243,000 new jobs? This is more than respectable. No unseemly disparagement by Republicans welcome, nor victory lap by Democrats. A pox on both their houses.
Proto-Supply Sider (who, among other things, generously cut oppressive tariffs) King Canute achieved mythic status by ordering the tide to cease rising. What often is forgotten is that he did so to show his sycophants the limits — not extent — of his powers.
As medieval chronicler Henry of Huntington wrote:
[A]t the summit of his power, he ordered a seat to be placed for him on the sea-shore when the tide was coming in. Then, before a large group of his flattering courtiers, he spoke to the rising sea, saying, ‘Thou, too, art subject to my command, for the land on which I am seated is mine, and no one has ever resisted my commands with impunity. I command you, then, o waters, not to flow over my land, nor presume to wet the feet and the robe of your lord.’
The tide, however, continued to rise as usual, dashing over his feet and legs without respect to his royal person.
Then the King leaped backwards, saying: ‘Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.’
“Obey … eternal laws.” The business cycle is as sacrosanct as the law of gravity. Utopians sacrifice Virgins and pray (Cut Entitlements!) for Endless Summer; Neo-Keynsians chant mumbo jumbo (Stimulate Aggregate Demand!) and command winter to end. Harry Truman famously once said (long safely retired from the presidency): “My choice early in life was either to be a piano player in a whorehouse or a politician. And to tell the truth, there’s hardly any difference.”
That said, the voters usually give an incumbent credit for the good times and blame for the bad. Politicians eager for office have the street smarts to concoct a good story and look busy. Thus… if it’s springtime for business in America … it’s going to be tough for the GOP to take the White House even by whining loudly that this is a cyclical recovery which the Democrats idiotically delayed.
So if the GOP wants to be competitive in a context of growth it will have to respect the fondest wish of us mere voters: better growth. Citizens are a little like common shareholders. We want the country to prosper, with effort being tightly aligned with reward. This is possible. We mere voters, as it happens, are plenty street smart too.
What does this mean? It means 4+% real growth. That and nothing less will equate to tens of millions of new jobs, a la Reagan and Clinton. It, with a modicum of spending restraint, will balance the budget in 10 years. We voters are a fickle bunch and likely to bolt for a (credible) better gig, no matter how self-satisfied President Obama is.
So, number one, the voters are trying to teach the presidential aspirants that economic stagnation, whether delivered by Pachyderm or Jackass, is not OK. We demand jobs; and job growth is key to balancing both our personal and the federal budget. This is obvious to working (or unemployed) folks but much harder for those who live in a cocoon of economic and social privilege to grasp.
Lesson two? The three first rank macroeconomic variables critical to economic growth are monetary, tax, and regulatory policy. There isn’t anything startlingly different in the positions of the Pretenders to the Throne on tax and regulation. And, except for Dr. Paul who appears to have overshot the mark on popular desire to dissolve the federal government, monetary policy is being marginalized or ignored. Yet honest money was fully half of the Mundell-Laffer Hypothesis, Reaganomics blueprint. Monetary reform has the power to turbocharge economic growth, creating jobs for voters and balancing the budget.
There is at least an even chance that the recovery is here. If so the GOP, whomever it nominates, will not be able to glide into the White House based on a feckless campaign against “Obama’s Prolonged Misery.” That is a very good thing. When we don’t force them to earn their keep the Republicans are as bad as the Democrats. While the business cycle can not be repealed we can avoid policies that flatten the growth and deepen the valleys.
Of all the policy interfaces the government has monetary policy is the most powerful. As my Forbes.com co-columnist Charles Kadlec summarized the findings of an important white paper very recently issued by the Bank of England:
When compared to the Bretton Woods (monetary) system…:
- 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….
Getting monetary policy right used to be, and may again well become, the Holy Grail of economic policy. The “cross of gold” versus McKinley’s “The Gold Standard: Prosperity at Home, Prestige Abroad” was the central issue of 1896 and a pro-vs.-anti gold was a real issue in many of the presidential contests of the first quarter of the 20th century. Monetary policy was the one thing, among a myriad of mistakes, that Roosevelt got right thus ending the Great Depression. Monetary policy was a dramatic part of Nixon’s failed New Economic Policy. Monetary reform was prescribed, and undertaken, as at least as important to Reaganomics as cutting tax rates. The Greenspan Great Moderation provided a context for over a decade of solid growth.
And the Great Recession was caused by the monetary disorders that are, in the end, unavoidable under a pure paper dollar system. To exaggerate only slightly, a fiduciary paper currency administered by elite civil servants is akin to trying to cross a swampland full of landmines at midnight, blindfolded, on a moonless night.
Although Newton Gingrich and Ron Paul have thrust the gold standard more to the fore this year than it has been for over 40 years, monetary policy remains marginalized. If growth matters, as this columnist is not alone in contending… a vibrant debate about monetary policy presents as the only thing with the power to elevate to relevance the 2012 presidential race from its current status as an avalanche of banalities.
How empty and worthless is the power of kings….
Originally published February 6, 2012 http://www.forbes.com/sites/ralphbenko/2012/02/06/the-business-cycle-throws-the-gop-a-curveball/