By Ralph Benko – Senior Economic Advisor at the American Principles Project
As I recently wrote in my Forbes.com column, “Presidential elections are about, above all, just two things: our security and our prosperity.” The GOP candidates have been emphatic about our national security, about which more in a bit.
All of them strangely have been pretty quiet about our prosperity. Getting the economy moving again deserves, now, to be the top issue. Ted Cruz has offered the most Reaganesque plan for getting us robust growth. Cruz laid out a solid, credible, prosperity plan. He presented his Flat Tax and, most important, staked out a credible recipe for excellent monetary policy: the gold standard.
Cruz references these. He’ll defend them. He’s committed to them. But, like the others, he’s not been featuring either the prosperity theme or his solid plan.
All the candidates have addressed the economy. Yet they aren’t campaigning on economic growth. Jeb Bush launched his campaign with a rousing promise to get economic growth up to no less than 4%. Jeb! never backed it up with a credible plan. He soon drifted off to speak of other matters.
As campaign manager James Carville once advised candidate Bill Clinton (on getting word that Clinton had drifted in his stump speech into nuclear non-proliferation — about which Carville said to Bob Shrum “There wasn’t one goddamn vote in it!”): “It’s the economy, stupid!”
America has been mired in what I have called a “Little Dark Age” of economic stagnation for about 15 years. We’ve been growing, on average, at a rate of under 2% a year both under Presidents George W. Bush and Barack Obama. That’s really poor. America under President Reagan, after his wringing inflation out of the system, and President Clinton enjoyed 4% growth and massive job creation. Since those days economic growth has been punk.
When you compound a 2+% shortfall a year over 15 years it means that the American economy — and each of our paychecks and net worth — is somewhere between 25% and 50% lower than it otherwise would have been. That’s a very big deal indeed. Wouldn’t you like your paycheck to be 25%, even 50%, fatter? Most voters would. Bonus: 4% economic growth quickly would eliminate the federal deficit and put Uncle Sam back into surplus (as under Clinton).
So what’s causing this “Little Dark Age?” The major prosperity (or austerity) drivers under federal government purview are tax, regulatory, trade, budget, and monetary policy. Only one of these five materially changed 15 years ago in a growth-retardant way: monetary policy. As I have written elsewhere:
Reagan and Clinton’s robust job growth occurred under the Volcker-Greenspan “Great Moderation.” That policy was abandoned around the year 2000 thrusting America into a miserable “boom-and-bust” cycle.
The sign on President Truman’s desk, “The Buck Stops Here,” in a very literal sense applies. Still, the buck — Federal Reserve Notes — starts at the Fed. The candidates’ tax plans also are relevant to economic growth. But monetary policy is paramount.
Both President Bush’s and President Obama’s favorability rating sunk as the economy tanked and then limped along. The president deserves to be held accountable by the public. The sign on President Truman’s desk, “The Buck Stops Here,” in a very literal sense, applies.
Still, the buck — Federal Reserve Notes — starts at the Fed. The candidates’ tax plans matter. But monetary policy is paramount to growth. The candidates have been strangely quiet about it, possibly not wishing to impugn their Party Elders. Still, voters can dig down and find where they stand. Here goes.
The punk economic cycle continues today. The last quarter’s GDP grew at a punk rate of 0.7%. This deserves to be the central issue of this election.
Monetary policy may sound esoteric. It’s not. There’s reason to believe that it is the single most important factor in restoring economic growth.
Where do the presidential aspirants stand?
Sen. Ted Cruz has called for a restoration of the gold standard. Before he suspended his campaign so did Sen. Rand Paul, less directly. This is a policy to which Trump and Carson have spoken sympathetically, although not proposed.
The gold standard is detested by left wing pundits such as Paul Krugman. Yet the gold standard correlates closely with some of the best economic growth in American (and world) history, including America’s post-war economic boom era.
The gold standard does not entail carrying around bags of gold coins. It simply means that the dollar — Federal Reserve Notes — is defined by and convertible to a fixed weight of gold. This policy allowed America to thrive for almost 200 years. It is a perfectly sensible, smart, policy. It also just so happens to be the monetary policy set forth in Article I, section 8, of the US Constitution. Constitutional Conservatives take note.
The gold standard has noble roots. It was “invented” by two scientific geniuses, Copernicus and Newton. George Washington, Alexander Hamilton, Thomas Jefferson and Tom Paine, among many, many, other American founders supported it enthusiastically. It worked brilliantly. More recent political leaders such as Rep. Jack Kemp and Rep. Newt Gingrich, supported it. President Reagan was a gold standard sympathizer.
Dr. Carson has spoken sympathetically of the gold standard but has not proposed it. Nor has he suggested any other monetary policy to restore prosperity.
Donald Trump presented a disturbing criticism of Fed Chair Janet Yellen for not raising interest rates, observing in the next breath that doing so would plunge America into a “recession-slash-depression.”
That calls into question Mr. Trump’s grasp of the monetary policy. That said, he spoke sympathetically, but rather ignorantly, of the gold standard on WMUR almost a year ago. From the transcript:
“WE USED TO HAVE A VERY SOLID COUNTRY BECAUSE IT WAS BASED ON A GOLD STANDARD FOR IT WE DO NOT HAVE THAT ANYMORE. THERE IS SOMETHING VERY NICE ABOUT THE CONCEPT OF THAT. IT WOULD BE VERY HARD TO DO AT THIS POINT AND ONE OF THE PROBLEMS IS WE DO NOT HAVE THE GOLD. OTHER PLACES HAVE THE GOLD.”
Mr. Trump is just factually wrong that “we do not have the gold. Other places have the gold.” America has, and by far, the largest stock of monetary gold in the world. Moreover, as Prof. Lawrence White of George Mason University has pointed out, we don’t need all that much gold to maintain a gold standard. We have ample gold to restore the gold standard and, with it, equitable prosperity.
Trump’s outright call for raising interest rates in a way that would cause a “recession-slash-depression” is a perverse, “out of the frying pan into the fire,” proposition. His ignorance of a policy that originally made America great raises concerns about someone who promises to “make America great again.”
Gov. Bush has said next to nothing on monetary policy. Gov. Christie has called for an audit of the Fed, as has Sen. Rubio. Yet a Fed audit represents merely a process, not a concrete growth-oriented proposal.
Gov. Christie has attributed partial blame to the Fed for the widening gulf between the rich and poor and blasted it for keeping interest rates at zero. Fiorina criticized the Fed for easy money and called the stock market too high, cheering on a falloff last August, surely an odd position for a presidential aspirant to take. Real conservatives believe that the markets, not the Fed (or, Heaven Forfend, the president), should set interest rates.
The GOP presidential aspirants have clearly staked out, and campaigned on, their policies regarding security. As I elsewhere have written:
I roughly divided the GOP field into three “tough doves” — Trump, Cruz, and Paul — two “moderate hawks” — Bush and Rubio — three “wild hawks” — Kasich, Christie and Fiorina — and one confusing effort to straddle hawk and dove — Carson. The polling strongly indicates that the GOP voters prefer the Reaganite “tough doves” over hawks. So let’s move on.
Got it! Let’s move on to prosperity. While the GOP contenders are not featuring their recipe to restore prosperity — to America and to each of us — they all have laid out an economic platform. The most important factor is their monetary planks.
Tired of the “Little Dark Age” of economic austerity? Then pay close attention to what the aspirants are saying about monetary policy. While giving their plans consideration, do give considered thought to Ted Cruz’s promise to make the dollar once again as good as gold. That’s a counsel of prosperity.
Ralph Benko is the Senior Economic Advisor at the American Principles Project and will be our guest this Saturday on GrokTALK!