The Mundell-Laffer Solution

Posted on October 13, 2009. Filed under: economy | Tags: , , , , , , , , |

By Lawrence Kudlow

Team Obama is in economic trouble on two fronts right now: The dollar could be headed toward its demise, while the jobs and unemployment numbers have gotten worse. (The unemployment rate is up to 9.8 percent as of the September report released last week.) And there’s a simple policy mix the White House could adopt to fix this. It could enact the Mundell-Laffer supply-side approach of a steady King Dollar for price stability and low marginal tax rates to spur jobs and economic growth.

Columbia professor and Nobel Prize winner Robert Mundell and Reagan advisor Arthur Laffer put this formula to work nearly 30 years ago, and it launched a massive low-inflation, bull-market prosperity. Of course, I am a supply-side fossil. I am a dinosaur and a relic of the past. But I still believe this approach could work again, even if it’s not going to happen.

The dollar has been falling on and off for nearly 10 years, and it’s in big trouble right now. The commodity inflation, housing bubble and oil shock of recent years all can be traced to dollar weakness and excess money-creation by the Fed. A weak dollar helped destroy the Bush Boom and create the Great Recession. But now people are talking about ending the dollar’s reserve-currency status.

According to London’s Independent, the Arab oil producers in the Gulf are planning with China, Russia, Japan and France to end dollar transactions for oil and move instead to a basket of currencies that might include the Japanese yen, the Chinese yuan and the euro, along with gold and some kind of regional Gulf-state currency.

I say, where there’s smoke there’s fire. The dollar-demise story just won’t go away, and it’s clear now that China and others have lost confidence in the greenback. For the U.S., this is mostly a self-inflicted wound. And the Treasury and the Fed are in denial about it. The gold price has jumped all the way to $1,050, while the dollar index has fallen again. Without question, the U.S. is creating too many dollars through the Fed, and fiscal disarray continues to threaten more of the same.

And here’s a real conflict brewing in the financial markets: The Fed is fighting deflation with a near-zero interest-rate target, while gold, the dollar and commodity markets are signaling that inflation is the real problem. Somebody is going to be very right here, and somebody is going to be very wrong. I’m betting on the markets being right.

So I have a thought, at least for the short run: The Fed should follow Australia, the first G-20 country to raise its target interest rate. The Aussies lifted their rate a quarter point to 3.25 percent. Right now, the U.S. Fed should lift its target rate by 25 basis points. The fed funds target is currently 15 basis points, so this move would make it 40 basis points. It would be a dollar-protection signal; a price-stability signal. At the least, it would be a beginning. Next, the Treasury should buy some dollars in the open market to back up the Fed.

Columbia professor and Nobel Prize winner Robert Mundell and Reagan advisor Arthur Laffer put this formula to work nearly 30 years ago, and it launched a massive low-inflation, bull-market prosperity. Of course, I am a supply-side fossil. I am a dinosaur and a relic of the past. But I still believe this approach could work again, even if it’s not going to happen.

The dollar has been falling on and off for nearly 10 years, and it’s in big trouble right now. The commodity inflation, housing bubble and oil shock of recent years all can be traced to dollar weakness and excess money-creation by the Fed. A weak dollar helped destroy the Bush Boom and create the Great Recession. But now people are talking about ending the dollar’s reserve-currency status.

Read page 2 at GOPUSA.com

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In Defense of Glenn Beck

Posted on October 11, 2009. Filed under: Beck | Tags: , , , , , , , , |

by Jonah Goldberg
For a self-described rodeo clown who frequently admits he isn’t that bright, Glenn Beck must be doing something right. A de facto leader of the populist backlash against President Obama, he made the cover of Time magazine, with his tongue sticking out no less. His books are immediate best-sellers. His radio and TV shows have stratospheric ratings. His one-man comedy performances draw packed audiences, and the proceeds from his numerous ventures have him making north of $20 million a year.

But perhaps his most impressive feat is his ability to unite a broad coalition of liberals, media scolds and conservatives under the single banner of Beck-hatred.

Now, before I proceed, I should disclose the fact that I like Beck personally and that his support for my book “Liberal Fascism” was a huge boon, helping to push it to No. 1 on The New York Times best-seller list. As a Fox News contributor, I have appeared regularly on his show. Whether that gives me more, or less, credibility when I say I cannot defend some of the things he says is for others to decide.

Still, much of the anti-Beck backlash (He’s an extremist! He’s paranoid! He’s hate-filled!) from the left is hard to take seriously. First, this is a crowd that lets Michael Moore and Janeane Garofalo speak for them, and that celebrated the election of unfunny man Al Franken to the Senate. If you think it’s racist to oppose Obama’s health care reform efforts, it goes without saying that you’ll think Beck is an extremist. This is what liberals always say about popular right-wingers, including Barry Goldwater, Ronald Reagan and William F. Buckley. For over 20 years liberals, including Presidents Clinton and Obama, have insisted that Rush Limbaugh is everything from an unpatriotic hatemonger to an enabler of domestic terrorism. It makes sense that they’d give Beck the same business.

THE DARLING OF THE LEFT

Or consider Jon Stewart, the legitimately funny host of “The Daily Show.” Stewart is reminiscent of Will Rogers — a humorist who was nonetheless anointed by the National Press Club as the “ambassador at large of the United States.” The liberal establishment swoons over him. The Television Critics Association bequeathed its award for outstanding achievement in news and information to a show that isn’t even a news show. Times columnist Frank Rich seems to have a man-crush on the Peabody comedian, while Bill Moyers of PBS insists that “you simply can’t understand American politics in the new millennium without ‘The Daily Show.'” The hosts of NPR’s in-house press watchdog show, “On the Media,” claim Stewart as their role model!

Stewart’s M.O. is to launch lightning attacks as a left-wing pundit and then quickly retreat to his haven across the border in Comedystan, but Beck must be pelted from the public stage for blurring the line between theater and punditry? Really? Continued…

Townhall.com

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