Wednesday round up: Woodhill notes the weak recovery; Feldstein cites obstacles to recovery; The WSJ applauds Pawlenty.

From Forbes, Louis Woodhill contrasts the current recovery with the Reagan Boom and notes the weak dollar as a factor.

In The WSJ, Martin Feldstein argues the President’s proposed tax cuts and incoherent dollar policy, along with deficit, is holding back the economy. For the record, Feldstein has long supported a lower dollar.

The WSJ applauds Tim Pawlenty’s call for higher growth via flatter tax rates and a stable dollar, but is concerned by his support for a balanced budget.

On The Kudlow Report, John Carney discusses J.P. Morgan CEO Jamie Dimon’s critique of federal policy towards the financial industry:




At Forbes, Brink Lindsey notes the difficulty of measuring economic growth.

On Commentary, John Podhoretz rebuts claims that the stimulus spending package was too small.

In The WSJ, Seth Lipsky suggests a constitutional scholar would be a positive addition to the Federal Reserve board.

Back in March, when Chairman Bernanke testified before the House Financial Services Committee, Congressman Ron Paul asked him for his definition of the dollar. Mr. Bernanke made no mention of the Constitution or any law passed by Congress. Instead he replied that his definition of a dollar was what it will buy.

That isn't how the Founders thought about the dollar. They thought about it as a measure of value. They gave Congress the coinage power in the same sentence in which they also gave it the power to fix the standard of weights and measures. When they twice used the word "dollars" in the Constitution, they had something specific in mind—371¼ grains of silver. They made reference not only to silver but to gold.

My guess is that the Founders would agree with Mr. Diamond when he writes that "[w]e need to preserve the independence of the Fed from efforts to politicize monetary policy." This is why they defined money in terms of silver and gold, the latter in particular being the measure of value that is hardest to politicize. Wouldn't it be nice to have among the governors of the Fed someone who thinks about money not in terms of theories but in the constitutional terms in which the Founders thought?

The Washington Times notes that QE2’s end may mean higher interest rates.

At Fox News, Charles Krauthammer explains the economy’s weakness and confirms the 2012 election will center on economic stewardship:




Pew Research reports more Americans blame the deficit on war than on tax cuts or domestic spending.

The NY Sun notes the debt limit debate puts Republicans in an unwinnable political position.

Reuters reports a Chinese official speculating about further dollar weakening.

Monday update.

Tax Cut Victory

Tonight’s big news is that the President and congressional Republicans have agreed to a plan that extends all Bush tax rates for two years, cuts payroll taxes, expands business deductions, and prevents reversion of the estate tax to the previous level.

This accord – a significant capitulation by the President – plus the new Korea free trade agreement, amounts to a significant pair of supply-side policy victories. For the first time in 18 months, I think President Obama might have a shot at re-election.

The x factor will be the dollar. If the dollar continues to fluctuate against the euro and gold, a strong recovery will undermined, damaging the President’s prospects.

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On 60 Minutes, Fed Chairman Ben Bernanke recommits to lowering interest rates to raise employment, but denies he is increasing the money supply. He says the Fed can reverse course and tighten money in “15 minutes” if inflation arises.

On a side note, Scott Pelley’s narrative, bolstered by Bernanke, is completely stuck in the Phillips Curve framework – growth causes inflation, recession causes deflation. And, in recounting the Fed’s extraordinary 2008 measures to stop the financial meltdown, Bernanke and Pelley overlook the Fed’s policy errors that led to the subprime bust and liquidity crisis.

At Economics21, David Malpass critiques Bernanke’s analysis.

On The Kudlow Report, Kudlow is enthusiastic about the tax agreement:




On Forbes, John Tamny makes the crucial point that fixing the dollar’s price – not general price stability – is key to repairing the economy.

The WSJ worries about rising estate tax rates.

Also in The Journal, Robert M. Kimmitt and Matthew J. Slaughter support multinationals insourcing to the U.S.:

To boost the hiring prospects of insourcing companies (and of many others as well), policy makers should focus on three issues quite distinct from macroeconomic tools like quantitative easing and federal stimulus spending.

First, taxes. Insourcing CFOs reported to the Organization for International Investment that taxation is the single most important policy area that shapes their companies' investment decisions. In turn, their top concern is the U.S. corporate tax rate, which, at 35%, is one of the world's highest.

America's high corporate tax rate inhibits hiring and investment in all U.S. firms, big and small alike. All the recent proposals by prominent deficit-reduction panels have recommended cutting the statutory rate and simplifying the corporate tax code. Policy makers should act on these proposals as quickly as possible to reduce the uncertainty that is inhibiting businesses' hiring and investment.

Second, trade. The global production and distribution networks of insourcing companies foster lots of exports and related jobs. So does trade liberalization. The more U.S. policy makers enact free-trade agreements with other nations, the more insourcing companies will be able to expand their exports and related jobs. Insourcing companies owned by South Korean parents exported $10.5 billion in goods in 2008; this would likely grow if America could ratify the pending free trade agreement with South Korea.

Third, tone. A worrisome 72.2% of insourcing CFOs say that the environment for doing business in America deteriorated over the last year. Contributing to this deterioration were the "Buy American" provisions of the 2009 American Recovery and Reinvestment Act. This protectionist tone belies the reality that America today is in a new era of global competition to attract the dynamic operations of global companies.

On CTV, Reuven Brenner defends gold-backed currency.

Last week in The WSJ, Gerald O’Driscoll wonders why we have a central bank (reprinted at the Atlas Sound Money Project).

From the BBC, Han Rosling illustrates the great progress in global health and wealth since 1810 (hat tip: Cafe Hayek):




On his blog, Dan Mitchell answers the claim that supply-side economics, specifically low tax rates, blew up Ireland’s economy.

Wednesday items.

On Forbes, Ralph Benko skewers Fed Chairman Ben Bernanke’s quantitative easing plan.

At The WSJ, Michael Boskin explains the data that support tax rate cuts over spending stimulus.

On The Kudlow Report, Jerry Bowyer defends the eurozone and calls for sound money and lower taxes:




The WSJ editorial board notes the harm higher top tax rates do to job creators.

On NRO’s Corner, Cato’s Mark Calabria rebuts David Beckworth’s “conservative case for QE2.”

The WSJ reports U.S. Rep. Mike Pence’s (IN) superb recent Detroit Economic Club speech calling for a supply-side reform agenda.

After criticizing the excessive money creation under Federal Reserve Chairman Ben Bernanke, Mr. Pence called for eliminating the Fed's dual mandate to pursue both price stability and full employment. He wants the Fed to focus exclusively on price stability and thinks the U.S. should consider returning to gold in setting the value of the dollar. President Reagan understood that inflation is the thief of the middle class and that investor confidence is destroyed when governments debase the value of their currencies. Mr. Pence apparently understands this, too.

A brief video clip is here.

In The Washington Times, Richard Rahn examines insider trading.

In City Journal, Nicole Gelinas advocates tax reform:

Moreover, cutting tax breaks would be in the best supply-side tradition. Supply-side economists, after all, have long counseled lower tax rates for a reason: they figured that regular people could spend and invest their money more wisely than the government could. But rate reductions can’t work if the government continues to run people’s lives through the rest of the tax code.

Right now, we may have supply-side tax rates, but thanks to tax breaks, we’ve got a thoroughly demand-side tax code. That’s a toxic combination, considering that we need healthy economic growth to help us confront our national debt. The economy can’t grow optimally if Washington encourages Americans to pour more borrowed money into their houses at the expense of more productive investments. Nor can the economy fight its way out of stagnation if state and local governments keep pushing up their own taxes, with an assist from Capitol Hill and the White House.

At Lew Rockwell, Gary North obsesses over deficits and omits economic growth from his critique of the Laffer Curve.

Tuesday summary.

On NRO, Larry Kudlow explains that continued volatility between the dollar and euro is damaging the world economy.

At Forbes, Brian Domitrovic recounts how Sen. George Mitchell derailed George H.W. Bush’s drive for a capital gains tax cut in favor of higher taxes, dooming Bush’s presidency.

On The Kudlow Report, Heritage’s Curtis Dubay debates tax rates:




In The WSJ, Seth Lipsky reviews Nixon Fed chairman Arthur Burns’ diary.

At Alhambra Investments, Joseph Calhoun expresses cautious optimism on the economy.

Also on Kudlow, Brian Wesbury discusses the stock market’s weakness:




In Forbes, Wesbury and Robert Stein see the economy improving.

On NRO, Reihan Salam explains the negative budget impact of raising upper income tax rates.

NRO’s editors cite Art Laffer in opposing Sen. McCaskill’s (MO) millionaire tax rate increase.

The economic facts are a good deal more complicated. As the always-sensible Reihan Salam reports in the current edition of National Review, economists expect that raising taxes at the top end would reduce economic growth significantly. Democrats will call that a Republican talking point, but it is consistent with the findings of the nonpartisan Congressional Budget Office, currently under the management of Douglas Elmendorf, a Democratic appointee. The CBO numbers suggest that a partial preservation of the Bush tax rates — meaning a compromise that raises taxes on “the rich,” in this instance defined as those earning $250,000 or more — would reduce real GNP by 1.2 percent, as lower revenue necessitates more government borrowing, slowing down long-term economic growth. But an across-the-board extension would reduce real GNP by only 0.6 percent, cutting the economic losses in half. Another way of saying that is that the growth effects of extending the tax cuts at the affluent end of the scale would make up half of the forgone real GNP associated with the tax cuts. That isn’t Arthur Laffer’s analysis, it’s the Democratic-led CBO’s.

From the Mises Institute, Frank Shostak rebuts Nouriel Roubini on the gold standard. (Hat tip: Ralph Benko.)

At Capital Gains and Games, Bruce Bartlett continues to drift from classical economics by endorsing floating currencies.

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.

Weekend update.

On Forbes, Brian Domitrovic notes the best policy mix remains tighter money and lower tax rates.

At Hindu Business Online, distinguished Indian economist S.S. Tarapore defends Robert Zoellick’s recent gold proposal. (Hat tip: Ralph Benko)

Mr Zoellick is being burnt at the stake by anti-gold zealots as he has sounded the death knell of their religion.

As the new international monetary order emerges, however, Mr Zoellick may well be beatified and could be on the way to sainthood as the founder of a new religion. Charles de Gaulle and his adviser, Jacques Rueff, who called for a return to gold in 1965, are perhaps chuckling in heaven!

At New World Economics, Nathan Lewis analyzes Europe’s problems.

In Investor’s Business Daily, Alan Reynolds argues against permanent extension of the Bush tax cuts in favor of larger tax reform.

At NRO, Larry Kudlow reports on his interview with President George W. Bush.

From September, Domitrovic addresses a Tea Party gathering on the history of tax cuts:

Tuesday round up.

What Would Kemp Do?

An important factoid: The President’s fiscal commission based its recent deficit report (p. 10) – and its alarming diagnosis of “fiscal cancer” – on CBO's budget analysis (p. 28), which, according to Louis Woodhill, assumes annual GDP growth of 2.16% for the next 75 years.

Yet, as Woodhill notes, average growth over the past 75 years was 3.73% per annum. If the U.S. grew at that rate going forward, CBO's more pessimistic budget scenario balances in 2052 with no spending cuts or tax increases.

This isn't to say we shouldn’t cut government waste and bloat. We should.

But, in the middle of painfully high unemployment, shouldn’t conservatives be ringing alarm bells mainly over slow long-run growth? Restoring rapid growth through the proven formula (sound money + lower tax rates) would help the jobless and improve the budget – a win/win – and would move the right beyond the zero-sum austerity debate.


Update: This item has been reworked for clarity.
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At RCM, Joseph Calhoun argues the malaise is rooted in bad economic policy.

In The WSJ, likely presidential candidate U.S. Rep. Mike Pence (IN) proposes to repeal the Fed’s full employment mandate.

On The Kudlow Report, Pence explains his plan:




IBD notes that after tax rates were cut in 2003, the wealthy paid a higher percentage of taxes.

At The Washington Times, Richard Rahn suggests government caused the financial crisis, though he omits the falling dollar.

On Kudlow, David Goldman assesses the market’s decline:




On Charlie Rose, U.S. Rep. Paul Ryan (WI) repeatedly mentions sound money.

At the Peterson Institute, lead currency warrior C. Fred Bergsten insists China must revalue the yuan.

From YouTube, a viral video mocks the Fed’s QE2:

Weekend round up.

In The WSJ, Art Laffer proposes an agenda for stronger growth but minimizes the centrality of monetary reform.

On Forbes, Econoclasts author Brian Domitrovic exposes the flawed analysis of gold's critics.

Also at The Journal, Stephen Moore discusses the politics of extending the Bush tax cuts:




On Forbes, Paul Hoffmeister suggests the President’s support for quantitative easing may cost him reelection.

At the Economic History Association, Brian Domitrovic reviews a biography of French gold standard advocate Jacques Rueff.

At Cato, Dan Mitchell critiques the deficit commission’s recommendations.

On The Kudlow Report, Don Luskin is bullish after last week’s market selloff:




At New World Economics, Nathan Lewis considers political and economic developments from an international perspective.

On The NY Sun, Seth Lipsky supports Sarah Palin’s sound money advocacy.

At the Atlas Sound Money Project, Tom Duncan reports on a recent panel on the dollar.

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.

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.

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.

Wednesday items.

On NRO, Larry Kudlow suggests the negative yield on inflation-adjusted securities is signaling inflation.

Cato’s Dan Griswold rebuts myths about free trade.

On Carpe Diem, Mark J. Perry explains that current account deficits are balanced by capital account surpluses:


At Café Hayek, Don Boudreaux defends free trade.

On Forbes, Brian Wesbury and Robert Stein argue bullish investments have been more profitable than bearish.

On The Kudlow Report, Don Luskin debates the Fed’s feint towards lighter than expected monetary stimulus:



The WSJ notes that low-tax states have better economies than high-tax states.

On Townhall, Thomas Sowell recalls past tax cutting successes.

On NRO, Michael Tanner urges Republicans to focus on deep, painful spending cuts.

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.

Thursday items.

Housekeeping note: I've added Alan Reynold's 1984 piece, "Managed Money" to the Classic Articles section.
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The WSJ reports that following this week’s strong dollar comments, Treasury’s Tim Geithner advocates a global exchange-rate agreement.

At NRO, Larry Kudlow wonders if Sec. Geithner is serious about wanting a stronger dollar.

On The Kudlow Report, David Goldman discusses Geithner’s remaks:



At Seeking Alpha, John M. Mason comments on Robert Mundell’s recent WSJ interview.

On Catholic Culture, Dr. Jeff Mirus summarizes Goldman and Reuven Brenner’s recent article on Keynesian economics.

Keynes’ idea is simple. In fact, it is simple by construction, for it focuses on the very short term within a closed economy. If consumers won’t spend, the government will spend for them; if businesses won’t invest, the government will invest for them; and if investors won’t take risks, the central bank will reduce the yield on low-risk investments to almost nothing. The risk-taking of entrepreneurs, the cleverness of inventors, the skills and motivation of the workforce, the competitiveness of industries—all the granular reality of a dynamic society, chugging along through trial and error—vanish into Keynesian aggregates like gross domestic product, price indices, productivity, and so forth. Behind all the technical language stands the assumption that bureaucracies, with no business experience whatsoever, can somehow make wise decisions about allocating capital—and do so quickly. These gross simplifications take on the aura of academic theurgy when packaged into seemingly complex mathematical models that occult their ridiculous assumptions.

The Telegraph (UK), Terry Smith argues against raising British tax rates.

At Forbes, Rich Karlgaard suggests the key to restoring economic growth is more small companies reaching the billion-dollar mark.

In Investor’s Business Daily, David Beckworth and William Ruger critique Fed policy from a monetarist perspective.

On Kudlow, Don Luskin says the Fed not the Treasury determines the dollar’s value:



Cato’s Dan Mitchell wonders why distrust of government seems to be a partisan issue.

Wednesday update.

In Forbes, Paul Hoffmeister urges Sen. Kyl (R-AZ) to embrace sound money as part of his pro-growth agenda.

On Asia Times, David Goldman mocks Treasury Secretary Tim Geithner’s claim that the U.S. will not devalue the dollar.

At The Kudlow Report, Dick Armey suggests big Tea Party wins will mean less corporate welfare and a sound dollar:



On Gordon Liddy’s radio show, John Tamny discusses gold, oil and the weak dollar.

At Smart Money, Don Luskin predicts higher stock prices.

Bloomberg reports inflation fears are raising Treasury bond yields.

At The Heritage Foundation’s Foundry blog, David Weinberger makes the historical case against raising tax rates in a recession, featuring this amusing clip from “Ferris Bueller’s Day Off”:



Cato’s Dan Mitchell argues against conservative acquiescence to a VAT tax.

In The Washington Examiner, AEI President Arthur Brooks analyzes the top 10 factors contributing to unemployment. Sound money doesn’t rate a mention.

In The WSJ, John Chambers and Safra Catz argue U.S. taxes on foreign income are keeping capital from being repatriated.

On CNBC, David Malpass explains how Fed policy is damaging the economy:



In the UK, Prime Minister Cameron tests Jude Wanniski's Two Santas Theory with budget austerity and tax increases.

From earlier this year in The Washington Examiner, Ralph Benko pays homage to supply-side guru Robert Mundell.

Tuesday round up.

In a speech, Federal Reserve Vice Chairman Janet Yellen suggests additional quantitative easing may create new investment bubbles.

On Forbes, John Tamny argues the economy would do fine without the Federal Reserve.

At Zero Hedge, Tyler Durden scolds a former Fed member (currently at the Peterson Institute for International Economics) for recommending the U.S. government sell its gold.

On The Kudlow Report, Larry analyzes the market’s support for looser money:



Investor’s Business Daily reports 56 percent of poll respondents favor keeping all tax cuts in place.

On Jon Stewart (third segment), House GOP Deputy Leader Eric Cantor says Washington has ignored jobs and the economy. Stewart describes the agenda as “freedom and liberty, blah blah blah blah blah.” Cantor suggests Republicans got fired in 2006 because government got too big. No mention of sound money.

At Asia Times, David Goldman doubts Republican electoral gains will help the economy much.

On Forbes, Steve Forbes analyzes Albania’s economic success.

In The Washington Times, Richard Rahn dissects Australia’s winning economic formula.

At CNBC, Keynesian Stephen Roach makes a good point on the dangers of destabilizing China’s financial sector via “a sharp, ridiculously irresponsible increase in the renminbi.” He suggests a more constructive approach is to increase Chinese consumption while increasing U.S. savings and exports:



Last year, Reuven Brenner and David Goldman made a similar argument, built on a formal dollar/yuan link:

Currency policy is the key to opening the world to American exports. What seem like minor errors in Western monetary policy have devastating effects on developing economies. The large industrial economies are like oceangoing vessels designed to withstand typhoons; ten-meter waves may roll them but will not sink them. Not so for the fragile craft in their wake. As former Federal Reserve chairman Paul Volcker once observed, the industrial nations' deep financial markets allow participants to hedge against large shifts in currency parities. Not so for the shallow, inefficient financial markets of developing nations, in which the vast majority of firms do not qualify as derivative counterparties, and the yield curve is not liquid past the two-year mark….

China, in particular, is the natural fulcrum for America's proper economic policy. China's requirements for infrastructure and capital equipment are enormous: Two-thirds of its 1.3 billion people still live in conditions of extreme backwardness. But rather than invest in its own interior, China has diverted its savings to securities in Western currencies as a rainy-day hedge against potential political and economic disruption. America should help China stabilize its currency by a solemn and formal agreement to link the renminbi to the dollar; China in turn should make its currency convertible and open its capital market to American institutions. Other countries may wish to participate in this arrangement; with the world's two largest and most dynamic economies as an anchor, a Sino-American currency agreement would quickly become the point of orientation for the rest of Asia and eventually for other countries.

China's demand for savings, to be sure, stems in part from the one-child policy, which requires Chinese to provide for their retirement with financial assets rather than offspring. But a good deal of Chinese savings is precautionary. With a nonconvertible currency and limited outlets for investment, Chinese are apt to exaggerate their rainy-day savings.

In effect, China needs to reduce its saving rate drastically while America increases hers. Why wouldn't just letting China's currency be convertible on its own, without coordinating with the United States, be part of the solution, as some propose?

The simple answer is that China's capital markets--and, by extension, its political system--are still too fragile to withstand the tsunami-sized capital flows caused by the dollar's instability. Dollar devaluation sends capital rushing into China, distorting asset prices. By contrast, a repetition of the global liquidity crisis that followed last year's failure of Lehman Brothers could provoke massive capital flows out of China, in a repeat of the 1997 Asian crisis. As long as the United States subjects its currency to extreme volatility, China cannot take the risk of making its own currency convertible.

The WSJ editorializes in support of immigration visas for entrepreneurs.

Hawaiian Libertarian offers a good list of historical quotations on the evil of fiat currency.