Our presidential candidates squared off in Ohio last week, each merrily indicting the policies of the other. Both speeches lacked one crucial plank in their platforms. Good jobs require good money. The absence of good monetary policy is submerging the whole world in a second decade of “Dark Ages” stagnation … and misery.
Romney’s choice of Columbia business school dean R. Glenn Hubbard as a key economic adviser is promising. It means a Romney administration is more likely to adopt free market policies of economic growth than those offered by Mr. Obama. Obama’s idea of collegial collaboration is to yank his tax increase leash and yell Heel! at Republicans. Obama is hampered by an attitude that treats businesspeople as alien and, other than as his campaign donors, fundamentally sinister. That’s a recipe for, well, 8.2% unemployment. But something important is missing from both.
Forbes.com and RealClearMarkets.com editor John Tamny nails the missing variable:
Unstable money values lead to chaotic pricing of investments and goods purchases in much the same way that an unstable minute would lead to a lot of burnt apple pies. Once this is understood it should be clear that stability of the measure of value is the goal….
Tamny’s right. Good money was key to the Erhard German “Economic Miracle” of 1948, the Wirtschaftswunder — which started out from a much more dire baseline than America confronts. Ludwig Erhard took an utterly destroyed, destitute, and demoralized Germany from ruin to riches in stunning fashion. It is a forgotten story, but… Erhard, in his memoir Prosperity Through Competition, available through the generosity of the Mises Institute here, sums up the basis of the miracle:
“The big chance for Germany came in 1948: it depended on linking the currency reform with an equally resolute economic reform, so as to end once and for all the whole complex of State controls of the economy-from production to the final consumer-which, following in the wake of the people’s nonsensical demands, had lost all touch with reality. Today few can realize how much courage and sense of responsibility were needed for such a step. Some time later two Frenchmen, Jacques Rueff and Andre Piettre, summed up the combination of economic and currency reform thus:‘The black market suddenly disappeared. Shop windows were full of goods; factory chimneys were smoking; and the streets swarmed with lorries. Everywhere the noise of new buildings going up replaced the deathly silence of the ruins. If the state of recovery was a surprise, its swiftness was even more so. In all sectors of economic life it began as the clocks struck on the day of currency reform. Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a f.ew additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future.’”
Good money (and low tax rates) were also the key to America’s great Industrial Revolution prosperity. Economic historian Brian Domitrovic writes, in Forbes.com:
“Booms in the 19th century – for example, 1875 to 1892 – saw growth sustained for decades at 5.3%. A growth rate of 5.3% means that in just twenty-five years, the economy is two-thirds larger than under a rate of 3.3%.“What was the secret to the outsized growth of the 19th century, particularly its latter portion, the Gilded Age? There were great technological innovations and large population increases, to be sure – but these things came in the 20th century as well. What was different back then was the absence of macroeconomic institutions.
“There was no Federal Reserve, and there was no income tax …. No wonder we had such an incredible boom.”
Good money was fundamental to De Gaulle’s French Economic Miracle of 1958 engineered by the same Jacques Rueff cited by Erhard. Good money was fundamental to the Reagan Revolution. Reagan, with Fed Chairman Paul Volcker, reformed the papier mâché Carter Dollar … and cut marginal tax rates. Good money and lower marginal rates put America on course to drive its key stock market index from 1,000 to 14,000.
Gov. Romney, last January, told Larry Kudlow, “You know, I’m happy to look at a whole range of ideas on how to have greater stability in our currency and in our monetary policies.” Romney senior economic adviser R. Glenn Hubbard, argues vigorously against the “discretionary activism” of the Obama Fed in a book he recently co-authored, Seeds of Destruction, which entitles a chapter “Why an Easy-Money Street is a Dead End.”
But in the Buckeye State the candidates were duking it out on tax, spending, and regulatory policy. All of these are, of course, important. If “taxmaggedon” hits as scheduled in January America might well join in the collapse of the wobbly economies of Europe. But neither candidate addressed, much less emphasized, the missing element required for job growth: good money.
The presidential candidates have dramatically differing views on what constitutes good monetary policy. Obama seems to favor Chairman Bernanke’s central planning discretionary activism. The GOP stands for what economist John Taylor called, in the Wall Street Journal, “a … more rules-based policy of the kind that has worked in the past.” Republican elites lean toward the Taylor Rule. The GOP base — including the followers of libertarian icon Ron Paul and Tea Party champion Herman Cain — leans strongly toward the true gold standard (as detailed in the eponymous book by Lewis E. Lehrman, whose nonprofit Institute this writer professionally advises).
If Prof. Taylor is serious about a “policy of the kind that has worked in the past” he need look no further than the work of the late Roy Jastram, professor in the School of Business Administration, Berkeley. Jastram’s work widely is considered, well, the gold standard on the performance of monetary standards in history. In 1981 Jastram summed up a key finding:
“From the time the United States went off the gold standard in 1933 the wholesale price level has gone up by 760%. Since England abrogated the gold standard in 1931 her price index number has risen by over 2000%.
“Before that the two countries had a combined history of 350 years of long-run price stability. The price level was the same in the United States in 1930 as it had been in 1800. In England the price index stood at 100.0 in 1717 (the first year of her gold standard) and it was at that figure again in 1930.”
Good jobs require good money. Rep. Kevin Brady, vice chairman of the Joint Economic Committee (with 42 House cosponsors) and Sen. Mike Lee have begun to move the monetary reform question on Capitol Hill. These leaders are doing something important in helping to hammer out the missing variable in job creation, good money, and creating a forum where the proponents of the Taylor Rule and the proponents of the gold standard can make their respective cases.
Time, and past time, for an American Economic Miracle. Good money is absolutely necessary for prosperity and for job creation. Time for the presidential candidates to give us their recipes for good money instead of the discretionary paper dollar recipe for burnt apple pies.
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