There is one, unconventional way to quell inflation without recession; it would save Joe Biden’s presidency. Conventional folk think the gold standard an anachronism.
Inflation is putting Biden into desperate political peril. His popularity rating is lower than any modern president (except Trump) at the comparable time in his presidency.
Sending shockwaves through the political class, the Republicans dominate Democrats in the generic poll. I’m not an alarmist. But this scenario is, as it should be, alarming to Democrats.
It's also alarming to me, a paleoconservative Republican. I, the "second most conservative man in the world" (per a Washington Post columnist), fear that a GOP political hegemony will degenerate into the Republicans’ default country-club Republican policies of mercantilist oligarchy in supply-side drag.
The reversion to Republican mean, ThurstonHowellIIIconomics, "freshen Lovey’s martini Gilligan, chop chop!" Pretty mean!
Mr. President? Go for the gold!
It’s curious. Yet political transformation often comes from the unexpected source.
Nixon’s anti-communist credentials from his congressional days persecuting Soviet gentleman-spy Alger Hiss immunized him to claims of softness on Communism.
Nixon to China!
Welcome to the "Twilight Zone" of politics where the right does the left thing, and the left does the right thing. And everybody grumble-cheers.
It goes both ways. From out of left field, wholesale deregulation was pioneered by President Jimmy Carter.
The big push for dropping the top income tax rate, attributed to Reagan, came from top Democrats: Rep. Dan Rostenkowski, D-Ill., and Speaker Tip O’Neill, D-Mass., dropping the top rate from 70% to 50% (Sen. Joe Biden, D-Del., voted aye).
Then, Sen. Bill Bradley, D-N.J., and Rep. Dick Gephardt, D-Mo., to 28% (Sen. Joe Biden voting aye). President Bill Clinton gave the capital gains tax rate a whopping cut. (Sen. Joe Biden voted aye.)
Now? Inflation is a dagger at the jugular of the Biden presidency.
What to do that would be safe and effective and dramatic enough to persuade us pesky voters that Biden has a firm grip on ending inflation?
Let’s walk the cat backwards. President Lyndon B. Johnson, who shut down the London gold pool, and President Richard M. Nixon, who "temporarily" closed the "gold window," were the perps letting the inflation genie out of the bottle.
The world monetary order of the prosperous, low inflation, post-war era was constituted by the Bretton Woods Agreement. This was an international gold standard, with a critical flaw.
Making the dollar, as well as gold, the official reserve asset for central banks was a subtle, fatal error. It led to a "melancholy, long, withdrawing" of gold from America’s reserves, plaguing both America and the world.
As foreseen by distinguished French economist Jacques Rueff, mentor of supply-side titan Lewis E. Lehrman (my own mentor), that world monetary order was doomed to a slow death.
On Nixon's watch, the final nail was driven in.
Nixon, under the insidious influence of his treasury secretary John Connally - a moral bankrupt who died a spectacular literal bankrupt - officially closed the gold window. The pernicious Nixonian system of floating exchange rates today curses us to inequitable economic stagnation.
The fiduciary (paper) dollar is the last remnant of the "Nixon Shock."
Republicans have proven incapable of unwinding it for very parochial reasons.
The classical gold standard, which had collapsed at the very start of World War I, was falsely indicted for causing the Great Depression under Herbert Hoover a generation later.
It wasn't the Republicans’ fault.
It was, in the words of Rueff, a grotesque caricature of the gold standard that collapsed, an earlier gold-exchange standard.
Then FDR, under the guidance of the leading commodities economist of his day, George Warren, properly revalued the dollar from $20.67 to $35. The Great Depression lifted immediately and spectacularly. Per Pulitzer Prize-winning Liaquat Ahamed’s definitive account:
"During the following three months, wholesale prices jumped by 45% and stock prices doubled. With prices rising, the real cost of borrowing money plummeted. New orders for heavy machinery soared by 100%, auto sales doubled, and overall industrial production shot up 50%."
Bad monetary policy by FDR’s Treasury, in which FDR acquiesced, thereafter caused a second dip in the Great Depression. That said, that first prosperity surge points the way out.
Joe Biden has an opportunity to go down in history as equal to or greater than FDR. How?
By convening a new Bretton Woods conference. Just as the late, great Paul Volcker, who quelled inflation in the 1980s, called for.
There, Biden should legally remove the dollar’s (and all currencies) reserve currency status while revaluing the dollar to around $2,000/ounce, or slightly higher, to preempt a worker/debtor damaging deflation such as crushed Britain in 1925.
Thereby, Mr. President, forge a legacy to rival that of FDR’s.
End inflation, restore equitable prosperity; enjoy the popularity and golden age legacy that Bretton Woods II, done right, would bring you.
Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply-Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $88T. Read Ralph Benko's reports — More Here.
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