Tuesday items: Kadlec on JP Morgan; Benko on sound money; Romney on tax cuts.

From Forbes, Charles Kadlec explains how the market disciplined JP Morgan.

At Forbes, Ralph Benko argues sound money is needed for the economy to boom.

On Face the Nation, Mitt Romney advocates balancing the budget through tax cuts and growth:

In a later segment, Romney discusses monetary policy:

BOB SCHIEFFER: The Federal Reserve, as I understand, is going to meet this week to weigh the possibility of a new economic stimulus for our economy. Now, you didn't think much of the last stimulus. What do you think they should do now--is it time for another?

MITT ROMNEY: Well, the QE2, as it's called, which was a monetary stimulus, did not have the desired effect. It was not extraordinarily harmful, but it does put in question, the future value of the dollar, and will, obviously, encourage some inflation down the road. A QE3 would do the same thing. I know how it is. Politicians in office want to do everything they can just before an election to try and temporarily boost something, but the potential threat down the road of inflation is something which we have to be aware of, and at the last QE2, the last monetary stimulus, did not put Americans back to work, did not raise our home values, did not bring jobs back to this country or encourage small businesses to open their doors. What's wrong with our economy is that our government has been warring against small, middle, and large businesses. And people in the business world are afraid to make investments and to hire people. I want to make it very clear that in my administration, government will see it as the friend of enterprise and job creators, and we'll start building jobs again.

On Bloomberg, Ramesh Ponnuru profiles Grover Norquist.

At The American, James Pethokoukis defends Grover for opposing a hypothetical spending cut/tax increase deal.

From Alhambra Partners, Joe Calhoun analyzes Greece and the Eurozone.

From The Money Illusion, Scott Sumner argues monetary policy is at its tightest since Herbert Hoover.

On TGSN, Ralph Benko recounts the Democratic Party split of 1896 over gold.

At International Liberty, Dan Mitchell notes the President’s wise economic advice… to other nations.

From The WSJ, Stephen Moore discusses the possibility that the House could go Democrat:

CNBC reports Goldman Sachs predicts monetary easing from the Fed (h/t: Drudge).

In The NYT, Bruce Bartlett examines income changes at the top and bottom of the spectrum.

Monday update.

Thanks to Alan Reynolds for recommending a 1986 compendium from the Adam Smith Institute (UK), It Pays to Cut Taxes. I've added it to the Classic Articles section.
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At Forbes, Charles Kadlec explains that economists increasingly accept that tax rate cuts and lower spending are essential to economic growth.

On The Next Right, D.R. Tucker advises supply-siders to better document the benefits of their ideas to average Americans. (Hat tip: Frum Forum.)

At NRO, Larry Kudlow wonders if President Obama is moving towards supply-side economics:

And now it’s fascinating to watch the money-politics dynamic continue. On a recent Sunday talk show, top Obama economic advisor Austan Goolsbee sounded like a Reagan disciple. “You’ve got direct incentives for companies to invest in the country,” he said. And he went on to describe a new Obama economic model that sounds suspiciously supply-side: “The focus has got to be on investment, on exports, and on innovation. . . . The president is firmly in that — planted in that camp — and we are going to grow our way out of this.” (Hat tip to economist Don Luskin.)

On The Kudlow Report, Stephen Moore expresses skepticism about the President’s change of heart:




At Forbes, John Tamny responds to Scott Sumner’s charge of anti-intellectualism.

The WSJ editorializes that Canada is prospering thanks to corporate tax rate reductions:

Relative levels of taxation matter because companies and investors send capital where it can achieve the highest returns. Yes, U.S. companies often pay a lower effective tax rate thanks to loopholes, but the variability leads to economic inefficiency and investment distortions. Low marginal rates have helped the likes of Hong Kong (16.5%), Singapore (17%) and Ireland (12.5%) attract capital, while the high U.S. rate keeps hundreds of billions of dollars from coming to America from offshore.

Also on Forbes, Amity Shlaes praises the use of new technology to communicate sound economics.

Monday items.

In a must-read at The WSJ, former El Salvador finance minister Manuel Hinds makes a strong case that floating currencies are incompatible with globalized markets.

On Forbes, John Tamny debunks Donald Trump’s anti-China rhetoric.

Also at Forbes, Steve Forbes explains the flawed root of the Fed’s QE2 policy:




On Seeking Alpha, Cam Hui frets about rising commodity prices.

At The Money Illusion, Scott Sumner puts commodities in context:




In his syndicated column, Paul Craig Roberts offers an interesting history of Reaganomics (along with an assessment of globalization since the early 1990s that omits dollar instability).

On Globe Asia, Cato's Steve Hanke explains why Fed policy isn’t stimulating economic production:

To understand why, in the Fed's sea of liquidity, the economy is being held back by a credit crunch, we have to focus on the workings of the loan markets. Retail bank lending involves making risky forward commitments. A line of credit to a corporate client, for example, represents such a commitment. The willingness of a bank to make such forward commitments depends, to a large extent, on a well-functioning interbank market — a market operating without counterparty risks and with positive interest rates. With the availability of such a market, even illiquid (but solvent) banks can make forward commitments (loans) to their clients because they can cover their commitments by bidding for funds in the wholesale interbank market.

At present, the major problem facing the interbank market is the zero interest-rate trap. In a world in which the risk-free Fed funds rate is close to zero, banks with excess reserves are reluctant to part with them for virtually no yield in the interbank market. Accordingly, the interbank market has dried up — thanks to the Fed's zero interest-rate policy — and, with that, banks have been unwilling to scale up their forward loan commitments.

In short, the Fed's zero interest-rate policy has created a credit crunch that is holding back the economy. The only way out of this trap is for the Fed to raise the Fed funds rate to, say, two percent.

At Forbes, Reuven Brenner examines the mentality behind successful risk taking.

On The Kudlow Report, Brian Wesbury argues U.S. debt is high but manageable:




On NPR, The WSJ’s David Wessel tries to discredit U.S. Rep. Ron Paul’s sound money views:

Mr. WESSEL: Basically, he [Paul] wants to go back to an earlier era where gold and silver were legal tender, and where you could have your dollar bills exchanged for gold or silver at some fixed rate. It's an old system that's largely been discredited. Most economists - many Republicans in Congress think it's a little bit weird and extreme. And although he feels very strongly about it, it's unlikely to move into legislation or anything like that.

GONYEA: But how much support is there for that view?

Mr. WESSEL: I don't think there's very much support at all. There's kind of a romantic view that we could go back to something better. Maybe we'd have less chance of hyper inflation, but I think most people, most economists, and most members of Congress they want to have some control and accountability over the Fed, but they don't want to put it out of business and return to a gold standard; which, after all, was one of the reasons we had the Great Depression a generation, or two, ago.

From the archive, in ISI’s First Principles journal, historian Brian Domitrovic recounts William F. Buckley’s contribution to the supply-side revolution.

Weekend round up.

At RCM, Larry Kudlow sees Reaganomics making a comeback.

On Supply-Side Economics Today, Brian Domitrovic responds to Scott Sumner’s criticism of John Tamny.

At CNBC, Don Luskin predicts investment will shift towards stocks away from gold and treasuries:




The WSJ editorial board is optimistic about Washington's policy direction.

At NRO, Amity Schlaes argues the tax deal doesn’t provide significant stimulus and weakens Social Security’s viability.

Also in The Journal, France’s Finance Minister outlines measures to defend the euro.

On Fox News, Charles Krauthammer offers a demand-side analysis of the tax deal by suggesting its $1 trillion deficit will create a “sugar high”:




A Heritage Foundation report suggests pro-growth tax code changes.

Jon Shure of the liberal Center on Budget and Policy Priorities disputes Art Laffer’s analysis of state tax rates.

A blog fact checks Media Matters for America's dismissal of supply-side economics.

Thursday update.

At RCM, John Tamny applauds the recent pro-gold speech and book by economists Benn Steil and Manuel Hinds.

On NRO, Duncan Currie (a friend) suggests taxing consumption rather than income and investment would boost long-term growth.

At The Kudlow Report, Stephen Moore supports filibuster of the omnibus spending bill and predicts stronger growth based on the tax deal:




On NRO, Larry Kudlow sees rising interest rates as positive and can’t understand Republican opposition to the tax deal.

From last week, IBD notes the difference between the Reagan Recovery and Obama’s:




At TNR, supply-side foe Jonathan Chait challenges the claim that the budget can be balanced without higher tax rates.

The Heritage Foundation reports a ten-point cut in the corporate income tax would yield higher growth.

On Fox, Steve Forbes supports the tax deal:




At The Money Illusion, Scott Sumner attacks John Tamny’s gold advocacy as “anti-intellectual.”

Wednesday round up.

On Forbes, Brian Domitrovic likens President Obama’s tax cut shift to JFK’s shift in 1961 away from his Keynesian advisors.

At Human Events, Art Laffer recommends voting for the tax deal, saying liberal focus on class warfare will cost Democrats votes while stimulating their “anti-social retinue of freaks and weirdos.” (Stet.)

On The Kudlow Report, James Pethokoukis discusses the President’s pro-business shift:




At The American Spectator, Jeffrey Lord remembers Jack Kemp’s final advice to Barack Obama.

From last month on Forbes, Reuven Brenner suggests a gold-backed currency will restore investor trust in the economy. Part II is here.

On CNBC’s NetNet, Steve Forbes argues the tax deal is as good as Republicans are going to get.

At Alhambra Investments, Joseph Calhoun outlines the need for more pro-growth policies:

It just so happens too that a shift to better economic policy in the US is exactly what the world economy needs right now. Despite the prevailing, overwhelmingly bullish sentiment regarding stocks, commodities and future economic growth, there are a still a lot of potential problems that could derail the rosy view of the world. Europe’s sovereign debt problems - which are really European bank debt problems - have not yet been resolved but the road to recovery could be eased in the short term by a lower value for the Euro. Better US economic policy may speed that process if it means capital flows back to the US. The developing world’s emerging inflation problem would also be eased by a reversal of the hot money flows that are at the root of the problem. Capital and price controls as are being tried - along with some fairly aggressive monetary tactics - in China and other emerging markets are crude tools that are bound to fail unless a more favorable investment environment is crafted in the developed world. Better economic policy here that reduces capital inflows to China, Brazil and other emerging markets not only eases trade frictions but will reduce inflation there while increasing investment here. It is bad US economic policies that are causing many of the world’s economic imbalances not currency manipulation in Asia. Better US economic policy is the only proper remedy.

But the just announced deal on the Bush tax rates is not nearly enough to attract capital back into productive investments. The relative changes in exchange rates between fiat currencies are not the important metric to watch. We will know that policy has truly changed for the better when the price of gold and other commodities fall and then stabilize at lower levels. You want stimulus? What would be the effect on US growth if oil dropped by 50%? Or copper? Or any of a number of other commodities? What if all that capital tied up in gold were to flow into productive investments?

At The Pittsburgh Tribune-Review, Don Boudreaux rebuts trade deficit phobia.

On Bloomberg, Caroline Baum speculates that the left’s opposition to low tax rates stems from a zero-sum worldview.

At NRO, economist Scott Sumner maligns gold-based money in favor of GDP targeting.

From Vlad Signorelli, Bretton Woods Research comments on Richard Holbrooke’s death:

Holbrooke, Afghanistan & the Economy

[According to the surgeon who last spoke with the late, longtime U.S. diplomat Richard Holbrooke, Holbrooke`s last words were, "You`ve got to stop this war in Afghanistan." Certainly, the loss of Obama`s top civilian official dealing with the AF-Pak situation only adds to the looming crisis. Only yesterday, the Washington Post quoted Afghan President Hamid Karzai as saying, "If I had to choose sides today, I`d choose the Taliban."

Yet, while the spotlight is on the Obama Administration and how it will fill the hole left by Holbrooke, the enormous costs of our continued involvement in Afghanistan are passing by with barely a mention in the mainstream press or political establishment. Richard Vague, a Republican and CEO of Energy Plus, points out in a recent oped below that the Administration currently spends $119 billion per year on Afghanistan, whose gross national product is only $14 billion per year. Given such astounding proportions, it may be only a matter of time before the GOP`s fiscal conservatives break their virtual silence on AF-Pak expenditures and excite a national debate next year on the amount of blood and treasure risked during recessionary times. We suspect that some of these anti-Afghanistan fiscal conservatives will emerge from the new Tea Party contingency in Congress. BWR]

Article here.

Monday items.

In The Weekly Standard, Jeffrey Bell and Sean Feiler argue the GOP doesn’t understand the monetary roots of the economic crisis.

At the moment, Republican leaders and policy elites are advancing exclusively fiscal solutions that address only the government response to the economic crisis and not the crisis itself. Fiscal deficits did not create the crisis, and reducing deficits won’t put our economy on a stable footing. From its inception in 2007 right up to the present, the crisis derived from the interaction between excessive investment leverage and dysfunctional interest-rate policy—in other words, a predominantly monetary phenomenon, albeit one that has had grave fiscal consequences.

As long as the GOP enjoys the luxury of being the only alternative to Barack Obama and the Democrats, the party is understandably reluctant to delve into the murky depths of monetary policy. But after November 2, the Republicans’ role will change. They could do worse than pay attention to the only public official, elected or unelected, who is speaking out against current monetary policy, telling anyone who will listen—including an increasingly impatient Tea Party movement—that the root of the crisis is monetary.

On Forbes, John Tamny suggests the President’s best chance for a comeback requires rejecting devaluationist ideas.

At CNBC, Peter Morici and former GW Bush official Tony Fratto discuss China’s currency:



At Classic Capital, Wayne Jett explains the role U.S. monetary authorities have played in destabilizing the world financial system.

Monetary inflation is an accomplished fact, and product prices will adjust accordingly as an added variant of supply-demand signals. So far, the CPI has adjusted only 16.6% since 2003, leaving nearly 60% in price rises still to be realized. This means price inflation of 6-12% annually over the next five to ten years is already built into the dollar. Talk of “deflation” is either ignorant or deceptive, because any downward pressure on prices comes not from monetary policy but from falling demand in relation to supplies of goods and services.

China pegs its currency to the dollar to avoid loss of U. S. markets. Duplicating the Fed’s money creation causes worse inflation in China than the Fed creates in the U. S. Congress was set to make matters worse in September by voting on a bill to allow penalties to be imposed on Chinese producers to compensate U. S. producers for China’s “weak” currency, but adjourned to avoid voting on extension of the Bush tax cuts.

The world’s best monetary theorist, Robert A. Mundell, declared such U. S. penalties would create a “disaster” which would create even greater instability in international relations. He further warned that the China penalty bill distracts from attention to the primary source of monetary instability, which is devaluation of the dollar relative to the euro. The recent dollar/euro ratio, Mundell declared, “is a terrible thing for the world economy. We’ve never been in this unstable position in the entire currency history of 3,000 years.” Since Mundell spoke in September, the dollar/euro ratio has worsened to $1.40, provoking European retaliation. Japan, too, is being priced out of the U. S. market, with the dollar now worth only 82 yen.

From last month, The NY Sun recounts a prominent investor’s warning on the dollar and gold.

On Forbes, Steve Forbes interviews Albania’s prime minister about the flat tax.

At The Money Illusion, Scott Sumner discusses tax rates and incentives.

Also on The Weekly Standard, Matthew Continetti warns Republicans not to emphasize austerity over growth.

In The American Spectator, Stephen Moore debunks Green Jobs.

World Net Daily reports on financial industry calls for a single world currency.

On The NY Times, the Heritage Foundation’s Derek Scissors opposes Chinese devaluation.

Thursday items.

The NY Sun rolls its eyes at Alan Greenspan's recent remarks that gold is the canary in the currency coal mine.

At Investor's Business Daily, Cato's Alan Reynolds analyzes Keynesian spending vs supply-side tax cuts.

The WSJ's Dan Henninger sees spending as the election's main issue.

At The Kudlow Report, Larry examines Japan's currency fluctuations.

At The WSJ, a collection of conservative Keynesians and monetarists offer a mixed agenda for economic growth (cutting spending and entitlements, freezing regulations, and maintaining current tax rates). Most problematic is the fifth point, which calls for a Taylor Rule-style monetary policy rather than a commodity price rule.

The WSJ reports on Treasury Secretary Tim Geithner's call for a higher yuan at a House hearing.

At The Money Illusion, Scott Sumner points out that currency revaluations don't necessarily improve trade deficits.

Steve Forbes discusses successful investment strategies of the past decade.

A note on David Malpass's Senate race: Earlier this week, supply-sider Malpass lost his Republican primary bid for the U.S. Senate in New York. While I followed the campaign from afar, I can't help but note that Malpass seemed to cast himself most clearly as a spending hawk, rather than focusing his campaign on tax cutting, sound money and economic growth. Running as a budget cutter, Malpass was one of the crowd rather than a standout candidate for growth; an odd strategy.

Thursday round up.

In today’s Wall Street Journal, the excellent Judy Shelton says unsound money is the root of our economic problems (reprinted at the Sound Money Project blog).

What government policy makers in the U.S. and Europe fail to realize is that far from being seen as capable of delivering economic salvation, they are increasingly perceived as primary contributors to global financial ruin. Whether it's the fiscal recklessness of spendthrift politicians or the refusal of government officials to acknowledge failings—distorting mortgage markets through Fannie Mae and Freddie Mac, skewing assessments of credit risk through loose monetary policy—the influence of government over the real economy is proving disastrous.

No wonder people are flocking to gold as they flee government-supplied money. Neither the dollar nor the euro inspires much global confidence; despite the dollar's relative safe-haven status, neither currency holds out the promise of financial stability.

How can the real economy, i.e., the private sector, where genuine wealth is actually produced, continue to function in the absence of reliable money? Europeans will be wary of the euro from now on, given that the European Central Bank has relaxed its standards for safeguarding monetary integrity by absorbing Greek debt. Meanwhile, the perilous fiscal condition of the U.S. has convinced many that our government will resort to future inflation to reduce its own untenable debt burden.

On Fox News, Bruce Bartlett blames supply-side economics for not cutting spending while cutting taxes.

Following up on yesterday’s Malpass item, here’s the complete text.

Economist Scott Sumner recently examined nations that made market reforms in the last 30 years, responding to New York Times columnist Paul Krugman.

Historian and author Brian Domitrovic defends Sumner and rebuts Krugman.

From Azerbaijan, Robert Mundell calls for a single European debt market and says the dollar’s rise against the euro will help Europe’s recovery.

Wayne Jett was interviewed recenty about the euro.

On Monday, John Tamny discussed his view that a U.S. debt default would be positive on the John Batchelor radio show (around the 20 minute mark).

Earlier this month, the National Inflation Association produced a 55-minute documentary on the dollar.