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Memo to President Trump or President Clinton: The Gold Standard Made America Both Good and Great

Campaign poster for Republican presidential candidate William McKinley, 1900.

Marc Levinson writing recently in The Wall Street Journal provides a very pessimistic view for the American Dream, “Why the Economy Doesn’t Roar Anymore: The long boom after World War II left Americans with unrealistic expectations, but there’s no going back to that unusual Golden Age“:

People who had thought themselves condemned to be sharecroppers in the Alabama Cotton Belt or day laborers in the boot heel of Italy found opportunities they could never have imagined. The French called this period les trente glorieuses, the 30 glorious years. Germans spoke of the Wirtschaftswunder, the economic miracle, while the Japanese, more modestly, referred to “the era of high economic growth.” In the English-speaking countries, it has more commonly been called the Golden Age.

[…]

The Golden Age was the first sustained period of economic growth in most countries since the 1920s. But it was built on far more than just pent-up demand and the stimulus of the postwar baby boom. Unprecedented productivity growth around the world made the Golden Age possible. In the 25 years that ended in 1973, the amount produced in an hour of work roughly doubled in the U.S. and Canada, tripled in Europe and quintupled in Japan.

[…]

Ever since the Golden Age vanished amid the gasoline lines of 1973, political leaders in every wealthy country have insisted that the right policies will bring back those heady days. Voters who have been trained to expect that their leaders can deliver something more than ordinary are likely to find reality disappointing.

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George Gilder: All Forms of Money Must Be Based on Time (VIDEO)

George Gilder is most recently the author the ground breaking The Scandal of Money: Why Wall Street Recovers but the Economy Never Does. He is a founding fellow of the Discovery Institute and a senior fellow at the American Principles Project, which sponsored this book.

Gilder is also the author eighteen other well-regarded books including Knowledge and Powerand Microcosm. After the publication of Wealth and Poverty, he became Ronald Reagan’s most frequently quoted living author.

In the following clip — from a speech Gilder gave at FreedomFest 2016 — he explains how money, just like all forms of measurement, must be ultimately based on time:

But this is the great moment of opportunity as well as being a scandal. The opportunity has created again the efflorescence of the theory that began with Kurt Godel in 1931 when he showed that any logical system is necessarily dependent on propositions which can’t be proved within the system itself.

I think money is a logical system like that; it has to have roots and value outside of the system itself. Money cannot be part of what it measures. Money is not a commodity. This is the only relevant error I see in Austrian economics — that money is somehow a commodity.

…Money is [not a commodity], it is a measuring stick and it is necessary for a flourishing economy. It too has to be finally based on time. You can’t escape time; you can’t get away from time. When you try to do it, you just confuse everything.

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George Gilder: Money Is a Measuring Stick, Not a Magic Wand (VIDEO)

George Gilder is most recently the author the ground breaking The Scandal of Money: Why Wall Street Recovers but the Economy Never Does. He is a founding fellow of the Discovery Institute and a senior fellow at the American Principles Project, which sponsored this book.

Gilder is also the author eighteen other well-regarded books including Knowledge and Power and Microcosm. After the publication of Wealth and Poverty, he became Ronald Reagan’s most frequently quoted living author.

In the following clip — from a speech Gilder gave at FreedomFest 2016 — he discusses why government ought to consider money as a measurement of value rather than as a magic wand to create growth:

If money is not an instrument of power, not a magic wand that governments can wave to summon economic growth, what is it?

I’ve been pondering this issue for many years and I didn’t get it right in Wealth and Poverty. Steve Forbes gave me the key insight when he began focusing on money as a clock or as measuring stick. He used the analogy of a clock. If a measuring stick is changing constantly, how can enterprises use money as a guide to their learning processes. If the clock was changing day by day; the hours change, the minutes change, as Steve pointed out, we would soon have times of false obligations — you would have to be constantly hedging the clock.

And that’s really what’s happening, because I believe that most fundamentally, money is time.

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The Fed’s Surrealistic “Melting Clocks” Monetary Policy Is the American Dream Killer

Salvador Dali with Babou, the ocelot and cane. 1965. (via Wikimedia Commons)

“Houston, we’ve had a problem here.” With those low-key words, command module pilot Jack Swigert of Apollo 13 revealed that, in the later recollection of mission commander James A. Lovell, its “oxygen tank No. 2 blew up, causing No. 1 tank also to fail. We came to the slow conclusion that our normal supply of electricity, light, and water was lost, and we were about 200,000 miles from Earth.” NASA’s heroic and successful effort to return the crew safely home is part of national lore and history.

“Washington, we’ve had a problem here,” we, the voters, are saying, far more emphatically. The most recent government measure shows that America’s economic growth rate slowed, in the last quarter, to a rate of only 1.1 percent, about one-third of normal American economic growth rates.

This may not sound like a big deal. But it is. It means that job creation, including our ability to get better jobs, raises, bonuses and promotions, has vanished.

It means the death of the American Dream. Poor growth compounded over time is the prime cause of the collapse in people looking for work, the ballooning of the federal deficit, and the weakness in our social insurance programs, Social Security and Medicare.

Breaking News! There’s a solution, and the Wall Street Journal editorial board finally, for the first time, has weighed in to advocate that solution (or at least the process from which a solution can be derived):

One place for Congress to start would be to pass Rep. 

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Picking Mike Pence Really Was a Grand Slam for Donald Trump

Indiana Gov. Mike Pence with his wife Karen Pence (photo credit: Gage Skidmore)

Mike Pence? Full disclosure: I served as head of the Super PAC seeking to draft Pence into the 2012 presidential race. Having long been persuaded of Pence’s superior leadership qualities, I’m even less objective than usual.

We called Pence “The Conservative Champion” and for good reason. Then, in 2012, Pence made the right decision: to run for governor of Indiana. That was an opportunity for distinguished public service. As it happened, it was also a perfect boot camp for the vice presidency.

[…]

One of the reasons that Pence showed himself extraordinary may have faded from general memory. It has not faded from mine. Nor has it been forgotten, or forgiven, by the left, who are now highlighting this, much to my delight. In 2010 Pence gave a major speech at the Detroit Economic Club. As the center-left ThinkProgress.org then reported:

The first item of Pence’s five-point for the economy is a “sound monetary policy.” Pence elaborated that he believes a return to the gold standard could create such a policy:

PENCE: Before I move on, I’d like to note, in the midst of all that’s happened recently — massive borrowing and spending, QE2 — a debate has started anew over an anchor to our global monetary system. My dear friend, the late Jack Kemp, probably would have urged me to adopt the gold standard, right here and now in Detroit. Robert Zoellick, the president of the World Bank, encouraged that we rethink the international currency system including the role of gold, and I agree.

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Nomination of Ted Cruz Likely Would Reassure Investors

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

Barron’s compiled daily client memos from Greg Valliere, a Washington-based strategist with Horizon Investments, under the headline “Will Trump and Cruz’s Fed Feud Rattle Markets?” Subhed: “The two leading GOP candidates want to curb the Federal Reserve. Could that shake up stocks?”

Valliere notes that the three living retired Fed chairmen and the current Fed chair proclaimed that the U.S. economy is not in a bubble and not close to a recession, contrary to claims that Trump-on-the-Stump recently made. He also expresses mild consternation that Mr. Trump and Sen. Cruz would favor “an audit of the Fed’s policies,” that they are aligned with Tea Party Republicans who want to curb the New York Fed’s authority, and that they would mandate conditions under which the Fed could raise or lower interest rates.

He goes on to say, “Our bottom line is that a dispute between the Fed and Trump or Cruz could worry the financial markets if either candidate is perceived as having a chance in November. Anti-Fed legislation has been stalled in Congress, largely because it would face a certain veto from Barack Obama.”

Where to begin?

First let’s set one fact straight. Anti- (or, more specifically, Audit) the Fed legislation has twice passed the House, both by large bipartisan margins. It has been stopped by Sen. Bob Corker, a member of the Senate Banking Committee, whose vote would have been essential to committee passage. Senate Banking Chairman Shelby also made clear that he was for an audit of Fed policies rather than the wide-ranging audit Bill. Continue Reading

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Ted Cruz: The GOP’s Sound Money Candidate

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

This column from The Daily Caller last week is a great defense of Ted Cruz on the gold standard:

Mr. Cruz has been excoriated for seemingly incompatible statements concerning the U.S. central bank, the Federal Reserve. On the one hand, he has advocated exploring a return to the gold standard, seemingly questioning the Fed’s purpose. On the other hand, he has accused the Fed of implicitly creating the Great Recession by not intervening strongly enough in 2008 to prevent the crash. How can someone want the Fed to do more sometimes, but call into question its existence at other times?

I do not want to put words in Mr. Cruz’s mouth, but in light of the increased public realization of the Fed’s role, it’s important to understand these positions are not inherently contradictory. Mr. Cruz’s critiques make sense if viewed in the context of the inherent knowledge problem monetary policy confronts.

In economics, the knowledge problem is an idea closely associated with the writings of Nobel laureate F. A. Hayek. Applied to monetary policy, the knowledge problem impels the question: how can monetary policymakers know what supply of money will best achieve economic stability? Because, under central banking, the production of money is not subject to market forces, we cannot rely on the usual mechanisms of supply and demand to ensure there is enough money in the economy to satisfy demand for it.

Theoretically, an omniscient central bank would meet changes in money demand with offsetting changes in supply.

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Challenging the Fed’s “Inflated Reputation”

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

Last week at The American Spectator, Bob Luddy aimed some harsh criticism at the Federal Reserve, blaming the Fed’s policy of keeping interest rates artificially low with causing a decline in the value of the dollar and undermining economic growth:

The Federal Reserve Bank, commonly referred to as “The Fed,” has a policy to inflate the dollar by 2% annually. This is an absurd policy, which undermines our currency. The methods the Fed uses to achieve this policy distort and undermine sustainable economic growth.

The Fed was established in 1913 as the Central Bank of the United States, for the purpose of maintaining a stable banking system and supporting sound money. But the opposite has happened. Since the founding of the Fed, the dollar has lost more than 90% of its value.

The Fed manipulates the money supply with artificially low interest rates to create inflation. This policy enables the federal government to expand deficit spending without the penalty of market interest rates. But interest is a cost that is important to sound business calculations; a sound economy requires financial reality.

By manipulating rates, the Fed undermines all economic decisions and creates market distortions. This manipulation results in economic bubbles that are challenging to detect, until it’s too late.

[…]

You can read the full article here.

Paul Dupont is the managing editor for ThePulse2016.com. Continue Reading

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Why the Federal Reserve Never Stood a Chance

Federal Reserve Chair Janet Yellen (photo credit: International Monetary Fund via Flickr, CC BY-NC-ND 2.0)

This piece was co-authored by Max Rangeley, an editor at The Cobden Centre.

For the most part, tax, regulatory, fiscal, and labor policies differentiate from country to country. This makes it difficult to point to any one of these specific areas to explain the current global economic slowdown that we have been experiencing for the past few years.

There is, however, one sector that ties the entire world economy together: the global monetary system.

For decades, central banks have been artificially targeting interest rates and controlling the money supply with decisions made by some of the smartest PhDs the world has had to offer. These economic planners have based their decisions on different rules, economic indicators, and theories. The mentality behind their system is a top-down approach that depends on experts and elites, not free markets and people.

When economic times are good, central bankers pat themselves on the back. They give themselves flattering and gratuitous pet names like “Gentle Giant” and “Maestro.” But when times are bad, they give excuses, place blame, and banter on about how there really isn’t much central banks can do to fix the problem.

Given the important role of interest rates and money supply in an economy, we believe that it’s fair to examine how central banks are faring at managing economies.

The Federal Reserve has a dual mandate of price stability and maximum employment. Since the founding of the Federal Reserve, the dollar has lost 97 percent of its value and unemployment has been higher than during the pre-Federal Reserve era.

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Larry Kudlow: “Stable Money Is the Next Big Growth Issue”

Larry Kudlow has also noticed that the Federal Reserve and its impact on growth have entered the GOP race:

Stable money is the next big growth issue. To their credit, many of the Republican candidates have talked about this — which is unusual for a presidential race. Some, like Cruz and Paul, have discussed restoring the gold rule. Others, like Mike Huckabee, have argued for tying the dollar to a commodity basket.

I prefer an even broader approach that would include the exchange value of the dollar and Treasury-bond-market inflation expectations. In each case you would track forward-looking inflation-sensitive market-price indicators, as was done from the mid-1980s to mid-1990s by former Fed board members Wayne Angell, Manley Johnson, Robert Heller, and Alan Greenspan — all Reagan appointees.

I’d also have no problem keeping a sharp eye on the growth of nominal GDP. But as Paul Volcker has argued, we should return to a rules-based monetary policy with international cooperation.

And as the GOP searches for a monetary rule, it should not become the party of high interest rates. (I don’t agree with Trump and Chris Christie that a zero-interest-rate political fix is in to help Obama through his final months without a recession.) Right now, with commodity indexes falling, the dollar rising, and various consumer price deflators showing zero inflation, neither the Republican party nor the Fed should panic. Domestic price stability and a steady-value dollar should be the goals.

You can read the full article at RealClearMarkets.

Maggie Gallagher is a senior fellow at the American Principles Project. Continue Reading