Book Review: The Atlas Economic Research Foundation’s “Roads To Sound Money”

By Ralph Benko

The only plank remaining under notable discussion from either national convention platform of 2012 is the GOP platform’s call for a national monetary commission.  Although widely reported as a call for a new “Gold Commission”, the actual text calls for a “commission to investigate possible ways to set a fixed value for the dollar.”

While this plank was caricatured as a sop to the good Dr. Ron Paul, the evidence is persuasive that it was a substantive triumph by the Resolutions Committee editorial team and the co-chairs Rep. Marsha Blackburn and (rumored 2016 presidential aspirant) Virginia governor Bob McDonnell.

Reports about the call for such a commission continued (and continue) to resound around the world.  Often commissions are a device for sidetracking — rather than taking on — a proposed reform.  This is not necessarily their intention or effect.  Some commentators have minimized the potential impact of a national monetary commission.  These critics fail fully to appreciate how powerful such a commission can prove … if smartly structured as a neutral forum to tackle what may well be the most important macroeconomic variable required to restore economic growth and job creation:  good money.

Clearly the prognostications of some of the smartest and most influential economists of both the right and left have been stymied by the Federal Reserve’s policy of monetary adventurism.  The great Arthur Laffer sounded a klaxon of alarm in the Wall Street Journal about the explosion in the monetary base … and the high likelihood that the evil inflation djinn had been let out of the bottle … in his June 11, 2009 piece entitled Get Ready for Inflation and Higher Interest Rates The unprecedented expansion of the money supply could make the ’70s look benign: “as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.”

While one ignores Dr. Laffer’s prognostications at peril, three and a half years into the “next four or five” and there is no sign of “rapidly rising prices and much, much higher interest rates.”

But it would take even more hubris than most Neo-Keynesians possess (which is saying rather a lot) for the left to make sport of the confounded expectations of Dr. Laffer (and a great many of his colleagues on the right).  Time Magazine’s Christopher Matthews summed up the left’s predicament neatly, last September, in Ben Bernanke’s Heavy Artillery:  Will Open-Ended Bond Buying Drive Down Unemployment?:

“America has been mired in its worst unemployment crisis since the Depression, and everything policymakers in Washington have tried to fix the problem has — at best — been not good enough. Huge stimulus programs from Congress and low interest rates paired with massive asset purchases on the part of the Federal Reserve have by most accounts improved the unemployment situation. But four years after the financial crisis, the unemployment rate remains above 8%, and would be even higher if not for the hundreds of thousands of workers who have abandoned the workforce entirely.”

While the political and policy tussle has remained fixated on tax policy there is a growing view that it was bad monetary policy that was the real culprit for the Panic, which followed the bursting of the Fed-induced real estate bubble in 2008 and was followed by the Great Recession.  Chief stimulus and QE advocate Paul Krugman, it might be said in passing, may have been the chief culprit behind the financial markets meltdown and ensuing recession and is in no position to mock those who may be ready for a closer look at monetary policy.  Krugman, 2002, affirmatively called for the very housing bubble which caused the 2008 meltdown that plunged the world into the Great Recession.  Krugman: “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

Level-headed public intellectuals are publishing an increasing amount of informative work focusing on the importance of monetary policy.  Atlas Economic Research Foundation (the Atlas that doesn’t shrug)recently delivered  a cornucopia of a book entitled Roads to Sound Money .  It is edited by Atlas president Alex Chafuen, who furnishes the closing essay, and Dr. Judy Shelton, who contributes the Foreword.  Contributors to this volume include some of the most important thinkers on monetary policy working today.  These include financier/philanthropists Lewis E. Lehrman and Sean Fieler (both of whom chair nonprofit organizations professionally advised by this columnist); one of Cato’s most respected monetary thinkers, Gerald P. O’Driscoll, Jr.; Fraser Institute Fellow’s Jerry Jordan; and Professors Steve Hanke, George Selgin, Lawrence White and Alan Meltzer,  the last being recognized as the dean of Federal Reserve studies and founder of the Shadow Open Market Committee.

Dr. Shelton’s Foreword opens forcefully:  “While the United States still goes through a frail and feeble economic recovery and the Euro faces severe problems of its own, monetary policy ought to be one of the first items in the economic reform agenda.  At a time when the Federal Reserve continues to engage in unprecedented discretionary behavior and the United States faces a fiscal cliff, the message that the nine contributors to this book are trying to convey is more important than ever.”

Monetary policy no longer is dismissed on Capitol Hill as an esoteric matter.  Incoming Joint Economic Committee chairman Rep. Kevin Brady, incoming chairman of the House Financial Affairs Committee Jeb Hensarling, outgoing chairman of the House Republican Study Committee Jim Jordan all have good monetary policy as a top tier agenda item.

The Senate GOP’s second ranking figure, Sen. John Cornyn, recently became the first Senate co-sponsor of Sen. Mike Lee’s counterpart to Rep. Brady’s Sound Dollar Act.  That Act already has attracted almost 50 House co-sponsors and this columnist has termed it the most important monetary legislation in 40 years.  Sen. Ted Cruz, a new political rock star, included sound money in his widely watched  speech before the American Principles Project (which this columnist professionally advises) just last week.

The list of monetary reformers — advocates of something like the Taylor Rule and advocates of the gold standard — continues to grow and gain distinction.  The credentials of the contributors to Roads to Sound Money demonstrate how respectable monetary reform, in general, and the mainstream version of the gold standard, specifically, is becoming.

Good monetary policy also has a rich history within the Democratic Party.   The cheap money William Jennings Bryan lost, repeatedly.  Gold standard champion and classical liberal Grover Cleveland won.  Good monetary policy, which is essential for good jobs at good wages, is not inherently a partisan issue.  Pollster Scott Rasmussen has demonstrated a strong constituency for a golden alternative to the job-destroying anti-policy of “Federal Reserve Adventurism” among pro-labor and ethnic Democrats.  Monetary reform just might even be a good candidate for the first bipartisan issue to emerge from the wreckage of the Fiscal Cliff Drama.  Mr. Obama, if you genuinely are looking for issues on which to collaborate… begin here.

Winston Churchill is (apocryphally) said to have said, “You can always count on Americans to do the right thing – after they’ve tried everything else.” Elected officials now are turning their attention to the chief suspect in the crime of ghastly unemployment that continues to haunt America and the world.  The chief suspect behind punk job growth is poor monetary policy.  We’ve tried everything else.  So… count on the Americans, next, to do the right thing.  Good money is good policy and good politics.

Ralph Benko, an economics policy expert living and working in Washington, DC, served on detail as deputy general counsel to an Executive Office of the President agency under President Reagan and to a Reagan presidential commission.

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