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.

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.”

Wednesday articles.

Robert Mundell hopes the yuan's rise is modest.

In The WSJ, Steve Hanke argues it's good Greece can't devalue its currency, and that it should solve its problems with tax cuts.

Nathan Lewis made a similar argument a couple months back.

Larry Kudlow predicts slow growth but not a double dip recession.

Richard Rahn explains that Keynesian spending does not lead to prosperity.

Fred Thompson interviews The WSJ’s Stephen Moore on the failure of Keynesianism.

Monetarist Allan H. Meltzer explains why Obamanomics isn't working.

TNR's Jonathan Chait suggests supply-side economics means permanent tax cuts with every recession, eventually leading to zero tax revenue. He misses that if supply-side policies were followed consistently, there would be many fewer recessions and a lot more growth.

NYT columnist David Leonhardt sees 1937 all over again.

At Marginal Revolution, Tyler Cowen says Leonhardt is wrong because his analysis omits monetary policy. I would add that Leonhardt and Cowen omit tariff and tax policy.

Hip Hop Republican urges Republicans to embrace Jack Kemp's urban enterprise zones.

The NYT links Ireland's recession to its austerity program. But was it the spending cuts or the tax increases that really did it in?

Paul Krugman notes the bond market is not behaving like inflation is a concern.

Media Matters for America disputes the claim that tax cuts stimulate growth.

Thursday round up.

John Tamny argues the dollar is inflationary not deflationary.

The Business Roundtable cites the high corporate tax rate at the top of its list of growth inhibitors.

The WSJ's Steve Moore discusses the report on Kudlow.

The Cato Institute's Dan Mitchell criticizes the Business Roundtable for having supported the stimulus.

WSJ editorialists consider coming tax increases.

As Congress debates derivative regulation, here’s a Joseph Calhoun item from April that explains that dollar volatility is the main reason for derivatives.

David Goldman confirms his thesis on central banks buying gold.

Don Luskin recommends buying bonds.

Austrian economics advocate Peter Schiff wants a gold standard.

Robert Higgs of the Independent Institute suggests lower government spending would improve the economy.

Shawn Tully of Fortune quotes monetarist Allan Meltzer's view that spending cuts led to the British boom under Margaret Thatcher.

Dan Mitchell laments England's tax increases.

From 1999, Lew Rockwell provides an interesting overview of Robert Mundell’s economic contributions.

Supply-side economics and the deficit.

Much of the recent discussion about supply-side economics has focused on its purported failure to reduce the deficit.

Such criticism is misplaced for many reasons which I'll discuss over the coming weeks. But today I want to discuss what supply-side economics is, what it says about the economy, and its track record.

Like every school of economic thought, supply-side economics is centered on prescriptions for fighting recession and unemployment.

Unlike the Keynesian and monetarist schools, both of which focus on raising consumption (i.e. demand) via either government spending or monetary stimulus, the supply-side model centers on production. Hearkening back to the classical economics that dominated from the 1700s to the 1930s, supply-side economics argues for sound money, ideally fixed in value against a stable commodity such as gold, and for removing barriers to production such as excessive tax rates, tariffs or regulation.

As a school of thought focused on fighting recession, supply-side economics is agnostic on the question of government spending. On its own terms, SSE has a very good record of reducing unemployment, cutting inflation, raising stock values, and increasing GDP.

A byproduct of those successes has been a general rise in government revenue over the past 30 years.

If your objective was to "starve the beast," the 30-year run of supply-side economics has been a colossal failure. Government revenue has poured in, almost without fail, despite lower tax rates.

So why are deficits still a problem?

Obviously, spending is a factor. But my primary answer is economic mismanagement.

You'll note in the chart above two big divots, coinciding with the recessions of 2001-03 and 2008-10. When the economy contracts, revenue falls. And, governments tend to spend more during contractions, so the deficit catches it coming and going.

These big revenue dips coincided with increased deficits, erasing the 2000 surplus and spiking again after 2007.

In this sense then, deficits are a symptom; recession is the disease.

The question isn't, why hasn't supply-side economics eliminated deficits? The question is, if SSE is so good at spurring growth, why have we had two sizable recessions this decade?

My answer in a future post.

A footnote: In the latter chart, note the deficit's fall from 2004-2007 after the big 2003 tax cut. While the subsequent recession blew the deficit to kingdom come, to the extent that tax cut spurred growth, it helped bring down the deficit.

Another footnote: thanks to Christopher Chantrill for his indispensable www.usgovernmentrevenue.com and www.usgovernmentspending.com.