The American Spectator, Quin Hillyer outlines an agenda to restore the economy.

WSJ columnist Jeff Opdyke observes that gold mirrors the dollar's value but not necessarily the inflation rate.

Steve Forbes interviews Paul Volcker on financial regulation.

In The Weekly Standard, James Pethokoukis looks at what went wrong with Recovery Summer.

The NYT reports that small investors are leaving the stock market.

At This Week, George Will and Robert Reich spar over Herbert Hoover's balanced budget record, but omit his real mistakes: the Smoot-Hawley tariff and the Revenue Act of 1932, which raised the top tax rate from 25 to 63 percent.

Liberal Washington Post columnist Dan Balz urges Republicans to follow Britain's conservatives by raising taxes.

Friday items.

Larry Kudlow gives this blog a hat tip in his discussion of Mundell's strong dollar theory.

Heritage argues against spending increases, saying, "Excessive spending--not low revenues--accounts for 92% of deficits by 2014 and 100% by 2017."

Still, in a time of high unemployment, wouldn't it be best to start addressing deficits by increasing employment and GDP growth?

John Tamny thinks Gates and Buffett should promote growth over charity.

Paul Krugman worries that austerity will produce crisis.

In The WSJ, Prof. Douglas A. Irwin restates Jude Wanniski's thesis that Smoot-Hawley caused the Great Depression.

Alan Greenspan, who is not a supply-sider, worries about deficits.