Weekend update.

In a great Globe Asia piece, Cato’s Steve Hanke overviews commodity price chaos due to this decade’s falling dollar.

At Forbes, Lawrence A. Hunter argues the only true Federal Reserve reform is a gold price target.

On The WSJ, Mary Anastasia O’Grady discusses the Fed’s QE2 strategy:




The NY Sun editorial page suggests depoliticizing the Fed by linking the dollar to gold.

At Cato, Alan Reynolds rebuts The WSJ’s David Wessel on QE2.

In The Weekly Standard, former Bush Administration economist Larry Lindsey notes that if QE2 succeeds, interest costs on U.S. government debt will rise significantly.

Now suppose quantitative easing is “successful” in the way the Fed intends, taking inflation close to the average 2.4 percent rate of the last two decades and government borrowing costs back to their two-decade average of 5.7 percent. To get an idea of what happens to the budget, assume this transition happens over three years, so that by 2013 interest rates are back to “normal.” This “return to normal” will mean the government’s interest costs will rise to $847 billion by 2015 and $1.15 trillion by 2019.

The increase in annual interest costs in 2015 alone—$557 billion—is nearly six times the additional revenue that is supposed to be collected by letting the higher end of the Bush tax cuts expire, the centerpiece of the current fiscal policy debate in Washington. The increase in interest costs in 2019—$795 billion—is two-and-a-half times the value of all the Bush income tax cuts of 2001 and 2003 that are due to expire. On the spending side, just the extra interest cost from a quantitative easing “success” would swamp, say, the entire defense budget for the rest of the decade. No plausible increase in taxes or reduction in spending could fill a gap of that magnitude.

At The Pittsburgh Tribune-Review, GMU’s Don Boudreaux advocates ending the Fed.

In The WSJ, Hoover Institution’s W. Kurt Hauser explains that increasing growth, not raising tax rates, is the key to deficit reduction.

Bloomberg reports wealthy Britons may thwart that nation’s higher taxes:

“It’s my ambition to prove the Laffer Curve,” Hiscox, 67, said, referring to economist Arthur Laffer’s 1974 theory that tax receipts fall as governments raise taxes on the rich. “Income at 40 percent tax is quite painful. But losing 50 percent, plus all the other taxes -- it becomes onerous and less attractive to get income.”

At New World Economics, Nathan Lewis suggests renewing Glass-Steagal.

On Fiscal Times, Bruce Bartlett criticizes Republicans for cutting taxes to starve government, undermining his past critique of Republican claims that tax cuts pay for themselves.

Thursday items.

On Forbes, historian and Econoclasts author Brian Domitrovic explains that dollar instability led to Social Security’s creation.

In The WSJ, Charles W. Kadlec suggests that after four decades of evidence, the floating dollar experiment can be ruled a failure.

From 1947 through 1967, the year before the U.S. began to weasel out of its commitment to dollar-gold convertibility, unemployment averaged only 4.7% and never rose above 7%. Real growth averaged 4% a year. Low unemployment and high growth coincided with low inflation. During the 21 years ending in 1967, consumer-price inflation averaged just 1.9% a year. Interest rates, too, were low and stable—the yield on triple-A corporate bonds averaged less than 4% and never rose above 6%.

What's happened since 1971, when President Nixon formally broke the link between the dollar and gold? Higher average unemployment, slower growth, greater instability and a decline in the economy's resilience. For the period 1971 through 2009, unemployment averaged 6.2%, a full 1.5 percentage points above the 1947-67 average, and real growth rates averaged less than 3%. We have since experienced the three worst recessions since the end of World War II, with the unemployment rate averaging 8.5% in 1975, 9.7% in 1982, and above 9.5% for the past 14 months. During these 39 years in which the Fed was free to manipulate the value of the dollar, the consumer-price index rose, on average, 4.4% a year. That means that a dollar today buys only about one-sixth of the consumer goods it purchased in 1971.

Interest rates, too, have been high and highly volatile, with the yield on triple-A corporate bonds averaging more than 8% and, until 2003, never falling below 6%. High and highly volatile interest rates are symptomatic of the monetary uncertainty that has reduced the economy's ability to recover from external shocks and led directly to one financial crisis after another. During these four decades of discretionary monetary policies, the world suffered no fewer than 10 major financial crises, beginning with the oil crisis of 1973 and culminating in the financial crisis of 2008-09, and now the sovereign debt crisis and potential currency war of 2010. There were no world-wide financial crises of similar magnitude between 1947 and 1971.

Concerning quatitative easing, WSJ columnist David Wessell asks, What Would Milton Do?




On NRO, Larry Kudlow reports the Federal Reserve may be backing off its plans for aggressive easing.

At Forbes, Steve Forbes predicts new technologies will make energy plentiful for decades to come.

Also on Kudlow, Stephen Spruiell and Robert Reich debate how to cut the deficit:




At Bloomberg, Amity Schlaes relates the death tax to the story of Secretariat.

On Forbes, AEI’s Alex Brill and Chad Hill analyze tax policy’s impact on growth.

Thursday update.

On Bloomberg TV, Keynesian C. Fred Bergsten of the Peterson Institute for International Economics, calls China a currency manipulator for keeping the yuan stable, and advocates the U.S. buy Chinese currency.

At Café Hayek, Don Boudreaux explains that Chinese trade doesn’t diminish good jobs in the U.S.

On The Kudlow Report, Larry discusses rising oil and other commodities:



The WSJ’s David Wessell reports on a new paper suggesting low Fed interest rates caused the housing bubble.

On Asia Times, David Goldman suggests we have symptoms of deflation and inflation because:

When the Fed prints money, investors flee to other currencies, and foreign central banks intervene and buy dollars which they invest in Treasuries. It has precisely the same effect as the Fed’s own buying of bonds — yields fall. This increases the risk of future inflation so the market buys hedges against it (and you should, too).

The WSJ editorial board warns Democrats and Republicans against scapegoating China.

On CNBC, Paul Krugman calls China “the bad guy” in the currency war, and advocates for trillions in additional quantitative easing:



Reuters reports increased unemployment and inflation.

At Conscience of a Liberal, Krugman makes a convincing argument that the scariest part of debt-to-GDP analysis is the weak GDP:


At Forbes, Rich Karlgaard applauds Greg Mankiw’s recent tax analysis.

On The Kudlow Report, Stephen Moore analyzes the President’s NYT contrition:



Seeker Blog discusses Douglas Irwin’s recent paper, “Did France Cause the Great Depression?”

From 1997, Jude Wanniski argues the Great Depression was solely a fiscal crisis.

From June, John Tamny suggests there was a deflationary component in the 1920s.