Forbes’s version of “one big idea” is a flat tax and a sound dollar linked to gold. If we have that, we’ll be the “land of opportunity again.”
Laffer agreed. “Our economic verities have remained forever,” he said. “They go back to caveman, pre-cavemen. Incentives matter: If you reward an activity, then people do more of it. If you punish an activity, people do less of it.”
.. But for the tax side of “one big idea,” Laffer would like to see corporate tax reform.
.. Forbes, who can see income-tax reform following corporate-tax reform. “Even if we get to this two years down the road,” he said, “I think [Trump would] be amenable to doing something radical like a flat tax.”
.. “Let me put it just succinctly,” answered Laffer. “These people are willing to rebut arguments they know to be true in order to curry favors with their political benefactors.”
.. Forbes added: “A lot of these far-left ideologues would rather have a smaller economy and more government power than a bigger economy and a smaller government.”
.. Where, I asked, does trade protectionism — including tariffs on China — fit into the low-tax-rate, strong-dollar prosperity model?
.. Forbes, who offered an alternative: “The smart approach is get this economy moving through. . . tax cuts and deregulation. And then having a stable dollar . . . you sit down country by country and remove trade barriers.” Anything but the trade protectionism that blew up the stock market in 1929.
.. To which Laffer added the great line: “Don’t just stand there, undo something!” “Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation,” he said. “Undo, undo, undo — and undo the damages these other guys have done.”
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Then there’s a potential oil crisis, very different from the ones we used to have: the problem now is a glut, not a shortage, with many producers having run up large debts they probably can’t repay. You could say that shale oil is the new subprime.
.. Yet things could be worse. The Donald doesn’t know much, but Ted Cruz knows a lot that isn’t so. In a world in which gold bugs have been wrong every step of the way, repeatedly predicting runaway inflation that fails to materialize, he demands a gold standard to produce a “sound dollar.” He chose, as his senior economic adviser, Phil Gramm — an architect of financial deregulation who helped set the stage for the 2008 crisis, then dismissed warnings of recession when that crisis came, calling America a “nation of whiners.”
Mr. Cruz is, in other words, a man of firm economic convictions — convictions that are utterly divorced from reality and impervious to evidence, to a degree that’s unusual even among Republicans.
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Leading Republicans support Mr. Cruz, not despite his policy positions, but because of them. They may not like his style, but they agree with his substance.
.. When members of a large bipartisan panel on economic policy, run by the University of Chicago business school, were asked whether a gold standard would be an improvement on current arrangements, not one said yes.
.. And Mr. Cruz’s obsession with gold is one reason to believe that he would do even more economic damage in the White House than Mr. Trump would.
.. As I have pointed out on a number of occasions, Mr. Ryan is fundamentally a con man on his signature issue, fiscal policy. Incidentally, for what it’s worth, Mr. Cruz has been relatively honest by his party’s standards on this issue, openly declaring his intention toraise taxes that hit the poor and the middle class even as he slashes them on the rich.
.. Both men are devotees of Ayn Rand, even if Mr. Ryan now tries to downplay his well-documented Rand fandom.
.. But while his policy ideas are extreme, they reflect the same extremism that pervades the party’s elite.
What can we learn from the Depression?
In particular, the work of the economic historians such as Mr Eichengreen and Peter Temin has recently stressed the importance of the malfunctioning of the gold standard currency system as the cause of the Depression, as well as its severity.
From the mid-19th century most countries pegged their currencies to a fixed value of gold, an arrangement that became known as the “gold standard”. This system worked whilst countries helped each other with loans to solve periodic balance-of-payments crises (and while gold discoveries made for gentle price-level trends) but World War One disrupted this system. The result was that many countries found themselves with currencies fixed at an inappropriate rate of exchange to those of other countries. While France and America initially gained in the 1920s from holding their currencies at too low a value, countries like Britain and Germany suffered from recurrent balance-of-payments problems as the result their overvalued currencies.