The Rise And Fall And Rise And Fall Of King Dollar, Part 2

As stated in the preceding column, here, eminent labor economist Jared Bernstein recently called, in the New York Times, for the dethroning of “King Dollar,” claiming that the reserve currency status of the dollar has cost the United States as many as “six million jobs in 2008, and these would tend to be the sort of high-wage manufacturing jobs.”

Six million is about as many jobs as presidents Bush and Obama together, over 13+ years, created. So this is a big claim.  Whether or not one accepts the magnitude of the jobs deficit proclaimed by Dr. Bernstein, reserve currency status comes with heavy costs.

As former president of the Federal Reserve Bank of Dallas Bob McTeer wrote in a column entitled Reserve Currency Status — A Mixed Blessing:

The advantages of reserve currency status for the dollar are well known. The world’s willingness to accumulate dollar reserves in the post World War II period first removed and later reduced the requirement of maintaining balance of payments equilibrium, or, more specifically, current account balance. By removing or weakening this restraint, U.S. policymakers had more freedom than policymakers in other countries to pursue strictly domestic objectives. We ran current account deficits year after year, balanced, or paid for, by capital inflows from our trading partners. The good side of that was that we could import real goods and services for domestic consumption or absorption and pay for them with paper, or the electronic equivalent. In other words, our contemporary standard of living was enhanced by others’ willingness to hold our currency without “cashing it in” for goods and services, or, before 1971, gold.

The bad side of our reserve currency status, although seldom recognized, was that the very leeway that enhanced our current standard of living built up debt (and/or reduced foreign assets) to dangerous levels. I remember well when, in 1985, the United States ceased being a net creditor nation to the rest of the world and, instead, became a net debtor nation. Our net indebtedness has only grown over the years, and hangs over us like the legendary sword of Damocles.

Sword of Damocles? Lehrman, in his Money, Gold, and History states:

[W]hen one country’s currency — the dollar reserve currency of today — is used to settle international payments, the international settlement and adjustment mechanism is jammed — for that country — and for the world.  This is no abstract notion. …

The reality behind the “twin deficits” is simply this: the greater and more permanent the Federal Reserve and foreign reserve facilities for financing the U.S. budget and trade deficits, the greater will be the twin deficits and the growth of the Federal government.  All congressional, administrative and statutory attempts to end the U.S. deficit have proved futile, and will prove futile, until the crucial underlying flaw — namely the absence of an efficient international settlements and adjustment mechanism — is remedied by international monetary reform inaugurating a new international gold standard and the prohibition of official reserve currencies.

By pinning down the future price level by gold convertibility, the immediate effect of international monetary reform will be to end currency speculation in floating currencies, and terminate the immense costs of inflation hedging.  Gold convertibility eliminates the very costly exchange of currencies at the profit-seeking banks.  Thus, new savings will be channeled out of financial arbitrage and speculation, into long-term financial markets.

Increased long-term investment and improvements in world productivity will surely follow, as investment capital moves out of unproductive hedges and speculation — made necessary by floating exchange rates — seeking new and productive investments, leading to more quality jobs.

The sobering views expressed by McTeer and by Lehrman more than neutralize Heritage Foundation’s Bryan Riley and William Wilson’s valiant championship of the dollar’s reserve currency status, in opposition to Bernstein.  Heritage’s championship is gallant but … unpersuasive.

John Mueller, who served as gold standard advocate Jack Kemp’s chief economist and now as the Ethics and Public Policy Center’s Lehrman Institute Fellow in Economics and Director, Economics and Ethics Program, crisply observes in an interview for this column:

As Kenneth Austin lucidly reminded us, it is a necessity of double-entry bookkeeping that any increase in foreign official dollar reserves equals the increase in combined US  current and private capital account deficits. Denying the connection requires magical thinking. The entire decline in the international investment position since 1976 is due to Congress’s borrowing from foreign central banks–that is, the dollar’s official reserve currency role–while the books of private US residents with the rest of the world have remained close to balance.

There are differing schools of thought among the gold standard’s most prominent adherents as to the significance of merchandise deficit account.  Their theoretical differences about current accounts are likely to prove, operationally, immaterial.

Both the Forbes and Lehrman schools share mortal opposition to mercantilism.  Both passionately oppose the cheapening of the dollar.  Both see the gold standard as a critical mechanism to restoring the brisk growth of, as Lehrman termed it, “quality jobs” … and the restoration of median family income growth that began, profoundly, to stagnate with Nixon’s destruction of Bretton Woods.

In this columnist’s own earnest, if much less erudite, view the most significant element of the reserve currency curse derives from how it subtracts capital from the real, e.g. goods and services, economy.  Corporate earnings are taken, in return for local currency, into the coffers of the relevant international central bank. That central bank then promptly loans the proceeds directly to the federal government of the United States by purchase of treasury instruments.

The way the world of central banking works thus subverts a process extolled by Adam Smith (in the context of his analysis of the benefits of fractional reserve money) in Wealth of Nations.  Smith:

When, therefore, by the substitution of paper, the gold and silver necessary for circulation is reduced to, perhaps, a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the funds which are destined for the maintenance of industry, it must make a very considerable addition to the quantity of that industry, and, consequently, to the value of the annual produce of land and labour.

The mechanics of the reserve currency system preempt these funds’ ready availability for “the maintenance of industry.” The mechanics of the dollar as a reserve asset, therefore, finance bigger government while insidiously preempting productivity, jobs, and equitable prosperity.

This columnist agrees wholeheartedly with Bernstein on what seem his three most important points.  The reserve currency status of the dollar causes American workers, and the world, big problems. The exorbitant privilege deserves and demands far more attention than it receives.  Moving the dollar away from being the world’s reserve currency would be a great deal easier than many now assume.

Bernstein, in his blog,  identifies four mechanisms as “out there” (without explicitly endorsing, or critiquing, them): by legislation (which this columnist views as playing with tariff fire); taxation (thereby “raising the price of currency management,” which this columnist finds hardly an obvious source of job creation); reciprocity (demanding the right to buy foreign treasuries); and an international reserve currency.

Mueller says of Bernstein’s legislative and tax proposals, “you simply can’t solve a monetary problem with a fiscal solution.”

As for reciprocity, the United States Treasury, even under a Joe Biden or even a Bernie Sanders presidency, is never going to turn away ready lenders. This homely truth seems about as self-evident as it gets.  Beyond that, even if China were to undertake market-oriented reforms — and, according to the Wall Street Journal, the political winds seem to be blowing the other way just now — the RMB accounts for only 1.64% of global payments. It is not even close to being a power player. Beyond the beyond … it is well beyond dubious to expect international central banks enthusiastically to bulk up on the debt instruments of the People’s Republic of China for the indefinite future.

An “international reserve currency,” however, is a sound proposition if well designed.  Proposing SDRs for that role does not hold up. As then-Treasury Secretary Tim Geithner, during a hearing of the House Appropriations Subcommittee on Foreign Operations on March 9, 2011, stated, “There is no risk of the SDR playing that [a reserve currency] role.  The SDR is not a currency.  It’s a unit of account.  And it can’t provide the role that many people aspire to it.  There is no risk of that happening.”  Mueller, elucidating why this is so, states:

It’s not possible to solve the problems caused by tying other nations’ domestic currencies to one nation’s inconvertible domestic currency (the dollar), by tying them all to a basket of  inconvertible domestic fiat currencies–that is, to a subset of themselves. The result has no anchor. And the world economy always gravitates to a single “final asset,” because using several multiplies transactions costs.

There appear to be but two technically plausible ways of getting there.  One is Nobel economics laureate Robert Mundell’s proposal of a world currency.  The other, of course, represents a sort of “reversion to the mean.” Restore a 21st century international gold standard.

While the gold standard is very unfashionable it by no means is absurd. Then-World Bank Group president Robert Zoellick, in 2010, was dead on when he observed in an FT column that “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”  About a year later, the Bank of England issued a startling but meticulous white paper demonstrating that the “Federal Reserve Note standard” materially has underperformed, in every area considered, both the Bretton Woods gold-exchange standard and the classical gold standard itself.

As previously referenced in this column Bundesbank president Jens Weidmann, in a 2012 speech, forthrightly stated:

Concrete objects have served as money for most of human history; we may therefore speak of commodity money. A great deal of trust was placed in particular in precious and rare metals – gold first and foremost – due to their assumed intrinsic value. In its function as a medium of exchange, medium of payment and store of value, gold is thus, in a sense, a timeless classic.

The gold standard, notwithstanding Churchill’s not-to-be-repeated 1925 blunder, is in no way a prescription for austerity.  The classical gold standard, properly constructed, is a recipe for workers, and median income families, to flourish economically.

We have not flourished, consistently, since its last remnants were destroyed by President Nixon on August 15, 1971.  So… what to do?

The first thing to do is to address the important issue, squarely. By shrewdly posing the right question Jared Bernstein has raised the odds, perhaps significantly, that we finally will find our way to the right answer. Getting out of the woods may be no more complicated than following JFK/LBJ economic advisor Walter Heller’s most famous dictum: “Put aside principle and do what’s right.”

Adroitly resolving the reserve currency issue as part of implementing an international reserve currency is far more likely to be fruitful in generating quality jobs, by the millions, than are earnest jeremiads, such as that by Dr. Bernstein himself, that “American political elites have completely failed to understand what the Fed should be doing right now.”  Relying on central bankers consistently to get discretionary management right represents a triumph of hope over experience.  Or as novelist Rita Mae Brown memorably observed, “insanity is doing the same thing over and over again but expecting different results.”

Let us take Keynes, in The Economic Consequences of the Peace, chapter VI, to heart:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. … Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

As Steve Forbes pithily puts it, “You’ve got to get the money right.”  Time to lift the reserve currency curse.  Time to fix the dollar.

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The Rise And Fall And Rise And Fall Of King Dollar, Part 1

The Wall Street Journal, recently, in The Return of the Greenback, observed that “the resurgent dollar has logged its longest winning streak in 17 years, rising against a broad basket of currencies for nine straight weeks.”  This has led to, perhaps irrational, exuberance from supply side titans Larry Kudlow and Steve Moore.

Cheapening the dollar is a bad thing, unequivocally.  It does not necessarily follow that making the dollar dearer is a good thing.  And there is a frequently unnoticed factor at work: the dollar’s status as the world reserve currency.  Dr. Jared Bernstein, senior fellow with the Center on Budget and Policy Priorities, and, previously, chief economist to Vice President Biden and executive director of the White House Task Force on the Middle Class, boldly claims that the dollar’s reserve currency status has cost America 6 million jobs.  This is a startling, and potentially important, claim.

We live in a world monetary system that makes the U.S. dollar its official reserve currency.  About 60%  of international central bank reserves are Yankee dollars. Some, both right and left, in America and abroad, consider the reserve currency status of the dollar a bug in the software of our world monetary system. Getting this fixed is, in the opinion of some consequential thinkers, of capital importance for the generation of quality jobs, and equitable prosperity, in America and the world.

The reserve currency status of the dollar, particularly as a potential factor in wage stagnation, has profound political implications.  Dispirited voters yearn for leadership that actually understands how to get the economic tide to lift all boats again.  Notwithstanding his promotion of some marked policy differences with this columnist, this columnist says three cheers for Dr. Bernstein for squarely pushing the reserve currency question into play.

Dr. Bernstein stirred up a healthy argument in an August New York Times op-ed entitled Dethrone ‘King Dollar.’  Bernstein:

[T]he new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

Bernstein draws on an interesting, and thoughtful, paper by economist Kenneth Austin in The Journal of Post Keynesian Economics. Austin dramatically illustrates the explosion of international dollar reserves and explores the possible significance to our economy.  Bernstein performs a signal public service by placing this into the policy discourse. Bernstein:

Mr. Austin argues convincingly that the correct metric for estimating the cost in jobs is the dollar value of reserve sales to foreign buyers. By his estimation, that amounted to six million jobs in 2008, and these would tend to be the sort of high-wage manufacturing jobs that are most vulnerable to changes in exports.

Bernstein’s proposal drew a tart riposte at Café Hayek from Don Boudreaux and another from the Heritage Foundation’s Daily Signal by Bryan Riley and William Wilson. 

Shortly after Bernstein’s proposed dethroning of ‘King Dollar’ Larry Kudlow and Steve Moore, in their NRO column, joyfully celebrated The Return of King Dollar:

[W]hen the dollar crashed in the 1970s — especially relative to gold — the economy collapsed into a crippling stagflation. From 1999 to 2009, the dollar index dropped by almost 40 percent, with only a brief surge between 2004 and 2006. The economy and wages were sluggish at best.

The relationship between a strong currency and prosperity is lost on the many nations that adhere to the mercantilist model whereby a devalued currency supposedly gives a country a competitive edge by making exports cheaper. …

Kudlow and Moore deserve praise for their opposition to cheapening the dollar.  That said, cheering on a “strong” dollar intellectually is akin to calling for a longer inch or a heavier ounce as a recipe to — magically — make us richer.

No.  What is needed is a high integrity, meticulously defined, dollar.

A dollar at the mercy of a freelancing Fed, subject to being whipsawed in value, up or down, is a barrier to commerce.  Money, by definition, is a medium of exchange, a store of value and — not be overlooked — a unit of account.  There are many empirical data tending to show that only by meticulously maintaining the definition of the unit — for example, by defining the dollar by grains of gold and making it legally convertible thereunto — can good job creation, and equitable prosperity, consistently be achieved.

There is a deep, fascinating, historical context.  It extends even to the use of the regal metaphor.  Therein rests an irony wrapped in a controversy inside some history.

The history? Keynes employed a regal metaphor (applied to gold rather than currency) in his 1930 tract Auri Sacra Fames in which he writes

… gold, originally stationed in heaven with his consort silver, as Sun and Moon, having first doffed his sacred attributes and come to earth as an autocrat, may next descend to the sober status of a constitutional king with a cabinet of Banks….

The irony? Keynes explicitly mistrusted the Fed.  Keynes did not wish to endow the U.S. Federal Reserve with the power that, under then-prevailing circumstances which no longer need apply, a return to the gold standard would have entailed.  Keynes, in his 1923 essay, Alternative Aims In Monetary Policy:

It would be rash in present circumstances to surrender our freedom of action to the Federal Reserve Board of the United States. We do not yet possess sufficient experience of its capacity to act in times of stress with courage and independence. The Federal Reserve Board is striving to free itself from the pressure of sectional interests; but we are not yet certain that it will wholly succeed. It is still liable to be overwhelmed by the impetuosity of a cheap money campaign.

Keynes expressed wariness of the risk of currency depreciation (better known as inflation). Sure enough, eventually the Federal Reserve indeed became “overwhelmed by the impetuosity of a cheap money campaign.”  The Fed cheapened its product — Federal Reserve Notes — by 85% since 1971 (and by about 95% since the Fed’s inception).

A dollar today is worth a 1913 nickel and a 1971 nickel and dime.  This gives a whole new meaning to the phrase “nickeled and dimed to death.”

Cheapening of money is very bad for business.  It is really, really, terrible for labor.  Ron Paul, call your office: Keynes proved quite right to be dubious about the Fed.

Why do so few of the economists who exalt Keynes share his tough-mindedness toward the Fed?  Why do so few grasp the irony of their mesmerized adulation of an institution with such a mediocre (and sometimes catastrophic) track record? Many acorns have fallen far from the tree.

One of the factors in play involves one of the standard tropes of mercantilism, to which Kudlow and Moore allude: the intentional depreciation of a national currency to gain unfair trade advantage.  This is what classically was called a “beggar-thy-neighbor” policy.  The neighbor, in this instance, is America. Forbes Media chairman, and Editor-in-Chief, Steve Forbes, and columnist Nathan Lewis, both gold standard advocates, are zealous critics of mercantilism (as is this columnist).

Steve Forbes (with Elizabeth Ames) in their recent book Money: How the Destruction of the Dollar Threatens the Global Economy and What We Can Do About It observes:

The neo-mercantilists of the twentieth century may have thought that floating exchange rates would allow countries to correct perceived imbalances with their rivals and bolster their domestic economies.  But the monetary system they created was more volatile than the one they had destroyed, with balance harder than ever to achieve.

The turmoil of the post-Bretton Woods era is what sent European nations scurrying for the shelter of a stable currency, setting the stage for the euro.  The explosion of currency trading it has wrought has become a huge source of fees for banks.  It has helped produce the market swings and giant windfalls so decried by Occupy Wall Street and others.  In this dangerous world, monetary policy is deployed as a frequent weapon, nearly always with destructive consequences.”

Nathan Lewis writes, in his column Keynes and Rothbard Agree: Today’s Economics is Mercantilism:

All of today’s premier economic policies, notably monetary manipulation and floating fiat currencies, attempts to “manage the economy” via government deficit spending, and the never-ending concern over “imbalances” in trade, are straight-up Mercantilism.

We really won’t make much progress in our economic understanding until this is recognized. The entirety of today’s Mercantilist agenda should be discarded; first, at an intellectual level, and then at the level of public policy. Britain did this, and went from an economic backwater overshadowed by tiny Holland, to the birthplace of the Industrial Revolution and the center of the largest empire of the nineteenth century.

Forbes and Lewis are skeptical about the power of manipulating currency to achieve trading advantage.  The intramural dispute among gold standard advocates around the current account, however, is of mostly academic significance.  The respective camps respectfully agree as to most of the disorders caused by paper money.  They agree that the remedy to our “Little Dark Age” of wage stagnation lies in the definition of the dollar by gold.

Businessman/scholar Lewis E. Lehrman, founder and chairman of the Lehrman Institute (whose monetary policy website this columnist professionally edits) too is an outspoken critic of mercantilism.  Lehrman is the leader of a group of thinkers influenced by the works of his mentor Jacques Rueff, influential French monetary official, public intellectual (Mont Pelerin society member), and iconic classical gold standard advocate.

As for the unjustly obscure Rueff, keen monetary observer Robert Pringle, author of The Money Trap states in his influential blog of the same name:

[Rueff] would have predicted the Global Financial Crisis and economic catastrophe of the past seven years – and would certainly have attributed it to the absence of an international monetary system worth the name. He would have been equally critical of the flawed construction of the euro.

He saw that the globalizing trading regime was fundamentally at odds with mercantilist monetary and exchange rate policies: one aspired to universality and openness, the other pointed to particularization and separation.

More generally, monetary nationalism, unleashed by the absence of a global standard for money, is inconsistent with a liberal order.

Reserve currency status of the dollar, the more emphatically when the dollar is not defined by and redeemable in a fixed weight of gold, is a form of monetary nationalism inconsistent with a liberal order.  And according to Bernstein reserve currency status also is costing millions of jobs.

What are some of the costs of the “exorbitant privilege” as the dollar’s reserve currency status was called by then finance minister of France Valery Giscard d’Estaing?  Ought now America to give the exorbitant privilege a gold watch and send it into retirement?

To be continued.

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End the Fed’s War on Paychecks

The Democratic Party has made “income inequality” a signature issue for the 2014 (and, presumably, 2016) election cycle.  Democrats, en masse, shout “J’accuse!” at Republicans.  There is a very different story to tell.

“Income inequality” is a crude, and twisted, heuristic for stagnant median family income.   “Income inequality” does not really resonate with voters, asnoted by the Washington Post‘s own Catherine Rampell, with a mountain of evidence showing that Americans don’t begrudge the wealthy their wealth, just are frustrated at the lack of widespread economic opportunity.

So let’s get down to cases.  Stagnant median family income is not the GOP’s fault.  It’s the Fed who done it.

The Atlantic Media Company’s Quartz recently claimed that the Fed has been intentionally keeping a lid on wages.  This has potentially major political implications.  Among other things, this view would allow the Republicans to push the discourse back toward the real problem, wage stagnation.  It can serve to refocus the Congress on the real solution, restoring real, rule-based, integrity to monetary policy as a way to get America moving again.

A culpable Fed gives irony to the fact that it is the Democrats that protect the Fed as if it were the Holy of Holies of the Temple.  What if, as asserted inQuartz, the Fed, by policy, and not the GOP, is the source of wage stagnation?  This opens an opportunity for the GOP to parry the political narrative of “income inequality” and feature the real issue on the mind of the voters and forthrightly to address its core cause, poor monetary policy.

This has been slow to happen because Federal Reserve has exalted prestige. The elite media has a propensity to canonize the Chair of the Fed.   Media adulation has obscured the prime source of the stagnation besetting American wage earners for the past 43 years.

Paul Volcker’s life was exalted (with some real justification), for instance by New York Times prize-winning journalist Joseph B. Treaster as The Making of a Financial Legend.  Downhill from there…

English: Official picture of Janet Yellen from...Official picture of Janet Yellen from FRBSF web site.  (Photo credit: Wikipedia)

Chairman Greenspan was featured on the cover of Time Magazine’s February 15, 1999 issue as the most prominent member of “The Committee To Save The World.”  One of the greatest investigative journalists of our era, Bob Woodward, wrote a deeply in-the-tank hagiography of Alan Greenspan, entitled Maestro. In retrospect, the halo the media bestowed was faux.

The Atlantic Monthly, in its February 12, 2012 issue, featured Fed Chairman Ben Bernanke on its cover as The Hero.  (Hedging its bets, The Atlantic ran a duplicate inside cover referencing him as The Villain.)  Author Roger Lowenstein wrote: “Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times.”  The adulation for Chairman Bernanke, in retrospect, seems overdone.  Even President Obama, at the end of Bernanke’s final term, gave him a not-so-subtle push out the door, as reported by CNN: “He’s already stayed a lot longer than he wanted, or he was supposed to….”

It’s Janet Yellen’s turn for media canonization.  This is premature.

Madame Yellen’s institutional loyalty and obvious decency command this columnist’s respect. Her intentions present as — profoundly — good.  That said, the road to a well-known, notorious, destination is said to be paved with good intentions.  Moreover, canonization demands that a miracle be proven.  None yet is in evidence.

The canonization of Madame Yellen began in earnest with an August 24 article in Politico by Michael Hirsch, The Mystery Woman Who Runs Our Economy. The process was taken up to the next level the very next day in an article by Matt Phillips in QuartzJanet Yellen’s Fed is more revolutionary than Ben Bernanke’s ever was

Hirsch tees it up in Politico nicely:

As has been written, Yellen is clearly passionate about the employment problem. It was no accident that the theme of this year’s Jackson Hole meeting was “labor market dynamics,” and the AFL-CIO’s chief economist, Bill Spriggs, was invited while Wall Street economists were not.

Yellen is also very cagey about whether that’s happening or not: She’s playing her own private game of chicken with inflation, indicating that she wants to see more wage growth for workers (another thing that’s hard to track ahead of time) before she raises rates. Beneath the careful analysis and the caveat-freighted sentences, the bottom line seems to be: “We’re making this up as we go along.”

Phillips, in Quartz, observes that it has been Fed policy to suppress wages for two generations.  Phillips:

From her position as the world’s single most powerful economic voice, the chair of the US Federal Reserve, Janet Yellen, is forcing the financial markets to rethink assumptions that have dominated economic thinking for nearly 40 years. Essentially, Yellen is arguing that fast-rising wages, viewed for decades as an inflationary red flag and a reason to hike rates, should instead be welcomed, at least for now.

It might sound surprising to most people who work for a living, but for decades the most powerful people in economics have seen strong real wage growth—that is, growth above and beyond the rate of inflation—as a big problem.

Phillips then gets to the point, providing what passes for economic wisdom among the enablers of the Fed’s growth-sapping (including wage-enervating) interventions.

Since the end of the Great Inflation, the Fed—and most of the world’s important central banks—have gone out of their way to avoid a replay of the wage-price spiral. They’ve done this by tapping on the economic brakes—raising interest rates to make borrowing more expensive and discourage companies from hiring—as wages started to show strong growth.

Phillips provides this exaltation of Janet Yellen:

If she’s right, and American paychecks can improve without setting off an inflationary spiral, it could upend the clubby world of monetary policy, reshape financial markets, and have profound implications for everything ….

Higher real wages, without exacerbating inflation, indeed would be something to cheer.  That, demonstrably, is possible.  The devil is in the details.

There’s persuasive, even compelling, evidence that the international monetary system is better governed by, and working people benefit from, a smart rule rather than the discretion of career civil servants, however elite.  An important Bank of England paper in 2011, Financial Stability Paper No. 13, contrasts the poor performance, since 1971, of the freelancing Fed with the precursor Bretton Woods, and with classical gold standard, rules.  This paper materially advances the proposition of exploring “a move towards an explicit rules-based framework.”

A rule-based system would represent a profound transformation of how the Fed currently does its business. House Financial Services Committee Chairman Jeb Hensarling (R-Tx) said, in a recent hearing, that “The overwhelming weight of evidence is that monetary policy is at its best in maintaining stable prices and maximum employment when it follows a clear, predictable monetary policy rule.”

Madame Yellen stated that “It would be a grave mistake for the Fed to commit to conduct monetary policy according to a mathematical rule.”  Contrast Madame Yellen’s protest with a recent speech by Paul Volcker in which he forthrightly stated: “By now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success.  In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth. … Not a pretty picture.”

Madame Yellen’s ability to achieve her (postulated) goal of rising real wages in a non-inflationary environment likely depends on who is right here, Yellen or Volcker.  It is a key issue of the day.  The threshold issue currently is framed as between “a clear, predictable monetary policy rule” and the discretion of the Federal Open Market Committee.  The available rules are not limited to mathematical ones but, to achieve real wage growth and equitable prosperity, the evidence fully supports the proposition that a rule is imperative.

Returning America to consistently higher real wage growth is a Holy Grail for this columnist.  Equitable prosperity, very much including the end of wage stagnation, is a driving objective for most advocates of a rule-based system, very much including advocates of “the golden rule.”

Getting real wages growing is a laudable, and virtuous, proposition.  Premature canonization, however, is a flattering injustice to Madame Yellen … and to the Fed itself.  The Federal Reserve is lost in a wilderness — “uncharted territory” — partly, perhaps mainly, of its own (well-intended) concoction.

The road to the declaration of sainthood requires, according to this writer’s Catholic friends, documentation of miracles.  If this writer may be permitted to play the role of advocatus diaboli for a moment … no American Economic Miracle — akin to the Ludwig Erhard’s German “Economic Miracle,” the Wirtschaftswunder, driven by currency reform — yet appears in evidence.

Expertise, which Chair Yellen certainly possesses in abundance, can lead to hubris … and hubris in disaster as it did in 2008.  Good technique is necessary but not sufficient.

As this writer elsewhere has noted,

Journalist Edwin Hartrich tells the following story about Erhard …. In July 1948, after Erhard, on his own initiative, abolished rationing of food and ended all price controls, Clay confronted him:

Clay:  “Herr Erhard, my advisers tell me what you have done is a terrible mistake. What do you say to that?”

Erhard: “Herr General, pay no attention to them! My advisers tell me the same thing.”

Erhard, famously, proved right, his experts, wrong.

Madame Yellen by dint of her decency and intellect may yet prove capable of restoring the Great Moderation … and the real wage growth, with low inflation, that went with that.  Yet, at best, Great Moderation 2.0 would be, as was its predecessor, a temporary, rather than sustainable, solution. “Making it up as you go along” is a proposition fraught with peril.

At worst, if Madam Yellen has, as observers such as‘s John Tamny detect, a proclivity for cheapening the dollar as a path to real wage growth she easily could throw working people out of the frying pan and into the fires of inflation.  Moreover, the Fed’s proclivities toward central planning may be one of the most atavistic relics of a bygone era.  Central planning, by its very nature, even if well meant, always suppresses prosperity.   As the sardonic statement from the Soviet Union went, “So long as the bosses continue to pretend to pay us we will pretend to work.”

Some who should know better ignorantly, and passionately, still are stuck in William Jennings Bryan’s rhetorically stirring but intellectually vacuous 1896 declaration, “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”  This is a plank that won Bryan his party’s nomination and cost him the presidency… three times. The electorate knows that cheapening the money is the problem, not the solution.

The Fed, not the gold standard, pressed down the crown of thorns upon labor’s brow. The GOP, rather than playing rope-a-dope on “income inequality,” would do well to dig down to find the monetary rule with which to restore a climate of equitable prosperity and real wage growth.  Results, not intentions, are what counts.

There is abundant evidence that the right rule-based system would not be a “grave mistake” but a smart exit ramp back to growth of real wages.  Anything the Fed does that departs from a dollar price rule is anti-equitable-prosperity.  Anything else hurts all, labor and capital. The Congress, under the leadership of Chairmen Garrett (R-NJ) and Hensarling (R-Tx), whose committee has in front of it the Federal Reserve Accountability and Transparency Act and Joint Economic Committee Chairman Kevin Brady’s (R-Tx) Centennial Monetary Commission, at long last, is bestirring itself. Now is the right time to amp up the crucial debate over monetary policy … by enacting both of these pieces of legislation.


Did “The Nixon Shock” Lead to Nixon’s Resignation?

This month we observe the 40th anniversary of the resignation, under threat of imminent impeachment, of President Richard M. Nixon. Nixon aide and loyalist Pat Buchanan sums up, in a column in USA Today Liberal Elites Toppled Nixon his view:

“Richard Nixon was not brought down by any popular uprising. The breaking of his presidency was a product of the malice and collusion of liberal elites who had been repudiated in Nixon’s 49-state landslide in 1972.”

Nixon, as it happens, was not 1974’s only casualty. As William Safire recalls, Nixon’s secretary of the treasury, John Connally, “was indicted for taking graft on the same day the President was charged by the House Judiciary Committee for abuse of power.”

Both men were instrumental in the repudiation of the Bretton Woods gold-dollar monetary system that had undergirded post-war American (and world prosperity). Bretton Woods, indeed, was coming apart (as a gold+paper pastiche standard inevitably is prone to do). A gold-based international monetary order called out, however, to be mended not ended. Nixon ended it.

The House Judiciary Committee’s charges and the Connally indictment uncannily fulfill a prophecy by Tom Paine. Paine’s Common Sense triggered the American Revolution. Paine later wrote a tract, Dissertations On Government; The Affairs of the Bank; and Paper Money in 1786. It was issued the year before the Constitutional Convention that would send the confederated former colonies into the epic called the United States of America. It was, in part, a perfect diatribe against paper-based (rather than gold or silver defined) money.

Paine observed:

But the evils of paper money have no end. Its uncertain and fluctuating value is continually awakening or creating new schemes of deceit. Every principle of justice is put to the rack, and the bond of society dissolved: the suppression, therefore; of paper money might very properly have been put into the act for preventing vice and immorality.

As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom, and property no security where this practice can be acted: and the committee who shall bring in a report for this purpose, or the member who moves for it, and he who seconds it merits impeachment, and sooner or later may expect it.

Of all the various sorts of base coin, paper money is the basest. It has the least intrinsic value of anything that can be put in the place of gold and silver. A hobnail or a piece of wampum far exceeds it. And there would be more propriety in making those articles a legal tender than to make paper so.

The laws of a country ought to be the standard of equity, and calculated to impress on the minds of the people the moral as well as the legal obligations of reciprocal justice. But tender laws, of any kind, operate to destroy morality, and to dissolve, by the pretense of law, what ought to be the principle of law to support, reciprocal justice between man and man: and the punishment of a member who should move for such a law ought to be death.

The death penalty for proposing paper money? Paine called for the criminal indictment as a capital crime, and for impeachment, of any who even would call for tender laws.

Connally was acquitted on the charges of graft and perjury. Later he underwent bankruptcy before dying in semi-disgrace. Nixon resigned rather than undergoing impeachment, also living out his life in disgraced political exile. The spirit of Paine’s declaration was fulfilled in both cases. Connally and Nixon engineered this violation, abandoning the good, precious-metal, money contemplated by the Constitution. Nemesis followed hubris.

The closing of the “gold window” was based, by Connolly, on deeply wrong premises. It was sold to the public, by Nixon, on deeply false promises.

On August 15, 1971 President Nixon came before the American people to announce:

We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year. Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them.

In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy–and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators.

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action–which is very technical–what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.

Now, this action will not win us any friends among the international money traders. But our primary concern is with the American workers, and with fair competition around the world.

To our friends abroad, including the many responsible members of the international banking community who are dedicated to stability and the flow of trade, I give this assurance: The United States has always been, and will continue to be, a forward-looking and trustworthy trading partner. In full cooperation with the International Monetary Fund and those who trade with us, we will press for the necessary reforms to set up an urgently needed new international monetary system. Stability and equal treatment is in everybody’s best interest. I am determined that the American dollar must never again be a hostage in the hands of international speculators.

Nixon’s promise that “your dollar will be worth just as much tomorrow as it is today” has, of course, completely falsified. The 2014 dollar is worth only 15 cents in 1971 terms, buying 85% less than it did in 1971. Some bugaboo. All of Nixon’s other rationalizations for going off gold also have been falsified.

The closing of the gold window turned out to be the slamming of the golden door to social mobility and equitable prosperity. In the wake of the closing of the gold window median family income stagnated, never again experiencing secular recovery. Meanwhile the income of the wealthy has continued apace. This has produced the very income inequality so loudly denounced by progressives who, ironically, are the last defenders of the very policy which is the probable cause of our inequitable prosperity.

Brother Pat Buchanan states that Nixon

…ended the Vietnam War with honor, brought all our troops and POWs home, opened up China, negotiated historic arms agreements with Moscow, ended the draft, desegregated southern schools, enacted the 18-year-old vote, created the EPA, OSHA and National Cancer Institute, and was rewarded by a grateful nation with a 61% landslide.

Even as Watergate broke, he ordered the airlift that saved Israel in the Yom Kippur War, for which Golda Meir called him the best friend Israel ever had.

His enemies were beside themselves with rage and resentment.

Buchanan, while admirably loyal, ignores the correlation between Nixon’s embrace of paper money and Paine’s prophetic call for impeachment for that high crime. Let us now, in this month of the 40th anniversary of Nixon’s resignation and the 43rd of his abandonment of the gold standard, pause to wonder. It is bewildering circumstance that the very liberal elites Buchanan indicts as malicious in their treatment of Nixon today represent the most reactionary of defenders of the most pernicious, and only enduring, residue of the Nixon Shock: paper money, “a most presumptuous attempt at arbitrary power.”

Originating at


Signs Of The Fed’s Era Of Secrecy Coming To An End

The Federal Reserve increasingly is attracting scrutiny across the board.  Now add to that a roller coaster of a thriller, using a miracle of a rare device, shining a light into the operations of the Fed — that contemporary riddle wrapped in a mystery inside an enigma: Matthew Quirk’s latest novel, The Directive.

“If I’ve made myself too clear, you must have misunderstood me,” Fed Chairman Alan Greenspan once famously said.  The era of a mystagogue Fed may be ending.  Recently, the House Government Oversight Committee passed, and referred to the full House, theFederal Reserve Transparency Act of 2014.  This legislation is part of the legacy of the great former Representative Ron Paul.  It popularly is known as “Audit the Fed.” How ironic that a mystery novel proves a device to dispel some of the Fed’s obscurantist mystery.

Novelist/reporter Matthew Quirk’s The Directive does for he Fed what Alan Drury did for Senate intrigue with his Pulitzer Prize winning Advise and Consent, what Aaron Sorkin did for the White House in The West Wing and, now, what Beau Willimon, is doing for the Congress with House of Cards.  Quirk takes the genre of political thriller into virgin territory: the Fed. Make to mistake.  Engaging the popular imagination has political potency.  As Victor Hugo, nicely paraphrased, observed: Nothing is as powerful as an idea whose time has come.

Quirk, according to his website,“studied history and literature at Harvard College. After graduation, he spent five years at The Atlantic reporting on crimes, private military contractors, the opium trade, terrorism prosecutions, and international gangs.”  His background shows. Quirk’s writings drips with the kind of eye for the telling detail that only a canny reporter, detective, or spy possesses.  (Readers will learn, just in passing, the plausible identity of the mysterious “secure undisclosed location” where the vice president was secreted following 9/11.)

If you like Ludlum you are certain to like Quirk.  And who isn’t intrigued by such a mysteriously powerful entity as the Fed?  Booklist calls The Directive a “nonstop heart-pounding ride in which moral blacks and whites turn gray in the ‘efficient alignment of power and interests’ that is big time politics.”  Amen.

The Directive describes an effort to rob the biggest bank in the world.  The object of the heist is not the tons of gold secured in the basement of 33 Liberty Street. (As Ian Fleming pointed out, in Goldfinger it logistically is impossible to move the mass of so much gold quickly enough to effect a robbery.)  Rather, Quirk uses as his literary device, with a touch of dramatic license, the interception of the Federal Open Market Committee’s directive to the trading desk of the Federal Reserve Bank of New York to raise (or lower) interest rates in order to use that insider information to make a fast killing.

Lest anyone doubt the power of such insider information consider William Safire’s report, from his White House classic memoir Before the Fall, of the weekend at Camp David before Nixon “closed the gold window.”

After the Quadriad meeting, the President remained alone while the rest of the group dined at the Laurel Cabin.   The no-phone-calls edict was still in force, raising some eyebrows of men who had shown themselves to be trustworthy repositories of events. but the 6’8″, dour Treasury Under Secretary Volcker explained a different dimension to the need for no leaks:  “Fortunes could be made with this information.”  Haldeman, mock-serious, leaned forward and whispered loudly, “Exactly how?”  The tension broken, Volcker asked Schulz, “How much is your budget deficit?”  George estimated, “Oh, twenty three billion or so — why?”  Volcker looked dreamily at the ceiling.  “Give me a billion dollars and a free hand on Monday, and I could make up that deficit in the money markets.”

Safire provides context making Volcker’s integrity indisputable lest anyone be tempted to misinterpret this as a trial balloon.

This columnist has been inside the headquarters of the Fed, including, many years ago, the boardroom.  Quirk:

Every eight weeks or so, a committee gathers near the National Mall in a marble citadel known as the Board of Governors of the Federal Reserve.  Twenty-five men and women sit at a long wooden table with an inset of black stone shined to a high gloss.  By noon they decide the fate of the American economy.

This columnist never has stepped foot inside the Federal Reserve Bank of New York, much less its trading floor(s).  Few have entered that sanctum sanctorum.  By taking his readers inside Quirk provides his readers a narrative grasp to how the Fed does what it does.


[T]he Fed is by design very friendly to large New York banks.  When the committee in DC decides what interest rates should be, they can’t simply dictate them to the banks.  They decide on a target interest, and then send the directive to the trading desk at the New York Fed to instruct them about how to achieve it.  The traders upstairs go into the markets and wheel and deal with the big banks, buying and selling Treasury bills and other government debts, essentially IOUs from Uncle Sam.  When the Fed buys up a lot of those IOUs, they flood the economy with money; when they sell them, they take money out of circulation.

They are effectively creating and destroying cash.  By shrinking or expanding the supply of money in the global economy, making it more or less scarce, they also make it more or less expensive to borrow; the interest rate.  In this way, trading back and forth with the largest banks in the world, they can drive interest rates toward their target.

The amount of actual physical currency in circulation is only a quarter of the total monetary supply.  The rest is just numbers on a computer somewhere.  When people say the government can print as much money as it wants, they’re really talking about the desk doing its daily work of resizing the monetary supply—tacking zeros onto a bunch of electronic accounts—that big banks are allowed to lend out to you and me.


Every morning, on the ninth floor of the New York Fed, the desk gets ready to go out and manipulate the markets according to the instructions laid out in the directive.  Its traders are linked by computer with twenty-one of the largest banks in the world.  When they’re ready to buy and sell, in what are called open market operation, one trader presses a button on his terminal and three chimes — the notes F-E-D — sound on the terminals of his counterparties.  Then they’re off to the races.

There are usually eight to ten people on that desk, mostly guys in their late twenties and early thirties, and they manage a portfolio of government securities worth nearly $4 trillion that backs our currency.  Without it, the bills in your wallet would be as worthless as Monopoly cash.  The traders on that floor carry out nearly $5.5 billion in trades per day, set the value of every penny you earn or spend, and steer the global economy.

As Quirk recently told Matthew Yglesias, at

I was casting about for the biggest hoards of money in the world, and you get to the Federal Reserve Bank in New York fairly quickly. But that’s been done. Then I learned more and more about the trading desk, and my mind was blown.

You get to have this great line where you say, “There’s $300 billion worth of gold in the basement, but the real money is on the ninth floor.” …

I was a reporter in Washington for a while, and I thought, “Oh, the Fed sets interest rates,” because that’s always what people say. But as you dig into it, you realize that the Fed just has to induce interest rates to where they want to be. They have to trade back and forth with these 19 or 20 banks, and they have 8‑10 guys at this trading desk, trading about $5.5 billion a day. That’s actually how the government prints money and expands and contracts the monetary supply.

It’s this high wire act. You explain it to people and they say, “Oh, it’s a conspiracy thriller.” You say, “No, no. That’s the real part. I haven’t gotten to the conspiracy yet.” But it’s a miracle that it works.

Quirk’s own dual mandate? Combine fast-paced drama with a peek behind the scenes of the world’s biggest bank, providing vivid entertainment while teaching more about the way that one of the most powerful and mysterious institutions in the world works. In The Directive Matthew Quirk shakes, rather than stirs, his readers brilliantly.

Originating at


Pulitzer’s Advice Applies To Krugman: “Put It Before Them…Above All, Accurately”

[Editor's Note: We will keep our readers apprised of developments in the exchange between Paul Krugman and The Cobden Centre regular Ralph Benko.] 

Professor Paul Krugman, in his New York Times blog last week, says my most recent column, about him, is “funny and scary.”  Last week’s column here inferred that Prof. Krugman is leaving Princeton in quiet disgrace.  It drew pretty wide attention.

It also drew over 150 comments. Many commentators merrily berated me. (Comes with the territory.)  The column, quite flatteringly, even drew a riposte from Prof. Krugman himself, in hisTimes blog, entitled Fantasies of Personal Destruction:

A correspondent directs me to a piece in Forbes about yours truly that is both funny and scary.

Yep, scurrying away with my tail between my legs, I am, disgraced for policy views shared only by crazy people like the IMF’s chief economist (pdf).

One thing I’ve noticed, though, is how many people on the right are drawn to power fantasies in which liberals aren’t just proved wrong and driven from office, but personally destroyed. Does anyone else remember this bit from the O’Reilly scandal?

“Look at Al Franken, one day he’s going to get a knock on his door and life as he’s known it will change forever,” O’Reilly said. “That day will happen, trust me. . . . Ailes knows very powerful people and this goes all the way to the top.”

And people wonder why I don’t treat all of this as a gentlemanly conversation.

English: Paul Krugman at the 2010 Brooklyn Boo...

English: Paul Krugman at the 2010 Brooklyn Book Festival. (Photo credit: Wikipedia)

Prof. Krugman’s prestige, and the immense influence provided him by the New York Times, gives his opinions enormous political weight.  What he writes has impact in liberal, and Democratic, quarters.  Yet he by no means is infallible.

The critique this columnist offered drew on commentaries by figures of real stature.  One of these is Niall Ferguson, economic historian, Harvard professor (and Senior Research Fellow of Jesus College, Oxford University, and Senior Fellow at the Hoover Institution, Stanford University).  The other commentary came from Paul Volcker who made a disparaging comment fairly interpreted as aimed at Prof. Krugman.

What’s really odd about Prof. Krugman’s Fantasies of Personal Destruction is its abrupt segue into likening my critique to a statement made by someone this columnist never met to someone this columnist never met. What could have motivated this non sequitur?

Perhaps some psychological force is at work? Prof. Krugman, echoing a clever critique by Keynes, himself has invoked Freud as key to understanding proponents of the gold standard.  Freud,speculating on subconscious associations between excrement and money, referenced the Babylonian doctrine that “gold is the feces of Hell.” Thus, implies Prof. Krugman, proponents of a gold standard are stuck in an infantile “anal-retentiveness.”

Keynes, perhaps not getting it quite right, alludes to Freud in Auri Sacra Fames(September 1930):

Dr. Freud relates that there are peculiar reasons deep in our subconsciousness why gold in particular should satisfy strong instincts and serve as a symbol.

It presumably is this to which Prof. Krugman obscurely alludes in a blog entitled The She-Devil of Constitution Avenue:

I’ve been saying for a long time that we aren’t having a rational argument over economic policy, that the inflationista position is driven by politics and psychology rather than anything the other side would recognize as analysis. But this really proves it beyond a shadow of a doubt; if you really want to understand what’s going on here, the Austrian you need to read isn’t Friedrich Hayek or Ludwig von Mises, it’s Sigmund Freud.”

Put aside the demonstrable fact of Prof. Krugman’s consistently sloppy conflation of gold investors and gold standard proponents.  Put aside his failure to engage with the arguments of the many gold standard proponents not predicting imminent virulent inflation.  (Such as this writer.)

Eruditely ridiculing gold proponents as, well, full of s*** is clever. It likely will tickle those readers who find monkeys flinging poo at each other hilarious.  Ridicule is much easier, and cheaper, than grappling with scholarly analyses such as that from the Bank of England which provided, in 2011, Financial Stability Paper No. 13, a genuinely interesting critique of the real world performance of fiduciary currency.

That paper is a rigorous analysis of the empirical performance of the fiduciary Federal Reserve Note standard in comparison to the Bretton Woods gold-exchange standard and the classical gold standard.  It does not, at least not explicitly, advocate for either predecessor standard.  It simply assesses that the Federal Reserve Note standard in practice has proved substantially worse than its predecessors (and calls for the exploration of a rule-based system).  A thoughtful response by Prof. Krugman to this paper would be far more interesting, and edifying, than sly scatological insults.

One of the wittier of the commentators to last week’s column accused me of impudence.  Guilty as charged.  This writer confesses to having committed, in broad daylight, an act of lèse-majesté against the Great and Imperious Krugman.  My critics are right to point out that this columnist is a minor figure.  Still, do consider: the counsels of integrity to Pinocchio by the tiny Talking Cricket proved, in the end, well founded.   One, also, could wish that more of Prof. Krugman’s defenders would tender more persuasive arguments (say, fact-based) than their many variants of “How dare you!”

In responding to my column Prof. Krugman states that “many people on the right are drawn to power fantasies in which liberals aren’t just proved wrong and driven from office, but personally destroyed.”   Given Prof. Krugman’s vilification of his adversaries this could be dismissed as rich with irony. Yet there may be more to say.

Prof. Krugman has introduced the great Sigmund Freud into the conversation.  Thus it might be fair to say that his consistently rude denigration of his adversaries appears to be what Freud called “projection” (“in which humans defend themselves against unpleasant impulses by denying their existence in themselves, while attributing them to others“).

Consider Prof. Krugman’s public admission that he does not regularly read that which he presumes to criticize.  Prof. Krugman states forthrightly:

Some have asked if there aren’t conservative sites I read regularly. Well, no.

Carefully reading one’s opponents’ arguments is not a requisite in life. Yet critiquing arguments one has not thoroughly assimilated is lazy, louche, intellectually slovenly, and — one might fairly infer — unacceptably beneath the standards of, say, Princeton University.

Prof. Krugman dismisses me as “funny and scary.”  My several columns pointing out the errors of fact and unsupportable interpretations in his op-eds had been — and surely again will fall — beneath his notice.  Still, inaccurately presenting that which one is criticizing is just bad journalism.  Readers  should be able to rely on editors to assure that a columnist is shooting straight.

As many of my commentators correctly point out I do not command (nor do I presume to deserve) the elite social status of Prof. Krugman. Yet had Prof. Krugman taken even a moment to aim before he fired he could have discovered a right winger who has offered many respectful words, and, when warranted, praise for Barack Obama,Hillary ClintonElizabeth WarrenGeorge, and Occupy Wall Street (among others with whom he has disagreements).  There’s no agenda of “personal destruction.”

If Prof. Krugman had dug a little deeper he might have discovered that my columns routinely are informed by The New York Review of Books, the New Yorker, theAtlantic Monthly, and, yes, the New York Times, all of which I read regularly, usually with pleasure.  He would discover that my use of  them is not, by and large, to ridicule but to learn and, when in disagreement, to present their claims fairly and dispute them honestly.

Scary stuff?  Prof. Krugman, if you find the words of this extremely minor pixel-stained wretch “scary” … what does that say?  Perhaps speaking truth to power is scary … to those with power? Yet let me speak a little truth to the powerful, and indispensable,New York Times.

The Nobel Prize in Economics is one of the greatest laurels bestowed in that field.  Should Prof. Krugman be permitted to rest on this laurel?  Joseph Pulitzer’s directive still applies: “Put it before them… above all, accurately….”

It is not the purpose of this column to see Paul Krugman driven from his virtual office within the paragovernmental New York Times.  This columnist makes only a modest call for the Times to assign an editor to fact check his work and help him refrain from reckless disregard for the truth.


Is Paul Krugman Leaving Princeton In Quiet Disgrace?

Professor Paul Krugman is leaving Princeton.  Is he leaving in disgrace?

Not long, as these things go, before his departure was announced Krugman thoroughly was indicted and publicly eviscerated for intellectual dishonesty by Harvard’s Niall Ferguson in a hard-hitting three-part series in the Huffington Post, beginning here, and with a coda in Project Syndicateall summarized at  Ferguson, on Krugman:

Where I come from … we do not fear bullies. We despise them. And we do so because we understand that what motivates their bullying is a deep sense of insecurity. Unfortunately for Krugtron the Invincible, his ultimate nightmare has just become a reality. By applying the methods of the historian – by quoting and contextualizing his own published words – I believe I have now made him what he richly deserves to be: a figure of fun, whose predictions (and proscriptions) no one should ever again take seriously.

Princeton, according to Bloomberg News, acknowledged Krugman’s departure with an extraordinarily tepid comment by a spokesperson. “He’s been a valued member of our faculty and we appreciate his 14 years at Princeton.”

Shortly after Krugman’s departure was announced no less than the revered Paul Volcker, himself a Princeton alum, made a comment — subject unnamed — sounding as if directed at Prof. Krugman.   It sounded like “Don’t let the saloon doors hit you on the way out.  Bub.”

To the Daily Princetonian (later reprised by the Wall Street Journal, Volcker stated with refreshing bluntness:

The responsibility of any central bank is price stability. … They ought to make sure that they are making policies that are convincing to the public and to the markets that they’re not going to tolerate inflation.

This was followed by a show-stopping statement:  “This kind of stuff that you’re being taught at Princeton disturbs me.”

Taught at Princeton by … whom?

Paul Krugman, perhaps?  Krugman, last year, wrote an op-ed for the New York Times entitled  Not Enough Inflation.  It betrayed an extremely louche, at best, attitude toward inflation’s insidious dangers. Smoking gun?

Volcker’s comment, in full context:

The responsibility of the government is to have a stable currency. This kind of stuff that you’re being taught at Princeton disturbs me. Your teachers must be telling you that if you’ve got expected inflation, then everybody adjusts and then it’s OK. Is that what they’re telling you? Where did the question come from?

Is Krugman leaving in disgrace? Krugman really is a disgrace … both to Princeton and to the principle of monetary integrity. Eighteenth century Princeton (then called the College of New Jersey)president John Witherspoon, wrote, in his Essay on Money:

Let us next consider the evil that is done by paper. This is what I would particularly request the reader to pay attention to, as it was what this essay was chiefly intended to show, and what the public seems but little aware of. The evil is this: All paper introduced into circulation, and obtaining credit as gold and silver, adds to the quantity of the medium, and thereby, as has been shown above, increases the price of industry and its fruits.

“Increases the price of industry and its fruits?”  That’s what today is called “inflation.”

Inflation is a bad thing.  Period.  Most of all it cheats working people and those on fixed incomes who Krugman pretends to champion.  Volcker comes down squarely, with Witherspoon, on the side of monetary integrity. Krugman, cloaked in undignified sanctimony, comes down, again and again, on the side of … monetary finagling.

Krugman consistently misrepresents his opponents’ positions, constructs fictive straw men, addresses marginal figures, and ignores inconvenient truths set forward by figures of probity such as the Bank of England and theBundesbankthoughtful work such as that by Member of Parliament (with a Cambridge Ph.D. in economic history) Kwasi Kwarteng, and, right here at home, respected thought leaders such as Steve Forbes and Lewis E. Lehrman (with whose Institute this writer has a professional affiliation).

Professor Krugman, on July 7, 2014, undertook to issue yet another of his fatwas on proponents of the classical gold standard.  His New York Times op-ed, Beliefs, Facts and Money, Conservative Delusions About Inflation, was brim full of outright falsehoods and misleading statements. Krugman:

In 2010 a virtual Who’s Who of conservative economists and pundits sent an open letter to Ben Bernanke warning that his policies risked “currency debasement and inflation.”  Prominent politicians like Representative Paul Ryan joined the chorus.

Reality, however, declined to cooperate. Although the Fed continued on its expansionary course — its balance sheet has grown to more than $4 trillion, up fivefold since the start of the crisis — inflation stayed low.

Many on the right are hostile to any kind of government activism, seeing it as the thin edge of the wedge — if you concede that the Fed can sometimes help the economy by creating “fiat money,” the next thing you know liberals will confiscate your wealth and give it to the 47 percent. Also, let’s not forget that quite a few influential conservatives, including Mr. Ryan, draw their inspiration from Ayn Rand novels in which the gold standard takes on essentially sacred status.

And if you look at the internal dynamics of the Republican Party, it’s obvious that the currency-debasement, return-to-gold faction has been gaining strength even as its predictions keep failing.

Krugman is, of course, quite correct that the “return-to-gold faction has been gaining strength.” Speculating beyond the data thereafter Krugman goes beyond studied ignorance.  He traffics in shamefully deceptive statements.

Lewis E. Lehrman, protege of French monetary policy giant Jacques Rueff, Reagan Gold Commissioner, and founder and chairman of the Lehrman Institute, arguably is the most prominent contemporary advocate for the classical gold standard.  Lehrman never rendered a prediction of imminent “runaway inflation.”  Only a minority of classical gold standard proponents are on record with “dire” warnings, certainly not this columnist.  So… who is Krugman talking about?

Of the nearly two-dozen signers of (a fairly mildly stated concern) open letter to Bernanke which Krugman cites as prime evidence, only one or two are really notable members of the “return-to-gold faction.” Perhaps a few other signers might have shown some themselves in sympathy the gold prescription. Most, however, were, and are, agnostic about, or even opposed to, the gold standard.

Indicting gold standard proponents for a claim made by gold’s agnostics and opponents is a wrong, cheap, bad faith, argument.  More bad faith followed immediately.   Whatever inspiration Rep. Paul Ryan draws from novelist Ayn Rand, Ryan is by no means a gold standard advocate.  And very few “influential conservatives” (unnamed) “draw their inspiration” from Ayn Rand.

Nor are most proponents of the classical gold standard motivated by a fear that paper money is an entering wedge for liberals to “confiscate your wealth and give it to the 47 percent.”  A commitment to gold is rooted, for most, in the correlation between the gold standard and equitable prosperity.  Income inequality demonstrably has grown far more virulent under the fiduciary Federal Reserve Note regime — put in place by President Nixon — than it was, for instance, under the Bretton Woods gold+gold-convertible-dollar system.

Krugman goes wrong through and through.  No wonder Ferguson wrote: “I agree with Raghuram Rajan, one of the few economists who authentically anticipated the financial crisis: Krugman’s is “the paranoid style in economics.” Krugman, perversely standing with Nixon, takes a reactionary, not progressive, position. The readers of the New York Times really deserve better.

Volcker is right. “The responsibility of any central bank is price stability.” Krugman is wrong.

Prof. Krugman was indicted and flogged publicly by Niall Ferguson. Krugman thereafter announced his departure from Princeton.  On his way out Krugman, it appears, was reprimanded by Paul Volcker.  Krugman has been a disgrace to Princeton.  Is he leaving Princeton in quiet disgrace?

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Signs Of The Gold Standard Emerging From Great Britain?

Comes now to respectful international attention a volume entitled War and Gold: A 500-Year History of Empires, Adventures, and Debt by Member of Parliament Kwasi Kwarteng.  This near-perfect volume appears with almost preternaturally perfect timing around the centenary of the beginning of World War I and, with that, the end of the classical gold standard.  It, along with the work of Steve Baker, MP (co-founder of the Cobden Centre), constitutes a sign of sophistication about the gold standard in the British House of Commons.

Kwarteng, the most historically literary Member of Parliament since Churchill, is an impressive figure.  As War and Gold‘s jacket flap biography summarizes, “Kwasi Kwarteng was born in London to Ghanaian parents in 1975.  …  After completing a PhD in history at Cambridge University, he worked as a financial analyst in London.  He is a Conservative member of parliament and author of Ghosts of Empire: Britain’s Legacies in the Modern World.”  Kwarteng thus possesses four crucial skill sets: an international, multicultural, perspective; rigorous training as an historian; direct experience in the financial markets; and the perspective of an elected legislator.  It shows.

Kwasi Kwarteng MP at Global Growth: Challenge ...
Kwasi Kwarteng MP at Global Growth: Challenge or opportunity for the UK (Photo credit: Policy Exchange)

War and Gold is a compelling successor to Liaquat Ahamed’s delightful and invaluable The Lords of Finance, awarded the 2010 Pulitzer Prize in history. Kwarteng delivers up a successor volume worthy of such a prize.  It extends Ahamed’s temporal framework by a factor of ten, to 500 years. Kwarteng, too, has compelling narrative virtuosity.  His book is full of  dramatic, charming, often wry vignettes of fascinating characters — heroes and villains, adventurers and knaves — spinning around, and off, the axis of the gold standard, in war and in peace.

Let us pause to pay tribute to Kwarteng’s Ghanian ancestry.  Ghana, once known as the “Gold Coast,” was part of the Ashanti Empire. Ghana is a too-often overlooked gem of civilization.   The most iconic piece of Ashanti regalia, as described by Wikipedia, was a Golden Stool:

The Golden Stool is sacred to the Ashanti, as it is believed that it contains the Sunsum viz, the spirit or soul of the Ashanti people. Just as man cannot live without a soul, so the Ashanti would cease to exist if the Golden Stool were to be taken from them. The Golden Stool is regarded as sacred that not even the king was allowed to sit on it, a symbol of nationhood and unity.

War and Gold provides a literary symphony in four movements.

Its first movement commences with the story of the Holy Roman Emperor whose wars bankrupted his empire.  This is counterpoised with stories of rapacious Conquistadors, especially Pizzaro plundering the Inca for their gold, “the sweat of the sun,” and silver, “the tears of the moon.”

Kwarteng thereupon moves smartly to the military, political and economic skirmishing between France and England; the upheavals produced by the American and French revolutions and their aftermaths; the prosperity and stability of the Victorian era… and the rise of the United States.  Many of our economic challenges have a long pedigree.  The fundamental things don’t change as times goes by.

Its second movement, describing the epic era of the first World War, notes that this war destroyed the classical international gold standard.  Chapter 9, “World Crisis,” contains the only significant point of confusion in this otherwise masterful work: the attribution to the gold standard of the Great Depression.  That error is widespread.  It is a crucial mistake to dispel for the discourse to move forward.  Call it the Eichengreen Fallacy.

Prof. Eichengreen, author of Golden Fetters, was and remains non-cognizant of a subtle but crucial aspect of world monetary history — and, apparently, of the works of Profs. Jacques Rueff and Robert Triffin elucidating the implications.  Eichengreen blundered by attributing the Great Depression to the gold standard.  This, demonstrably, is untrue. That claim has led the discourse astray.

The classical gold standard, as Kwarteng points out, collapsed under the pressure of the first World War, long before the Great Depression.  The classical gold standard was suspended when the Depression hit.

An attempt was made to resuscitate the gold standard in Genoa, in 1922, putting in place what that great French classical liberal economist Jacques Rueff called “a grotesque caricature” of the gold standard: the gold-exchange standard.  Genoa authorized a deformed pastiche of gold and paper currency as official central bank reserve assets.

Genoa set up a system mistaken (then as now) as equivalent to the classical gold standard.  The inclusion of (gold-convertible) currencies as an official reserve asset for central banks thwarted the ability of the system to extinguish excess liquidity balances. This, due to an intrinsic moral hazard not fully grasped even by many gold standard proponents, led to a systemic inflation — increasing all commodities except, of course, as monetized, gold.  Key classical gold standard advocates, such as Rueff protégé Lewis E. Lehrman (with whose Institute this writer has a professional association), consider this the key cause of the Great Depression.

FDR did not, despite his grandiose declaration to that effect, end the gold standard.  FDR performed an appropriate and crucial revaluation of the dollar from $20.67/oz to $35/oz.  This was utterly needed to adjust for distortions caused by the inherent defect of the gold-exchange standard.

The revaluation worked and to stunning (if temporary, likely due to a subsequent Treasury decision to sterilize gold inflows as suggested by Calomiris, et al) effect.  As described by Ahamed:

But in the days after the Roosevelt decision, as the dollar fell against gold, the stock market soared by 15%.  Even the Morgan bankers, historically among the most staunch defenders of the gold standard, could not resist cheering.  ‘Your action in going off gold saved the country from complete collapse,’ wrote Russell Leffingwell to the president.

Taking the dollar off gold provided the second leg to the dramatic change in sentiment… that coursed through the economy that spring. … During the following three months, wholesale prices jumped by 45 percent and stock prices doubled.  With prices rising, the real cost of borrowing money plummeted. New orders for heavy machinery soared by 100 percent, auto sales doubled, and overall industrial production shot up 50 percent.

The dollar had not, in fact, been taken “off gold.”  As Kwarteng astutely notes, “The United States, as already stated, was still on gold, but it had devalued the dollar by over 50 per cent.”

Given Kwarteng’s current and, likely, future importance to the world monetary discourse it really would be invaluable were he to master the arguments of Jacques Rueff, and of Lewis Lehrman, as well as those of Triffin (who shared the same diagnosis while offering a different prescription).  It is important, for the long run, to recognize the innocence of the classical gold standard in the matter of the Great Depression and to grasp the insidious toxicity of the gold-exchange standard, which Rueff termed “an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal.”

War and Gold’s third movement opens with America at its apogee:  “In 1945 the United States was by far the most powerful nation on earth.  It could also be argued that no nation has ever enjoyed such preponderant influence on the world’s affairs as did as the U.S. did at the close of the Second World War.”

Kwarteng then provides a vivid picture of an era in some ways nearly as distant as the 16th century. Quoting from a 1947 article in the Journal of Political Economy: “Some people are thinking in terms of only 18 or 20 billion dollars [of federal government spending] per year.  Others see a possibility that federal expenditures may run to 25 or 40 billions annually.” Uncle Sam lately spends over $10 billion per day.  While this sum is not adjusted for inflation or population growth, still it conveys a stunning difference of scale of government spending.

It is a pleasure to see the great Fed chairman William McChesney Martin given his due.  Kwarteng references a speech by the newly appointed Martin alluding to “the Frankenstein mechanics of an uncontrolled supply of money.”  If Frankenstein’s monster was an apt metaphor in the 1950s, surely Godzilla better fits the bill today.  “To be a sound money man was a moderately easy task for a Chairman of the Federal Reserve in the 1950s,” Kwarteng notes.  “The dollar, through the Bretton Woods Agreement, had preserved the all-important link to gold, which still held the almost magical value of US$35 an ounce.”

Kwarteng then presents a lucid presentation of post-war economic policies of Britain, Germany, and Japan.  This columnist took special pleasure in his resurrection of the role of unjustly obscure Joseph Dodge, a key architect of the resurrection of both Germany and Japan and who later balanced the budget of the Eisenhower administration.

Looping back to the United States, Kwarteng describes what might fairly be called the Götterdämmerung:

The final break with gold was dramatic and, as much as any other development of monetary system, can almost be entirely attributable to the action of one man, the President of the United States, Richard M. Nixon.  It was Nixon’s decision in August 1971 which substantially altered the course of monetary history and inaugurated a period, for the first time in 2,500 years, in which gold was effectively demonetized in most of what had been understood to be the Western world.

The world goes fast downhill from there.

The fourth movement delineates the chaos of, and various attempts to cope with, our current era of monetary anarchy.  He recounts the oil price shocks, Reagan and Thatcher, the creation of the Euro, the rise of China, the delusions of debt, and the emergence of crises and bailouts. He goes on to provide an epilogue on the Greek economic crisis and on precarious conditions in America. Kwarteng concludes:

Gold itself…remains embedded in the public’s consciousness as a monetary metal.  It is held most commonly by central banks and there remains an almost mysterious fixation with it.  Its value equally mysteriously can be reflected in the growth of the world economy. … [T]he value of gold, better than perhaps any currency, reflects this process most accurately.  The gold standard will never formally return, but movements in the price of gold may well suggest that investors, in their lack of faith in paper money, have informally adopted one.

Great Britain, and the world, hardly could be better served than by, in due course, elevating Kwarteng to the Exchequer. Notwithstanding his curious demurral that the “gold standard will never formally return,” gold, recovering from the false charge of blame for the Great Depression, slowly is becoming a fully respectable option.  Perhaps even, in the not too distant future, a movement to consider, and restore, the classical gold standard might be led by Kwasi Kwarteng and like-minded classical liberal-minded officials around the world.


Paul Volcker’s Call For A ‘New Bretton Woods’ Is Important

Seth Lipsky, the editor of the storied New York Sun (a brand distinguished by the long residency of Henry Hazlitt), recently, in the Wall Street Journal, brought to wider attention certain remarkable recent comments by Paul Volcker.  Volcker spoke before the May 21st annual meeting of the Bretton Woods Committee at the World Bank Headquarters in Washington, DC.  Volcker’s remarks did not present a departure in substance from his long-standing pro-rule position. They nonetheless were striking, newly emphatic both by tone and context.
 Volcker, asked by the conference organizer for his preferred topic, declared that he had said:

“What About a New Bretton Woods???” – with three question marks. The two words, “Bretton Woods”, still seem to invoke a certain nostalgia – memories of a more orderly, rule-based world of financial stability, and close cooperation among nations. Following the two disasters of the Great Depression and World War II that at least was the hope for the new International Monetary Fund, and the related World Bank, the GATT and the OECD.

No one here was actually present at Bretton Woods, but that was the world that I entered as a junior official in the U.S. Treasury more than 50 years ago. Intellectually and operationally, the Bretton Woods ideals absolutely dominated Treasury thinking and policies. The recovery of trade, the opening of financial markets, and the lifting of controls on current accounts led in the 1950’s and 60’s to sustained growth and stability.

The importance, especially from a speaker of Volcker’s stature presenting among the current heads of the two leading Bretton Woods institutions, the IMF’s Christine Lagarde, and the World Bank Group’s Jim Yong Kim, among other luminaries, potentially has radical implications.  Volcker provided a quick and precise summary of the monetary and financial anarchy which succeeded his dutiful dismantling of Bretton Woods:

Efforts to reconstruct the Bretton Woods system, either partially at the Smithsonian or more completely in the subsequent negotiations of the Committee of 20, ultimately failed. The practical consequence, and to many the ideological victory, was a regime of floating exchange rates. Somehow, the intellectual and convenient political argument went, differences among national financial and economic policies, shifts in competitiveness and in inflation rates, all could be and would be smoothly accommodated by orderly movements in exchange rates.

How’s that working out for us?  Volcker played an instrumental role in dutifully midwifing, as Treasury undersecretary for monetary affairs under the direction of Treasury Secretary John Connally the “temporary” closing of the gold window announced to the world on August 15, 1971 by President Nixon.  Volcker now unequivocally indicts the monetary regime he played a key role in helping to foster.

By now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success. In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth.
The United States, in particular, had in the 1970’s an unhappy decade of inflation ending in stagflation. The major Latin American debt crisis followed in the 1980’s. There was a serious banking crisis late in that decade, followed by a new Mexican crisis, and then the really big and damaging Asian crisis. Less than a decade later, it was capped by the financial crisis of the 2007-2009 period and the great Recession. Not a pretty picture.

Volcker fully recognizes the difficulties in restoring a rule-based well functioning system both in his speech and in this private comment to Lipsky made thereafter.  Lipsky: “It’s easy to say what’s wrong,” Mr. Volcker told me over the weekend, “but sensible reforms are a pretty tough thing.”

The devil, of course, is in the details.  What rule should prevail?  There is an almost superstitious truculence on the part of world monetary elites to consider the restoration of the gold standard.  And yet, the Bank of England published a rigorous and influential study in December 2011, Financial Stability Paper No. 13, Reform of the International Monetary and Financial System.  This paper contrasts the empirical track record of the fiduciary dollar standard directed by Secretary Connally and brought into being (and then later administered by) Volcker.  It determines that the fiduciary dollar standard has significantly underperformed both the Bretton Woods gold exchange standard and the classical gold standard in every major category.

As summarized by contributor Charles Kadlec, the Bank of England found:
When compared to the Bretton Woods system, in which countries defined their currencies by a fixed rate of exchange to the dollar, and the U.S. in turn defined the dollar as 1/35 th of an ounce of gold:
  • Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8%
  • World inflation of 4.8% a year is 1.5 percentage point higher;
  • Downturns for the median countries have more than tripled to 13% of the total period;
  • The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods;

That said, the Bank of England paper resolves by calling for a rules-based system, without specifying which rule.  Volcker himself presents as oddly reticent about considering the restoration of the “golden rule.” Yet, as recently referenced in this column, in his Foreword to Marjorie Deane and Robert Pringle’s The Central Banks (Hamish Hamilton, 1994) he wrote:

It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. By and large, if the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with ‘free banking.’ The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.

There is an active dispute in Washington between Republicans, who predominantly favor a rule-based monetary policy, and Democrats, who predominantly favor a discretion-based monetary policy.  The Republicans have not specified the rule they wish to be implemented.  The specifics matter.
There is an abundance of purely empirical evidence for the gold standard’s effectiveness in creating a climate of equitable prosperity.  The monetary elites still flinch at discussion the gold option.  That said, the slow but sure rehabilitation of the legitimacy of the gold standard as a policy option was put into play by one of their own, no less than the then World Bank Group president Robert Zoellick, in an FT op-ed, The G20 must look beyond Bretton Woods.   There he observed, in part, that “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
There are many eminent and respectable elite proponents of the gold standard.  Foremost among these Reagan Gold Commissioners Lewis E. Lehrman (with whose Institute this writer has a professional association) and Ron Paul, and Forbes Media CEO Steve Forbes, coauthor of a formidable new book, Money, among them.  There are many more, too many to list here.
In the penultimate paragraph of his remarks to the Bretton Woods Committee Volcker observes:

Walter Bagehot long ago set out succinctly a lesson from experience: “Money will not manage itself”. He then spoke from the platform of the Economist to the Bank of England. Today it is our mutual interdependence that requires a degree of cooperation and coordination that too often has been lacking on an international scale.

As the great Walter Layton, editor of the Economist, wrote in 1925, “the choice which presents itself is not one between a theoretical standard on the one hand and gold with all its imperfections on the other, but between the gold standard … and no control at all.” “No control at all” anticipates Volcker’s own critique.

If Chairman Volcker overcame his aversion to considering the gold standard as a respectable option for consideration he just might find that his his stated concern “We are long ways from (a new Bretton Woods conference)” may be exaggerated. A golden age of equitable prosperity and financial stability is closer than Mr. Volcker believes.

The corollary to Volcker’s dictum, “ultimately the power to create is the power to destroy” is that the power to destroy is the power to create.  It is time, and past time, Mr. Volcker, to give full and respectful consideration to the gold standard which served the world very well indeed and would serve well again.

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Chuck Hagel Propels Barack Obama Into History

With his thoughtful restructuring of America’s military, secretary of defense Chuck Hagel — a Republican — has cemented Obama’s signature legacy: restoring America to a peacetime footing.  Obama’s bringing American troops home from two wars, and, now, reducing the military to a strong, but proportionate, peacetime footing, was not easy.

Doing so required something of a political miracle.  Obama, with a critical assist from Hagel, is pulling it off.

This columnist has critiqued many of Obama’s initiatives.  The president’s follies in other areas detract from but do not diminish his real achievement here.

Bringing about peace is remarkable, historic, and transformational.  Future historians almost certainly will scratch their heads as to how Obama’s own White House wrapped the boss’s prestige around Obamacare, a botch, rather putting to the fore the president’s greatest achievement.

An aside.  Current events in Crimea are unlikely to destroy Obama’s achievement.  While Kiev, understandably, and the West express alarm … what’s happening now in Ukraine presents more as chess rather than hand grenades.  Putin is an autocrat (and geopolitical chess grandmaster), yet no brutal tyrant in the Stalin mode. Russian military intervention in Crimea appears based on securing a fundamental Russian asset — its sole warm water port — and protection of ethnic Russians living there.

President Reagan’s stated reason for invading Grenada (and deposing the government there, something Putin studiedly has not shown signs of attempting in Ukraine) was to protect 800 American medical students.  Putin is not neo-imperialist.  This predicament is likely to end with a Russian-led bailout of an insolvent Ukraine.  The severe difficulties in Ukraine shall pass without reigniting the Cold War.

Meanwhile, over two years ago, Obama astutely observed, in a speech before the United Nations General Assembly, that “the tide of war is receding. …  Moreover we are poised to end these wars from a position of strength.”

The world’s prevailing geopolitical winds truly, now, are winds of peace, not war. (This columnist originally missed Obama’s relevance to the process, for which he duly hereby issues a correction.) Obama promised to align America with the winds of peace in ways that his rivals for office simply did not.  The electorate wants peace.  Obama alone caught the political wave of peace.  He rode it to election … and re-election.  In great measure Obama is fulfilling his commitment to peace.

As shrewdly noted by columnist Adil E. Shamoo in,

If a Republican were president — say Sen. John McCain, who lost to Obama in 2008, or Mitt Romney, who failed to unseat him in 2012 — he would have found a way to keep as many as 30,000 American combat troops in Iraq, making Iraq a violent client state rather than the distant disaster it is today. Troops would continue coming home in coffins, and Iraq would feel the wrath of continued air strikes and raids.

If Hillary Clinton had won the primary in 2008 and became president, she would have rallied to keep combat troops in Iraq, too….

If a Republican or Ms. Clinton were president, American troops would still be in Afghanistan ….

Secretary of defense Chuck Hagel’s plan declared on February 24th  to reduce the military budget to the lowest level since before World War II seals Obama’s real legacy.  For Hagel to have done this in a way that enjoys a broad-based, at least tacitly bipartisan, recognition — that the restructuring will not undermine American security — is an impressive achievement.

At Obama’s bidding, Hagel’s judicious slimming down, restructuring, and modernizing of America’s force structure, together with Obama’s winding down the presence of American troops in Iraq and Afghanistan, is an impressive, historic, legacy.  The emergence of peace was foreshadowed by the 2009 award to the newly fledged President Obama of the Nobel Peace Prize.  He has delivered, impressively.

Obama’s successful confrontation with, and victory over, the Military-Industrial complex is striking.  Peace is in the sweet spot of American, and world, priorities.

Peace, not the benighted Obamacare, is Obama’s signature initiative. Continuing to defend, and even feature, the botched Obamacare likely will cost the Democrats control of the US Senate this year.

Meanwhile, virtually unadvertised, Obama is making good on his promise of ushering in a wave, and likely an era, of peace  This columnist is a Tea Party Patriot, right wing conspirator, Republican Party loyalist, and Obama opponent. It is with some trepidation, therefore, that he points out something that, if noticed by the Democrats, might be used to avert the onrushing Democratic Party rout. (The captains of the Other Team reportedly do not routinely read here — their loss — so making this observation is not a reckless act.)

Hagel’s speech cements President Obama’s legacy.  Hagel:

Our force structure and modernization recommendations are rooted in three realities:

  • First, after Iraq and Afghanistan, we are no longer sizing the military to conduct long and large stability operations;
  • Second, we must maintain our technological edge over potential adversaries;
  • Third, the military must be ready and capable to respond quickly to all contingencies and decisively defeat any opponent should deterrence fail.

Accordingly, our recommendations favor a smaller and more capable force – putting a premium on rapidly deployable, self-sustaining platforms that can defeat more technologically advanced adversaries.

The forces we prioritized can project power over great distances and carry out a variety of missions more relevant to the President’s defense strategy, such as homeland defense, strategic deterrence, building partnership capacity, and defeating asymmetric threats.  …

Our recommendations seek to protect capabilities uniquely suited to the most likely missions of the future, most notably special operations forces used for counterterrorism and crisis response.  Accordingly, our special operations forces will grow to 69,700 personnel from roughly 66,000 today.

Thus has the Republican Secretary Chuck Hagel cemented the Democratic President Obama’s legacy.  Both thereby make a great contribution to America’s well being and, likely, to history.  Guiding America home to, or at least toward, a peacetime footing — not Obamacare — is Obama’s signature achievement.  It is one that deserves recognition from conservatives and libertarians as well as progressives … and from all Americans.

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