Weekend update: Lewis on progressive tax rates; Ferrara defends Social Security accounts; Frank notes the impact of taxing the rich on revenues.

From Forbes, Nate Lewis advocates a progressive tax code that taxes the rich at a low rate.

On Forbes, Peter Ferrara defends Social Security private accounts.

In The WSJ, Robert Frank notes that the problem with taxing the rich heavily is revenues go way down during recession.

On The Kudlow Report, Steve Moore argues GE’s tax bill of zero makes the argument for corporate tax reform:



At Forbes, John Tamny supports the merger of ATT&T with T-Mobile.

In The NYT, Paul Krugman notes that austerity economies have not grown as some predicted.

At New World Economics, Nathan Lewis critiques Murray Rothbard’s version of the gold standard.

On Jim Blasingame’s radio show, Charles Kadlec discusses inflation’s impact on small business:



At Forbes, Kenneth Rapoza cites Vlad Signorelli’s analysis of Portugal and German Chancellor Angela Merkel.

On The Fiscal Times, Bruce Bartlett urges Republicans to accept tax increases as part of a deficit reduction deal.

BWR on growth and the debt.

More great analysis courtesy of Vlad Signorelli at Bretton Woods Research, in partnership with Louis Woodhill. The chart below deserves wide circulation.


Notes on the Growth Scenario
Mar 14 2011

Given the stir our recommended reading "Paul Ryan Is Wrong" created among clients last week, we asked Forbes columnist and Club for Growth Leadership Council member, Louis Woodhill, to elaborate on the growth case in relation to the deficit and public debt from a technical perspective.

Below Louis explains how the CBO's doomsday Alternate Fiscal Scenario emerged. It was unveiled in June 2010 and has become the dominant projection for various studies on the subject, including President Obama's "Debt and Deficit Commission" and is routinely cited by Congressman Paul Ryan. It assumes an average annual growth rate of 2.16%. Woodhill, who is also an engineer and successful software entrepreneur, has done a yeoman's job working through the numbers and constructing a budget model that closely approximates the inputs and outputs of the CBO case. This allows different scenarios to be explored such as if the U.S. economy were to grow close to its historic norm of 3.5%.

His model in printable excel format is available upon request.

-Bretton Woods Research


Notes on the Federal Deficit, Debt & Faster Growth
March 12, 2011

Concern about Federal deficits and the mounting Federal debt escalated noticeably after the Congressional Budget Office (CBO) released its “Long Term Budget Outlook” (LTBO) on June 30, 2010. One of the cases they presented, their “Alternate Fiscal Scenario” (AFS), became widely cited in various studies and articles. The AFS was the basis for the work done by President Obama’s “Debt and Deficit Commission”, headed by Alan Simpson and Erskine Bowles.

The CBO's AFS predicted financial doom, with “Federal debt held by the public” rising rapidly and steadily until it reached an incredible (and unsustainable) 947% of GDP in 2084, which was the end of the CBO’s forecast period. As bad as this number was, it did not include the ongoing unfunded liabilities of Social Security and Medicare.

What was striking about that budget outlook is that it was based upon a single, very pessimistic forecast of economic growth, averaging 2.16% over the period. No cases were run on the sensitivity of the results to higher rates of economic growth. This was curious, since economic growth is the variable that has by far the largest impact on Federal finances.

On July 11, 2010, Erskine Bowles publicly asserted, "We can't grow our way out of this. We could have decades of double-digit growth and not grow our way out of this enormous debt problem." This statement prompted me to write a piece for RealClearMarkets entitled, “The Conspiracy Against Economic Growth”.

My article was based upon a financial model that I constructed using the CBO's numbers. The latest version of this model has the filename “Growth vs Spending Cuts LRW V6 031111”. The model includes the same dollar amounts of non-interest Federal spending assumed by the CBO alternative fiscal scenario. The model makes it possible to examine the impact upon Federal debt held by the public of changes in four variables: 1) real GDP growth; 2) the Federal “tax take” (taxes as a % of GDP); 3) real interest rates; and, 4) non-interest spending.

As expected, if the assumed GDP growth rate is increased to levels that are historically “normal” for the U.S. (3.5%), the debt/deficit problem goes away, whether or not spending is cut.

To illustrate this point, the following is a chart of the public debt as percentage of GDP for the next 73 years with a 2.16% growth rate as well as with an annual growth rate of 3.5%.

It is important to note that the model does not reflect the fact that higher economic growth would produce higher wages, which would eventually lead to higher Social Security costs. However, it also does not take into account the fact that higher economic growth would lead to lower costs for various “safety net” programs, like unemployment insurance, food stamps, and Medicaid.

Congressman Paul Ryan stated earlier this week on Kudlow & Company that faster economic growth cannot solve the financial problems of Social Security. This does not make sense. As a thought experiment, imagine that we woke up tomorrow and real wages had doubled. This would cause Social Security tax revenues to immediately nearly double, but outlays would rise only with a considerable lag. From this example, it is obvious that there has to be some rate of economic growth that would solve the problems of Social Security.

-Louis R. Woodhill

Thursday round up.

In a must-read from RCM, Louis Woodhill runs the numbers and finds economic growth is far more effective at balancing the budget than spending cuts.

From Bloomberg, Caroline Baum notes America’s many economic strengths.

Cato’s Steve Hanke examines the Middle East and North Africa's misery index.




On Forbes, Ralph Benko advocates a smaller warfare/welfare state.

Also from Forbes, Jerry Bowyer notes that democracy can be as tyrannical as autocracy.

In The WSJ, James K. Glassman explains why his Dow 36,000 theory didn’t come true, but omits the dollar’s volatility since 1999 from his analysis.

The first major change is that the relative economic standing of the U.S. is declining. The Congressional Budget Office estimates that U.S. growth will average a little more than 2% over the next 70 years, compared to about 3.5% during the second half of the 20th century. This is a stunning decline.

The reasons? One is a demographic imbalance, with too few workers supporting too many retirees and other non-workers. Another is a growing preference for European-style security. Still others include inefficient investment in human capital, especially K-12 education, and an enormous buildup of debt partly meant to prevent financial catastrophe in 2008-09. Meanwhile, developing nations like China, India and Brazil are growing far faster than the U.S....

But there is a second kind of risk, the kind that we can't really measure or expect—the murder of 3,000 Americans by terrorists in a single day, the Dow losing 1,000 points within minutes in a "flash crash," or home values in the U.S. suddenly plummeting. These discontinuous risks—or "uncertainties," as the famous University of Chicago economist Frank Knight called them—are multiplying in a world in which technology provides instantaneous connections among markets and allows just about anyone to do just about anything, anywhere.

The Financial Times reports on a Goldman Sachs study that says deep budget cuts will slow the U.S. recovery.

Keynesian Stephen Roach applauds China’s plan to consume more.

BWR on bipartisan deficit deal to raise taxes.

Sharp analysis from our friends at Bretton Woods Research.

Pay-go Consensus?

A group of six senators (Durbin, Conrad, Warner, Coburn, Crapo & Chambliss) proposed to Democratic leaders yesterday legislation that would automatically raise taxes and cut spending should certain deficit reduction targets not be met. The negotiations are in their very early stages, and the specifics have yet to be fully discussed with Congressional leaders. But we are disappointed that this "pay-go" type of legislation was not immediately shot down by Republican leaders.

Reportedly, more than 40 Senators have shown interest. Meanwhile, Republican aides suggested yesterday that the only thing necessary for House Republicans to go along with the Senate's push would be for President Obama to publicly embrace the effort. While we don't think such legislation is a real possibility, these negotiations are another example of the absence in Congress today of pro-growth, revenue-raising ideas. Instead of bad ideas like this plan, Boehner and McConnell should be leading their caucuses by discussing cuts in capital gains and corporate income taxes to increase the economic incentives to produce and create jobs.

As Jude Wanniski said 25 years ago, there is something in Republicans' DNA that drives them crazy during recessions when they see unbalanced budgets.

Deficit Plan Details Emerge Bipartisan Senate Group Mulls Spending Caps That Could Trigger Tax Increases

Thursday items.

On RCM, Louis Woodhill posits the novel theory that the Fed’s Interest on Reserves program caused the 2008 financial crisis.

At Forbes, Econoclasts author Brian Domitrovic explains that the world is desperate for the U.S. to stabilize the dollar.

On The Kudlow Report, U.S. Rep. Paul Ryan (WI) discounts demand side economics and underscores sound money:




On Forbes, Charles Kadlec advocates a gold-based international currency system.

At NRO, Larry Kudlow expresses cautious optimism about the deficit commission report.

Reuters reports the commission’s tax reform options.

Also on Kudlow, James Pethokoukis debates how to pay for the Bush tax rate extension:




The NYT hosts a debate on the gold standard but can’t find a single pro-gold economist.

At IBD, Walter Williams debunks trade deficit paranoia.

From Vlad Signorelli at Bretton Woods Research:

Reports this morning that Obama may have 'conceded' on extending Bush-era tax cuts for upper incomes may have been premature. The National Journal reports that [presidential advisor David] Axelrod clarified his stance around 9am, signaling the White House is still opposed to the idea.

Nonetheless, Obama's rhetoric is slowly evolving for the better as he is now conceding that economic growth is at least just as good as tax increases in reducing the deficit. Today, Obama made the point in Seoul that if economic growth increased by "1 percentage point over time that could have as much impact as completely eliminating the Bush tax cuts." And he added, "The single most important thing we can do to reduce our debt and deficits is to grow." Therefore, despite Axelrod's inept comments this morning, Obama seems to be gravitating toward growth solutions, which may spare expiration of Bush-era tax cuts on all.

On Forbes, Rich Karlgaard sees the worst of the recession as past.

From 2007, Art Laffer clarifies the claim that tax rates pay for themselves.

Wednesday round up.

The President’s deficit commission recommends spending cuts along with lower tax rates and elimination of deductions.

From August, Louis Woodhill exposes the commission’s low growth assumptions.

On The Kudlow Report, Don Luskin comments on how to play loose money and fiscal austerity:




At Forbes, Brian Wesbury and Robert Stein argue against quantitative easing.

In The FT, Alan Greenspan doubts the wisdom of a weaker dollar.

The WSJ editorializes in favor of trade liberalization to improve global imbalances.

A country's trade balance is simply an accounting identity that by definition matches the flow of goods and capital. Some countries export goods (a trade surplus) and also export capital to help other countries pay for those goods (a capital deficit). Others import goods (a trade deficit) while importing the capital with which to buy them (a capital surplus). Japan and Germany fall in the first category, the U.S. and India in the second. Either is perfectly normal.

The real problem is that for several decades many economies, especially in East Asia, have attempted to thwart these natural flows by running both trade and capital surpluses, and thus accumulating extraordinary levels of foreign currency reserves. Japan has done this for so many years that it is running a capital account deficit even as it sits on an enormous pile of U.S. Treasurys. China and South Korea do the same today.

This is where freer trade becomes so important. Trade barriers have long been a central policy tool for governments trying to keep their economies oriented toward exports. Trade barriers raise domestic prices by depriving consumers of the benefits of competition, while also artificially limiting their consumption options. Meanwhile, consumers and businesses aren't sending as much capital overseas to pay for imported goods.

On The NY Sun, Seth Lipsky defends Robert Zoellick from critics.

Cato’s Dan Mitchell worries the Fed is turning the dollar into a joke.

At NRO, Larry Kudlow links to Dan Mitchell’s latest video opposing tax increases:




In The Washington Examiner, Ralph Benko suggests ways to help the economy.

Monday update.

At The NY Sun, Seth Lipsky applauds World Bank President Zoellick’s op-ed advocating a gold-based monetary system.

Also in The Sun, Lipsky notes Sarah Palin’s opposition to a weaker dollar.

On The Kudlow Report, Stephen Moore discusses President Obama’s willingness to extend all the Bush tax cuts:




At Forbes, David Malpass advocates spending cuts.

In The WSJ, Fed Governor Kevin Warsh promotes a long-term growth agenda:

Policy makers should take notice of the critical importance of the supply side of the economy. The supply side establishes the economy's productive capacity. Recovery after a recession demands that capital and labor be reallocated. But the reallocation of these resources to new sectors and companies has been painfully slow and unnecessarily interrupted. We are feeling the ill effects.

Fiscal authorities should resist the temptation to increase government expenditures continually in order to compensate for shortfalls of private consumption and investment. A strict economic diet of fiscal austerity has greater appeal, a kind of penance owed for the excesses of the past. But root-canal economics also does not constitute optimal economic policy.

The U.S. would be better off with a third way: pro-growth economic policy. The U.S. and world economies urgently need stronger growth, and the adoption of pro-growth economic policies would strengthen incentives to invest in capital and labor over the horizon, paving the way for robust job-creation and higher living standards.

In City Journal, economist Douglas Holtz-Eakin promotes tax reform as key to restoring economic growth.

The WSJ editorial page supports Washington state’s resounding rejection of higher taxes on the rich:

So what's the matter with Washington? Clearly, its middle-class residents understand an economic reality that eludes Mr. Gates and many other already-rich advocates of higher taxes: The absence of an income tax has been Washington's greatest comparative advantage over its high-income tax neighbors in California and Oregon. Texas Governor Rick Perry even sent a letter to Washington state's biggest employers, inviting them to move to no-income-tax Texas.

The larger message, which also eludes the nation's leading proponent of soak-the-rich tax ideas—the fellow in the Oval Office—is that the average person simply doesn't believe that the taxers will stop with the wealthy. To protect both themselves and the greater economy outside their windows, voters prefer a tax system whose rates aren't rising—on anyone.

Also on Kudlow, Art Laffer sounds optimistic in response to the President’s tax cut move:

Business Week reports emerging economies may be flooded with hot money due to Fed easing.

At NRO, Nobel laureate Gary Becker analyzes the roots of the financial crisis.

On Forbes, John Tamny critiques the NFL’s economic policies.

Weekend update.

In The Financial Times, World Bank President Robert Zoelick advocates a Bretton Woods-style international currency arrangement based on gold.

On The Jim Bohannon Show, Brian Domitrovic provides a terrific discussion of supply-side economics.

On Fox News Sunday, U.S. Rep. Paul Ryan (WI) firmly opposes the Federal Reserve’s planned quantitative easing, but doesn’t say what the Republican House will do about it.




On the same show, U.S. Rep. Eric Cantor (VA) repeatedly insists Republicans want to maintain the status quo on tax rates, not cut them. My question is, why not push the debate -- and go for real growth -- by proposing significant new cuts to the corporate tax and capital gains tax, to help investors and businesses recapitalize? Surely the electorate will reward pro-growth proposals.

At Classic Capital, Wayne Jett decries the Fed’s QE plan.

At New World Economics, Nathan Lewis diagnoses Japan’s economic weakness.

On Friday’s Kudlow Report, Stephen Moore debates tax rates:




In The WSJ, Robert Frank reports on why the Washington state initiative to raise taxes on the rich failed.

On Café Hayek, Don Boudreaux worries about the President’s mercantilist perspective.

Supply-side foe Peter Peterson’s foundation will launch a new ad campaign on the deficit.

Friday items.

At Forbes, historian and Econoclasts author Brian Domitrovic suggests higher economic growth, even at lower tax rates, would reduce the deficit.

On Asia Times, David Goldman agrees with Goldman Sachs’s estimate of $1650 gold.

At The Kudlow Report, Don Luskin abandons classical sound money and endorses monetary stimulus:




In The WSJ, monetarist Allan Meltzer argues Milton Friedman would opposed quantitative easing.

On The NYT, Paul Krugman points out that austerity has not been positive for Germany’s economy:



In The Financial Times, Brazil complains about U.S. monetary policy.

On CNBC, David Malpass analyzes the economy:



On Forbes, Reuven Brenner proposes a novel way to resolve the housing crisis.

The Shadow Stats site explains that inflation is significantly higher than CPI indicates:



In an op-ed, David Stockman strikes a hopeless note about the budget deficit.

Monday round up.

Bloomberg reports the Federal Reserve will announce $500 billion in new purchases on Wednesday.

Also at Bloomberg, Caroline Baum worries about Fed easing.

On The Kudlow Report, Rand Paul discusses his concerns about the dollar:




At Forbes, John Tamny advocates eliminating tax breaks in order to lower tax rates.

On The John Batchelor Show, Tamny explains why businesses and consumers are holding cash.

At Bloomberg, Kevin Hassett supports divided government.

Also on Kudlow, Larry debates the impact of Tuesday’s election and Wednesday’s Fed meeting on markets:




At Reuters, Justin Fox suggests the deficit increase stems mainly from reduced tax receipts.

On Econlog, Dave Henderson supplements Megan McArdle’s case for abolishing corporate taxes.

At NRO, Alan Reynolds argues California's Prop. 19 is good economics.

Weekend update.

At The Daily Reckoning, Nathan Lewis explains gold’s rise is due to the dollar’s collapse.

On NRO, Larry Kudlow predicts low growth and rising inflation will hurt Democrats on Election Day.

CNBC reports that the European Central Bank and the Federal Reserve are pursuing different strategies:




In Fortune, Nin-Hai Tseng chides China bashers for scapegoating an important trade partner.

At Super-Economy, Tino rebuts Paul Krugman’s claim that reduced revenue, not surging spending, accounts for the deficit:



At RCM, Harvard’s Jeffrey Miron explains why Keynesian stimulus is ineffective.

The WSJ editorial page analyzes the on-going malaise.

This [poor recovery] contrasts with all other recent recoveries, which climbed out of recession much faster to reach a new peak. Nearby we update our table contrasting the recovery of the early 1980s with the current one. We cite the 1980s because that contraction was comparably deep and the jobless rate reached an even higher peak of 10.8%. Yet after five quarters of recovery in the 1980s, the economy was roaring ahead at a greater than 8% annual pace. This time the rebound reached 5% for one quarter before decelerating to today's non-cruising speed.

The neo-Keynesians who designed the 2009 stimulus reject this comparison, saying that the recent recession was uniquely awful because it was rooted in financial distress. Whatever truth there is in this financial diagnosis, it also conveniently absolves Democrats from responsibility for the damage done by their policies. Never mind the uncertainty and costs imposed by ObamaCare, onerous new federal regulations on banks and other industries, record spending and deficits and the threat of cap and tax, union card check, and the huge tax increase looming on January 1. We are supposed to believe that none of this matters because a lousy recovery was foreordained by the financial crisis.

If the midterm election polls are right, the American public isn't buying this economic determinism. They don't like 2% growth and 9.6% unemployment, and on Tuesday they'll get a chance to declare what they really think about what we would call the new abnormal.

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.

Tuesday round up.

At RCM, John Tamny criticizes Treasury Secretary Geithner’s plan to manipulate trade balances through continued dollar weakness.

In The WSJ, University of Chicago’s John H. Cochrane analyzes Geithner’s trade balance argument.

Since when is every trade surplus or deficit an "external imbalance" in need of correction? It makes sense for a country that has good investment prospects to import a lot of goods, run trade deficits, and borrow money. Years later, the country puts the resulting products on boats to pay the lenders back. The U.S. borrowed abroad to finance our railroads in the 19th century and ran surpluses when Europe was rebuilding after World War II. Were these "imbalances"?

Or consider a country (say, China) with a lot of middle-aged workers who need to save for retirement. It makes perfect sense for them to put stuff on boats and send it to a second country (say, the United States) whose people want to consume the goods. The people in the first country invest their earnings, say, by buying the bonds issued by the second country. And as they retire, they cash in the bonds and buy goods flowing the other way.

Do these and similar stories exactly account for current trade patterns? I don't know. But nobody else does, either. In particular, the army of economists in the basements of the International Monetary Fund (IMF) has no clue exactly how much each country should be saving, or where the best untapped global investment opportunities are around the world—including whether trade patterns are "normal" or "imbalanced."

On CNBC, Keynesian Stephen Roach lashes China currency bashers:




Cato’s Steve Hanke recounts the history of US efforts to destabilize China’s currency.

Investor’s Business Daily offers non-monetary ways to increase exports.

At NRO, Stephen Spruiell comments on Paul Krugman’s claim that lower revenue due to contraction, not abnormally high spending, accounts for the budget deficit:




On The Washington Times, Richard Rahn argues taxes already have been increased by $352 billion.

At Alhambra Investments, Joseph Y. Calhoun, III assesses the economy.

On The Kudlow Report, Steve Forbes suggests the budget deficit can be reduced with strong growth:




Reprinted from First Things, David Goldman and Reuven Brenner analyze the Keynesian roots of the current crisis. (H/T: Dick Fox at Supply-Side Forum.)

Monday update.

On Forbes, John Tamny explains rising commodity prices indicate a falling dollar, not economic strength.

The WSJ critiques the Treasury’s trade balancing proposal as a recipe for further decline.

In any event, how do the world's would-be central planners know what is the ideal trade surplus or deficit? Many factors determine the competitiveness of a country's exports, including productivity, wage flexibility and more. Should nations like Germany that have run prudent fiscal policies, reformed their labor markets and raised productivity be chastised for exporting more goods than they import? Should countries like Australia be penalized for selling natural resources to a developing China that needs those imports to fuel growth? Should China be punished for exporting cheap goods to willing U.S. consumers?...

There was a time when U.S. officials understood that focusing so much attention on trade deficits and surpluses was counterproductive. In 1976, an advisory committee to the Treasury that studied the international economic accounts concluded: "The words 'surplus' and 'deficit' should be avoided insofar as possible . . . These words are
frequently taken to mean that the developments are 'good' or 'bad' respectively. Since that interpretation is often incorrect, the terms may be widely misunderstood and used in lieu of analysis." The world could use such wisdom today.

On The Kudlow Report, Art Laffer worries about the dollar’s future:



On The Daily Caller, Jared Whitley (a friend) argues the Tea Party should focus on growth, including a sound dollar, rather than budget cuts.

At The NYT, former Obama advisor Christina Romer recommends against austerity.

In The WSJ, Keynesian (and cash for clunkers advocate) Alan Blinder advocates short-term rebates and credits, plus increased government spending.

From July, Alan Reynolds analyzes the flaws in Blinder’s model.

Also on Kudlow, Dan Mitchell debates the impact of lower tax rates on the budget deficit:



In The LA Times, Nicole Gelinas suggests letting bad banks fail is necessary for recovery.

On NRO, Reihan Salam recommends streamlining government to reduce debt, but makes no reference to increasing the rate of growth.

Wednesday round up.

At Smart Money, Don Luskin argues quantitative easing won’t help the economy.

On Bloomberg TV, David Malpass discusses gold, but doesn’t correct the moderator’s attempt to adjust the gold price for inflation.

The WSJ asks, Are we in a currency war?



On Asia Times, David Goldman suggests quantative easing is forcing increased savings, but that Obamacare is the big impediment to jobs.

The Atlas Sound Money Project reruns a 2006 Reuven Brenner and Martin Fridson article on why the Fed’s interest-rate targeting is flawed.

Cato’s Dan Mitchell chides liberal Keynesian Paul Krugman and conservative Keynesian Martin Feldstein for suggesting a major war would stimulate the economy.

On The Kudlow Report, David Goldman analyzes stock prices:



The WSJ examines Republican ideas for budget reform.

On RCM, Larry Kudlow sees bullish signs in a GOP takeover of Congress.

Boehner also made it clear that he was unhappy with the 99 Republicans who just voted -- along with most Democrats -- to pass the China trade-and-currency-protection bill. He basically said, "No, we must not go in that direction." And he believes the bill will come to nothing, in particular under Republican leadership.

Boehner understands that such a bill would take a toll on middle- and lower-income people. Indeed, a massive price increase on Chinese imports brought on by protectionist tariffs, or a whopping hike in the value of the Chinese yuan, would slam all the folks who shop at Wal-Mart and Dollar General.

John Boehner himself has a strong free-trade record, and he grasps the need for a stable dollar. When asked about the plunging dollar during the 2000s, and how higher interest rates and inflation subverted the Bush tax cuts, he nodded in agreement. Boehner seems to get it.

Also on Kudlow, Brian Wesbury discusses the GOP agenda:



The Small Business Chronicle offers a good summary of supply-side economics, except for the line about supply-side as a “complement to monetarism.”

Tuesday updates.

At The WSJ, Art Laffer counters calls to create a high income tax in Washington state.

On Foxnews.com, Ralph Benko argues a 21st-century gold standard is vital to fixing the economy.

Also at The Journal, editor Paul Gigot discusses last week’s anti-trade vote against China in the House:



On RCM, John Tamny doubts congressional Republicans understand how to repair the economy.

At NRO’s Corner, Stephen Spruiell critiques Paul Krugman’s claim that Keynesians are vindicated and classical economists repudiated by continued low inflation and interest rates.

On The Kudlow Report, Don Luskin suggests U.S. stock market trends are eerily similar to those during the Great Depression:



At Café Hayek, GMU’s Don Boudreaux challenges U.S. Sen. Sherrod Brown (OH) to a public debate on trade.

In The Washington Times, Richard Rahn warns Republicans not to raise taxes as part of a deficit reduction compromise.

Larry Kudlow highlights Dan Mitchell’s recent video on how to balance the budget based on spending cuts rather than tax increases.

Monday items.

In advance of Wednesday’s congressional vote on China, Nobel Laureate and supply-side economics creator Robert Mundell says forcing the yuan significantly higher would be disastrous for China and the U.S.

In The Financial Times, Mundell student Komal Sri-Kumar argues for expanded access to Chinese markets, rather than yuan manipulation.

In pioneering work on exchange rates done during the 1960s, my Columbia University doctoral dissertation adviser, Robert Mundell, showed that if exchange rates are fixed, adjustment by the trading economies occurs in terms of changes in domestic costs and prices. The inflationary pressures evident in China validate Professor Mundell’s theories. There is, therefore, nothing “manipulative” about simply maintaining fixed exchange rates. Keep in mind that under the Bretton Woods system of exchange rates from the end of the Second World War until the early 1970s, keeping the rates fixed with respect to the dollar was a sign of good economic housekeeping!

The conservative Heritage Foundation releases its own detailed policy agenda. Sound money is not included:



At Bloomberg, Steve Forbes predicts weak growth but doubts a double dip recession.

On Forbes, John Tamny suggests emulating rather than bashing the rich.

At NRO, Kevin Williamson makes the vital distinction that production, not consumption, is the heart of economic progress.

The problem of economic policy is not getting people to consume. It is getting them to produce. You can train a monkey to consume. (In fact, he requires no training, especially once you get him coked up on the taxpayers’ dime.) Americans are extraordinarily productive people, but our economy has taken a hit because we have a couple of trillion dollars’ worth of capital locked up in dead real estate, dead securities, and the swelling sovereign debt upon which our pet Leviathan battens. If you have a trillion dollars locked up in residential real estate that still is over-valued — its inflated price being sustained by hook and by crook by the geniuses in Washington — that capital can’t be put to real productive uses. (Also, people who could otherwise buy or rent cheap real estate will be paying too much for housing, taking yet more potentially productive capital out of the markets.)

At Econ Log, Arnold Kling discusses Paul Volcker’s early-1980s tenure as Fed chairman.

The WSJ reports on policy differences among European policy makers on how to save the euro.

Also in the Journal, former GW Bush economic advisor Edward Lazear suggests limiting federal spending to inflation minus one percent will balance the budget in less than a decade.

Cato’s Dan Mitchell promotes spending cuts, not faster economic growth, as the key to balancing the budget.