Weekend round up.

From Forbes, Nathan Lewis highlights the genius of the 18th century gold standard.

At New World Economics, Lewis notes that demand for stable money is much higher than for unstable.

The WSJ editorial board disputes Goldman Sachs’s recent Keynesian analysis of spending cuts.

On The Kudlow Report, Stephen Moore debates the Wisconsin budget battle:



At RCM, Joe Calhoun sees hopes for real fiscal reform fading.

From last week's WSJ, weak dollar advocate Fred Bergsten discusses his successful campaign to force China to appreciate the yuan.

At PIIE, Bergsten advocates three global currencies.

On Kudlow, James Pethokoukis and Peter Navarro debate the rise of China and India:



From Seeking Alpha, Kevin McElroy explains why currency devaluation is bad policy.

The Economist notes the American Economic Review’s list of top 100 articles includes Robert Mundell’s Theory of Optimum Currency Areas.

In another sign of inflation, GOOD notes the declining size of various products.

From NCPA, former Federal Reserve governor Bob McTeer claims surprise at calls for Fed reform since it has done a good job keeping inflation low.

On Forbes, John Tamny discusses the economic growth rates in Texas and California.

Also at Forbes, Bill Flax hopes Congress will shut down government.

From Forbes, Reuven Brenner suggests taxing smoking through higher health care costs rather than cigarettes.

Wednesday update.

On Forbes, Steve Forbes suggests budget deficits create an opportunity to downsize and reform government.

RCM reprints David Malpass’s statement to the U.S. Senate Budget Committee.

On The Kudlow Report, Larry suggests CPI statistics are unreliable:




At Business Insider, Jack Barnes advocates a new Louvre Accord to end competitive devaluations.

On Fox Business News, U.S. Rep. Ron Paul (TX) argues for less intervention in the economy.

At Conscience of a Liberal, Paul Krugman dismisses concerns about commodity prices, while unwittingly confirming that the Great Depression and the current malaise featured highly unstable dollars:




From last month at Just Facts Radio, Judy Shelton provides a superb overview of the dollar and gold.

At The American, Scott Shane explains that small businesses oppose Obamacare because it doesn’t make health coverage cheaper.

Heritage’s Ed Feulner recalls Reagan’s economic legacy.

The fable of the Left (the hard Left, anyway -- many others are coming around) is that this was all smoke and mirrors. But the facts tell a different story. Starting from the "stagflation" mess his predecessor handed him, Reagan created a genuine economic miracle. After a three-stage tax cut and a reduction in government growth, our economy began to expand -- by 31 percent from 1983 to 1989 in real terms. Americans of every class -- rich, middle-class and poor -- saw their wealth increase.

It was our nation's longest peacetime expansion in a long and prosperous history. By decade's end, we had added the economic equivalent of a new Germany to our gross national product. Inflation was cut by two-thirds, interest rates by half. Unemployment dropped to the lowest level in 15 years.

At The NYT, David Leonhardt makes the case for corporate tax reform.

On Cafe Hayek, Don Boudreaux refutes a manufacturing doomsayer.

Tuesday summary.

At Alhambra Investments, Joseph Calhoun suggests quantitative easing might succeed if accompanied by a big spending cut.

Cato’s Dan Mitchell highlights worries for 2011 including loose Fed policy and a VAT tax deal.

On The Kudlow Report, Larry Kudlow debates President Obama’s recent feint to the supply side:



The NY Sun editorializes that the U.S. has defaulted on its debt previously through dollar devaluation.

Bloomberg’s Amity Shlaes explains why labor mobility is vital to capitalism.

On NRO, Katrina Trinko reports U.S. Rep. Mike Pence (IN) is likely to run for governor rather than president.

Monday updates.

At Bloomberg, AEI’s Kevin Hassett challenges C. Fred Bergsten’s case for revaluing the yuan.

NRO’s editorial board explains the flaws in forcing China to revalue.

On CNBC, Song Seng Wun discusses China’s pledge to buy Greek debt and help stabilize the euro:



In The WSJ, Donald Luskin notes the twin threats of a currency-induced trade war and rising tax rates.

On his blog, China basher Paul Krugman claims mutual currency devaluation accomplishes little.

At Café Hayek, Don Boudreaux notes that if China’s currency is undervalued, it amounts to subsidy to American consumers.

On Daily Markets, Mark Perry suggests worker productivity, not the yuan’s price, is why manufacturing jobs declined. (H/T: Café Hayek)

The NYT reports corporations are borrowing cheap but refraining from spending until the economy improves:


At The Sacramento Bee, Robert Higgs of the Independent Institute posits the recession isn’t rooted in declining demand.

Sure, consumer spending accounts for approximately 70 percent of America's gross domestic product, and increases in consumer spending would provide the economy with an immediate boost. But a drop in consumer spending is not what ails the economy. In fact, as a percentage of GDP, consumer spending actually increased during the downturn, the Commerce Department's Bureau of Economic Analysis reports - from approximately 69.2 percent of GDP in the fourth quarter (October-December) of 2007 to approximately 71 percent of GDP in the April-June quarter of 2009.

So the conventional wisdom - that a sharp decline in consumer spending caused the economy's downturn - is wrong.

What did cause the downturn? The answer is: a sharp decline in private investment.

At Forbes, John Tamny argues saving – deferred consumption – is the root of economic progress.

On CNBC, Dan Mitchell debates tax rates.



Also in The Journal, Jeffrey Collins reviews a new Adam Smith biography.

Smith constructed his masterpiece on a few ingenious insights into the workings of a commercial economy. Where his contemporaries calculated national wealth in terms of gold or agricultural output, Smith measured "opulence" by the flow of consumable goods. The division of labor would accelerate the production of goods, he argued, and render manufacture ever more efficient. The division of labor itself was best determined by markets of self-interested individuals. Markets, in turn, operated best when freed of regulation and interference, thus allowing the value and price of both commodities and labor to align themselves.

Austerity stimulus?

For more than a year, conservatives have made clear their opposition to so-called stimulus spending. Citing high deficits and ineffectiveness, the right has embraced austerity measures to reduce the government’s gusher of red ink.

Whatever the relative merits of stimulus vs. austerity, until recently the conservative argument focused on concerns that fiscal deficits would lead to increased interest rates, or a dollar devaluation, or higher taxes. Reasonable arguments all.

Now, a novel and more far-fetched argument has emerged – that spending cuts are not only benign, they stimulate economic growth.

The first such analysis came from Professors Jason E. Taylor and Richard K. Vedder, courtesy of the libertarian Cato Institute. Their article points out that after World War II, the U.S. government downsized radically, leading the era’s Keynesians to predict a contraction. Instead, the argument goes, the economy boomed indicating spending cuts are stimulative.

What is missed is that the pre-war Great Depression economy was hampered by three policy missteps, uniquely compounded.

First, as John Tamny recently suggested, the 1920s were likely deflationary. While gold was fixed by law at $20.67, a wide array of other commodity prices dropped significantly during this era, indicating dollar scarcity. Due to the unstable world currency system, in the late 1920s and ‘30s European nations initiated a round of competitive devaluations, leading to monetary chaos.

Second, as Congress moved to enact the 1930 Smoot-Hawley tariff, markets anticipated its damage, leading the Dow to plunge in 1929.

Third, in 1932, the U.S. raised the top tax rate from 25 percent to 63 percent.

The U.S. moved out of depression in the early 1940s for several reasons. As wartime mobilization took hold, the U.S. reduced tariff barriers among allies. Then, in 1944, the U.S. and key nations reached agreement on the Bretton-Woods currency system, with the dollar pegged to gold at $35 and the other currencies fixed to the dollar. After the war, the currency system was extended to the rest of the developed world, while the U.S. cut tax rates at home.

Add to this, tremendous pent up demand at home and abroad, especially in decimated Japan and Germany, which responded to their ruination by cutting taxes deeply, leading to dynamic expansions, some of which went to buying U.S. goods.

Lower tariffs, lower taxes, a global sound money system, and of course, peace. No wonder America boomed after the war.

A second version of the spending-cuts-as-stimulus argument appeared last week courtesy of Steve Hanke, also of Cato. While Hanke is often excellent on monetary issues, apparently he is no supply-sider when it comes to fiscal analysis.

Hanke cites several examples of spending cuts coinciding with economic expansions.

One is Margaret Thatcher’s spending cuts in 1981. Nowhere mentioned is that era's plummeting British inflation rate – made possible, in part, by the dollar’s parallel rise – and Thatcher’s significant tax rate reductions, both profoundly bullish.

Hanke also mentions Ireland’s spending cuts of 1987-89. Again, no mention of the period's significant tax rate cuts.

And, Hanke sites the Danish spending cuts of 1983-86. While tax cuts were not part of Denmark’s growth spurt, its decision to fix its high inflation currency to Germany’s low-inflation deutschmark in these years surely was.

None of this is to endorse stimulus spending; to the contrary. But in high unemployment periods, the best answer to demand-side spending stimulus is not fiscal austerity. It is the pain-free, pro-growth policy mix of tax rate cuts and a sound dollar.

Friday items.

Larry Kudlow sees political changes coming.

Kudlow also thinks the U.S. is following Greece’s bad example.

David Goldman discusses the low U.S. savings rate at Asia Times.

In Canada’s National Post, Peter Foster uses Say’s Law to rebut John Judis.

The White House puts its muscle behind the argument that spending saves jobs.

While Republicans continue to stress spending cuts.

And The Heritage Foundation highlights a study that indicates spending reduces employment.

From several months ago, Rich Kaarlgard of Forbes argued supply-side economics is the only way out of the deficit nightmare.

Global warming joins the trade deficit, illegal immigration and rising income inequality on the list of recession-related “improvements.”

The Economist rounds up three advocates of devaluation to debate the euro.

Secretary of State Hillary Clinton suggests Brazil proves high taxes and economic growth can go together.