July 13 is the anniversary of the birth of the late, great, Jack Kemp. Kemp, half-forgotten, was one of the most consequential figures of the 20th century. His birthday is a moment for valuable recollection.
Kemp dragged America out of a misery index that makes today's look puny and short-lived by comparison. (So far.) America, thanks to its political, economic and academic Establishment, had to be dragged into prosperity kicking and screaming.
Memory is short, especially in politics. As Aldous Huxley once observed, "That men do not learn very much from the lessons of history is the most important of all the lessons history has to teach." Let's give our current batch of leaders a brief refresher course on how Kemp made America great again.
In High and Far Off Times, Oh Best Beloved, meaning the 1970's, the economy was in horrendous shape. The Dow Jones was bumping along around 1,000. Less than four percent of where it is today. What happened?
Inflation was soaring. Prosperity was withering. Lyndon ("Guns and Butter") Johnson, Richard ("I am not a crook") Nixon, Gerald ("I am a Ford, not a Lincoln") Ford and Jimmy ("I cannot guarantee that our joint effort will succeed.") Carter bequeathed us that torment.
The conventional wisdom then was to raise taxes and sink the dollar. Prof. Robert Mundell and Dr. Arthur B. Laffer channeled by flamboyant journalist Jude Wanniski taught an inquisitive Kemp that the solution to stagflation lay in stabilizing the dollar and cutting tax rates. In that order. Mundell later received the Nobel Prize in economics, Laffer the Presidential Medal of Freedom.
Kemp, a former champion quarterback, modestly described himself as a "phys ed major from Occidental College." Then a junior Congressman, he stood up to a tsunami of ridicule by proposing to stand the conventional wisdom on its head. He crusaded, with courage and good cheer, on a 30% across-the-board marginal tax rate cut and the gold standard as propounded by businessman/philanthropist Lewis E. Lehrman.
Foremost among those who endorsed the tax-rate cut (and gave lip service to the gold standard) was Ronald Reagan. Jeff Bell, a member of Kemp's inner circle, once told me that Reagan endorsed that controversial tax rate cut to gain Kemp's endorsement. He wished to preempt the possibility Kemp might declare for the 1980 presidential contest, splitting the right and throwing the Republican nomination to George H.W. Bush.
Then Bush ridiculed Reagan's plan as "voodoo economics." Carter attacked it as "inflationary." Reagan defended it again and again. By the time Reagan was elected this tax rate cut had emerged as his signature economic campaign pledge. Reagan's economic advisers were dismayed.
After the election Kemp relentlessly held Reagan to his campaign commitment to offer the 30% across-the-board cut in marginal tax rates. Reagan's team delayed and slightly diluted it but could not avert it. Reagan delegated stabilizing the dollar — of great or greater importance — to Fed Chairman Paul Volcker who painstakingly slew the inflation dragon that President Carter considered bewildering to the point of insoluble.
The political establishment showed trepidation. The (Republican!) Senate Majority Leader Howard Baker called it a "riverboat gamble." Kemp, playing David to the Establishment's Goliath, won.
So did America. And the world.
Reagan and Volcker, following Kemp's playbook, wrung out inflation and phased in the tax rate cut. Then the American economy soared. It continued to soar, albeit with stumbles like President George H.W. Bush's violation of his "read my lips, no new taxes" pledge and the mediocre economic policies of George W. Bush and Barack Obama.
On the day in November 1979 that Reagan officially declared for the presidency the Dow was at 814. As of this writing, the Dow is at 26,000. U.S. GDP for 1979, per the St. Louis Fed, was about $2.7T. It's now at $21.5T.
Other nations, like the Russian Federation and the People's Republic of China, followed Reagan's lead in cutting tax rates. Everyone benefited from the stabilization of the dollar, the world's reserve currency. World nominal GDP soared from $11T then to $88T today.
Jack Kemp is the hero of this economic epic.
Inflation is no longer the problem. Some believe that a deflationary Fed policy was the cause of the rather modest performance of the economy prior to the pandemic. Kemp's unfinished symphony, the gold standard, surely would be the best way to restore sizzling economic growth and equitable prosperity. President Trump himself is on record as favorably disposed toward the gold standard.
Celebrating Jack Kemp's birthday is not an exercise in nostalgia. It is an opportunity to reflect on the economic formula that Kemp sold to a recalcitrant capital.
Low marginal tax rates. And the very monetary policy that made America great: the classical gold standard.
Happy Jack Kemp's birthday, America.
Onward to a golden age?
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. He served as a deputy general counsel in the Reagan White House, has worked closely with the Congress and two cabinet agencies, and has published over a million words on politics and policy in the mainstream media, as a distinguished professional blogger, and as the author of the internationally award-winning cult classic book "The Websters' Dictionary: How to Use the Web to Transform the World." He has served as senior adviser, economics, to APIA as an advocate of the gold standard, senior counselor to the Chamber of Digital Commerce and serves as general counsel to Frax.finance, a stablecoin venture. Read Ralph Benko's reports — More Here.
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