by Ralph Benko

This article was published originally by on June 25, 2012

President Obama’s re-election strategy will be predicated on blaming the economic stagnation on George W. Bush, and, thus, the GOP, my colleagues Frank Cannon and Jeff Bell persuasively argued recently in The Weekly Standard.  Cannon and Bell are right.  And, that said, Bush’s fiscal policies were not the culprit.

Bush was mugged by the Fed. The Fed produced a Hurricane Katrina of louche money. The Fed produced the housing bubble, which, popping, caused the panic of ‘08.  The Meltdown developed on Bush’s watch.  More voters therefore still blame Bush than Obama for the lousy economy. Obama is exploiting that at the heart of his campaign strategy.  But Obama’s strategy of blaming Bush can be forced to backfire.

Flipping the Obama campaign on its back requires that the Romney campaign exploit this vulnerability:  Obama has embraced the same Fed whose policies caused the catastrophe. Romney can use this to turn Obama’s line of “Blame Bush” attack back on Obama.  But he can do so only if his political team shows the same degree of savvy as does his economic team.

Romney’s economic team is led by R. Glenn Hubbard.  Hubbard, although having done a stint as chairman of the council of economic advisers under Bush, gets it.  He unflinchingly attacks the Fed policies that torpedoed the economy.  If Romney’s political strategists will pivot and open fire on the real culprit, defective central planning by the central bank, Obama’s main campaign thrust is parried and can become fatal to the president’s reelection hopes.

Cannon and Bell observe that “Obama strategists would treat Romney’s selection as a vice presidential running mate of anyone who could be portrayed as a Bush-era economic policymaker (such as Ohio senator Rob Portman) as a gift from the political gods.”  This is emphatically true applied to “a Bush-era economic policymaker” who misunderestimates how critical monetary policy is in creating an economic climate of job growth and prosperity — or, as now, despair.

The GOP seems to have gotten it through its thick head that tax increases — like the preprogrammed “Taxmaggedon” threatening America — are terrible for the economy and job creation.  Most voters clearly understand this.  But good tax policy alone is not enough.  Good money — keeping the dollar healthy — was as much part of the foundation of  the Reaganomics magic as was cutting marginal tax rates.  Most voters understand this too.

Reagan worked his voodoo to achieve prosperity through two key variables: tax rate reduction and an end to the flood of cheap Carter regime dollars.  (Clinton held on to the essence of these and upped the ante with trade liberalization and, under pressure from Gingrich,  welfare reform.)  Lower tax rates andgood money unleashed a tsunami of worldwide economic growth.  The crucial “good money” piece of Reagan’s formula often seems to have been lost on much of Washington, even on the establishment GOP who should have internalized the core of Reaganomics by now.

There’s been a recent sighting of the Republican Memory Hole, emanating, alas, from that very Rob Portman against whom Cannon and Bell characterize as “a gift from the political gods” for Obama.  The Supply Side, the Tea Party, the Conservative, and the Libertarian bases of the GOP were stunned earlier this month by Portman’s public attaboy for  President Obama’s job-killing monetary policy.

Portman is widely considered the frontrunner pick for Vice President so this was not the usually inconsequential Senatorial blather.  If he is selected without having retracted this it will be much harder for Romney to credibly undercut the Obama strategy.  In a June 13 op-ed in Politico Portman wrote to contrast the feeble Obama recovery with the strong Reagan recovery in We Can Do Better on Economy.  Buried 12 paragraphs in Sen. Portman observes:

Remarkably, Reagan’s recovery took place even as the Federal Reserve was strongly contracting the money supply. Obama’s policies have failed despite the Federal Reserve loosening the money supply. Reagan’s recovery took place even as the Federal Reserve was strongly contracting the money supply?  Obama’s policies have failed despite the Federal Reserve loosening the money supply?

Even as?  Despite?  This seems to mean that Mr. Portman considers the Reagan-era stabilization of the dollar by the Volcker Fed contractionary and the Obama-era flood of dollars by the Bernanke Fed … stimulative.  Let us hope this was merely an infelicitous choice of words.  But… Portman served as Bush’s Director of the Office of Management and Budget.  By training and disposition his proficiencies are … management — meaning regulations— and budget. Not money when money is crucial.

Portman shows he has assimilated half of the Reagan lesson by calling for “pro-growth tax reform by lowering marginal tax rates and pay for it by closing loopholes that only complicate the Tax Code and slow growth.”  And Portman calls, uncontroversially, for “regulatory relief to small businesses, open up more export markets … and encourage domestic energy production to create jobs and lower prices. … (and to) rein in runaway spending ….”

Good fiscal and regulatory policy are necessary for growth.  But by themselves they are insufficient. Portman concludes his claim that the GOP can do better by saying  “These pro-growth policies would unshackle the economy and encourage hiring. They would bring long-term sustainability to the budget and new revenues through growth.  There is no reason the economy cannot return to the higher growth that occurred in past recoveries. We have the blueprint; we just need the will.”

Yes, Senator, we have Reagan’s blueprint for economic growth:  good monetary, as well as good fiscal, policy.  In the party’s Congressional wing, Joint Economic Committee Vice Chairman Kevin Brady, joined by, now, 45 House co-sponsors and your colleague Sen. Mike Lee call for passage of the “Sound Dollar Act” as the first important step towards better monetary policy. Perhaps Sen. Portman’s implication that current Fed policy is stimulative was merely a rhetorical lapse. If so it is one from which he can quickly recoup by consulting with good money GOP champions.

At the party base, Libertarians, led by Ron Paul, enthusiastically call for recognizing gold as money.  Tea Partiers, led by Herman Cain, demand a 21st Century Gold Standard.  Supply Siders led by Steve Forbes, Lew Lehrman and Sean Fieler (institutes who the latter two chair this columnist professionally advises) also call for restoring the gold standard.   Conservatives, led by Reagan’s counselor and attorney general Edwin Meese, call for monetary reform in their 2012 consensus agenda.  In academe, elite economists such as Prof. Taylor call for, well, predominantly the Taylor Rule.

There’s a discussion under way within the GOP as to whether the “Taylor Rule” or the “Golden Rule” is the better choice.  But there is a firm consensus within the party — one shared, according to Rasmussen , by the voters — that good money is essential to job growth and prosperity.

Romney’s economic team understands the need for monetary reform. Led by Hubbard, Team Romney is on record demanding just that.  Romney’s prospects may well depend, now, upon whether Romney’s political team will grasp how Obama’s effort to attach blame to the GOP for the lousy economy can be turned back on Obama himself by an attack on Obama’s support for louche Fed policy.


This article originally was published by on May 7, 2012

Mike Lee, U.S. Senator from Utah, recently sponsored a bill entitled the “Federal ReserveModernization Act.” It is the counterpart toRep. Kevin Brady’s Sound Dollar Act of 2012 (which enjoys 35 House cosponsors and, of equal note, already is drawing liberal fire). The Brady/Lee legislation represents an important first step forward to restoring good money to America: money that can provide a foundation for prosperity with equity, security, and, of at least equal importance, constitutional integrity.

The Sound Dollar Act/Federal Reserve Modernization Act directs America’s central bank to monitor the prices of major asset classes including gold and the value of the dollar relative to gold. Gold is the only asset twice specified. One of its three broad categories is entirely devoted to gold. Gold thereby emerges designated as a more important factor in monetary policy than it has played in two generations.

Mr. Brady and Mr. Lee thereby offer a first step toward Constitutional money, which is a dollar defined as a fixed weight of gold. Constitutional money was the good money, conceived by the Founders and installed by George Washington and his Treasury Secretary Alexander Hamilton, which gave the impetus to America to prosper. Both Lee and Brady demonstrate astute awareness of Constitutional history and performance.

Mr. Lee’s official blog notes: “As for monetary policy, the American experience from the First Bank in 1791 to the modern Fed is that the economy operates more efficiently when the central bank, managed by competent individuals, operates independently with a rules-based approach. …. For too long, Congress has abdicated its responsibility of ensuring that the Fed’s mandate properly reflects the lessons of history while building toward the future.”

Key words? “The lessons of history.”

Mr. Brady, too, draws on history in a recent speech before the Shadow Open Market Committee:

“Not far from here on West 141st Street stands the Grange, the recently restored home of Alexander Hamilton, our first Secretary of the Treasury. After careful consideration, Hamilton devised a monetary system that revived a moribund American economy and fostered rapid economic growth. As Hamilton did in his day, we must thoughtfully and clearly define the role of the Federal Reserve going forward.
“Learning from the past and looking to the future, Congress must select the right monetary policy mandate, maintain a Fed independent of political pressure, and hold the Fed accountable for the results.

“So let us examine what monetary policy should be going forward.” Continue reading »

Apr 172012

This article was published originally by on April 9, 2012

Good Money:  Why Rep. Kevin Brady’s Sound Dollar Act Worries Barney Frank

by Ralph Benko

Why is Rep. Barney Frank rounding up his liberal legislative militia to oppose the Sound Dollar Act of 2012? This is a bill recently introduced by Rep. Kevin Brady, top Republican on the Congressional Joint Economic Committee. It is co-sponsored by 31 of his House colleagues and has a Senate counterpart from Utah’s Mike Lee.

A panicked Rep. Frank snapped to immediately. He rounded up 26 liberal democrats to sign a letter of opposition. “We believe strongly that the dual mandate should be maintained, and we believe that the Federal Reserve’s actions in pursuit of that mandate have been helpful in dealing with our unemployment problem,” wrote Frank and fellow liberals to committee chairman Spencer Bachus.

Believe it or not, Frank’s beliefs do not always coincide with common sense reality. As Boston Globe columnist Jeff Jacoby wrote in 2008:

“Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that “these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis.” When the White House warned of “systemic risk for our financial system” unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.

“Now that the bubble has burst and the “systemic risk” is apparent to all, Frank blithely declares: ‘The private sector got us into this mess.” Well, give the congressman points for gall.

Frank and other liberals are hostile to legislation that constrains the Fed’s “discretionary activism.” Discretionary activism is what Columbia dean (and key Romney economic policy advisor) R. Glenn Hubbard indicts in Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity. This book contains a chapter entitled “Why an Easy-Money Street is a Dead End” and a subchapter “The Road to American Prosperity Cannot Be Paved with a Cheap Dollar.”

Brady’s legislation plays a major role in helping the GOP formulate a crucial plank in its economic platform: good money. Even more potent is this bill’s extraordinary emphasis on gold. In its findings, the Act directs the Federal Reserve to monitor prices in three sectors. One is, exclusively, gold: The “Federal Reserve should monitor … the value of the United States dollar relative to gold… to determine whether the Federal Reserve’s monetary policy is consistent with long term price stability.” Another section directs the Fed to monitor the prices of “major asset classes (including… gold and other commodities…).”

Gold alone thus occurs in two of the three directives to the Fed. This appears by no means accidental. Brady elegantly has structured this legislation in a way that gives space both to the conservatives (supply side, movement, libertarian, and constitutionalist Tea Party) and Establishment Republicans (and conservative Democrats) to come together to work out what good money looks like.

The overwhelming conservative consensus is for the dollar, whether issued by the government or the private sector, to be defined as a fixed weight of gold and for currency convertibility. Intramural differences among conservatives, and between conservatives and Republicans (and, for that matter, Blue Dog Democrats who are attuned to the popularity of the gold standard with voters) are far narrower than the differences between conservatives and liberals. The Weekly Standard.comreports Brady’s position: “Our goal today…is to start a thoughtful debate….” He succeeds.

A highly respected member of the Republican policy establishment, Stanford University professor of economics John Taylor, recently testified before the Joint Economic Committee in favor of the Sound Dollar Act re-enforcing Dean Hubbard’s key point. Prof. Taylor then wrote a Wall Street Journal op-ed entitled The Dangers of an Interventionist FedA century of experience shows that rules lead to prosperity and discretion leads to trouble.

The conservative policy establishment view is exemplified by the Conservative Action Project chaired by President Reagan’s counselor and attorney general Edwin Meese III in its Conservative Consensus For 2012 issued last December. This important document firmly placed sound monetary policy in the top of the conservative agenda. The conservative policy establishment consensus also is exemplified by two nonprofit groups professionally advised by this writer, the American Principles Project and the Lehrman Institute’s monetary policy site, and by Atlas Economic Research Foundation’s Sound Money Project. These thought leaders, and many others, teach about a dollar defined as a fixed weight of gold and currency legally convertible at that weight.

The hard left reacts to monetary reform and the gold standard as a vampire does to a crucifix. Astute Roosevelt Institute fellow Mike Konczal, blogging atRortybomb last April 2011 began the litany: “Conservatives are organizing against a full employment mandate and rallying around the gold standard wing of their party.” Since then, ThinkProgress’s Marie Diamond has stated that “Tea Party groups are determined to make returning to the gold standard a litmus test for GOP presidential candidates.” Paul Krugman warned in theNew York Times that “Gold bugs have taken over the GOP.” Thomas Frank, inHarper’s Magazine, called gold “yet another eccentricity of the right-wing fringe… into the mainstream of American life.” Nouriel Roubini slurred supporters of gold as “lunatics and hacks.” Former Clinton Treasury Secretary and chair of Obama’s National Economic Council Larry Summers called the gold standard “the creationism of economics.”

Yet so bad has discretionary activism proved that even the center-left New York Times could headline, last August, a column A Gold Standard is Unthinkable No More. The sober, certainly not right wing, Bank of England issued a report last December which Bloomberg headlined as Global Economy Worked Better With Bretton Woods Currency System, BOE Says — Bretton Woods being a dilute gold standard.

Outside the cozy precincts of the hard left the gold standard has been rehabilitated. Clearly there is a productive conversation to be had between gold’s distinguished conservative and classical liberal proponents — such as Steve Forbes, Lewis Lehrman, Sean Fieler, James Grant, Judy Shelton, Brian Domitrovic, Lawrence White, Charles Kadlec, John Allison, John Tamny, James Rickards, and other respected figures who support gold convertibility — and the many distinguished mainstream economists who lean toward the something like the Taylor Rule. Brady has created a context for that thoughtful debate.

Since monetary reform is crucial to robust job creation Brady performs an invaluable public service by putting it front and center. The sponsors of the Sound Dollar Act demonstrate genuine statesmanship in moving the conversation forward in such a way as to allow everyone who believes in prosperity, with equity, through good money to unite behind Taylor’s axiom: “[T]he Federal Reserve should move to a … more rules-based policy of the kind that has worked in the past.” Rep. Brady and Sen. Lee have introduced legislation that represents a mortal threat to the practice of central planning that lingers on at full strength in just three capitals, Pyongyang, Havana, and Washington, DC … panicking Barney Frank.


Copyright 2012 by Ralph Benko and Charles Kadlec, Washington, DC and Laguna Woods, CA.
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