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One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Sunday, January 03, 2016

Steve Forbes's Reviving America Points The Way Out Of James Piereson's Shattered Consensus

Steve Forbes, chairman and chief executive
officer of Forbes Inc., April 30, 2012.
Photographer: Patrick Fallon/Bloomberg
by Ralph Benko, Contributing Author: The current presidential election cycle is causing bewilderment. How can a New York City real estate developer, the somewhat reactionary Donald Trump, be at the top of the national GOP polls? How can the government-shutting Ted Cruz be portending to win the Iowa caucuses (as a springboard to the GOP nomination and election to the presidency)? How could a self-identified democratic socialist Bernie Sanders, Senator from Vermont, give the Establishment’s distinguished candidate Hillary Clinton such a powerful challenge?

How did we get here? Where is this going?

James Piereson’s magisterial Shattered Consensus describes “the rise and decline of America’s postwar political order.” James Piereson, president of the William E. Simon Foundation, and senior fellow of the Manhattan Institute, provides deep perspective. That perspective makes patterns visible, making it much easier for us to see the political forest for the trees. Many of Piereson’s lucid essays herein are collected, in four parts: The Political Economy of the Postwar Order; Liberalism and Conservatism; The Kennedy Legend and the Liberal Ideal; and the Politics of Higher Education.

Many of these essays are important. The first thoroughly explains the collapse of the ideal of a classical liberal world order, to be replaced by the ideal of government management of the economy, Keynesianism, followed by neo-Keynesianism, which in turn itself is in the process of collapse. Piereson’s 2012 essay, America’s Fourth Revolution, originally appearing in The New Criterion, is prophetic. It could be the Rosetta Stone of the 2016 election. Piereson:dir>Political paralysis and economic stagnation are characteristic of political system captured by rent-seeking [an economists’ euphemism, politely adopted by Piereson, for parasitical] coalitions. … The demands on government have grown far more rapidly than the underlying economy that must finance them. …

Any number of events or developments could throw the system into a terminal crisis—another recession perhaps, a stock market crash, the bankruptcy of a a large city or financial institution, a war in the Middle East, or any far-reaching event that destabilizes the international economy. … In that circumstance, the voters would face a choice of either watching the various interests fight it out for shares of dwindling resources or getting behind a party or candidate that could bypass the interest-group system in order to implement policies to restore economic growth. Either of these outcomes — stagnation or upheaval — is possible.Enter Steve Forbes and Elizabeth Ames. Their brilliantReviving Americasets out a blueprint to “restore hope and prosperity” by “repealing Obamacare, Replacing the Tax Code, and Reforming the Fed.” Forbes and Ames provide a potent alternative to “stagnation or upheaval.” Forbes and Ames offer a Third, better, Way.

Repealing and replacing Obamacare, which chokes one-sixth of the American economy with ill-designed regulations, has become doctrinal in the Republican Party. Premium hikes are raising the cost of degraded quality of coverage for many millions.

I myself, as a good Hayekian, am unequivocally in favor of universal health coverage. Hayek, in The Road to Serfdom no less, wrote:
Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor efforts to overcome their consequences are as a rule weakened by the provision of assistance—where, in short, we deal with genuinely insurable risks—the case the for the state’s helping to organize a comprehensive system of social insurance is very strong.That said, it’s as important to do the thing right as to do the right thing. Obamacare is a botch. Forbes and Ames lay out proposals for replacing it with things with better prospects of restoring affordability to health care while improving the scope of coverage and its quality. Forbes and Ames:Think about how different our lives were little more than a decade ago, before the Internet grew into what it is today. There was no Netflix or Facebook. … A cell phone was just a phone and not a handheld computer. Allow innovation to occur in healthcare the way it does in consumer technology, and you’ll soon see advances that are currently unimaginable.Then Forbes and Ames move ahead to a thorough reform of the federal tax code. Steve Forbes is synonymous with the Flat Tax. Virtually every major GOP presidential candidate has presented a comprehensive tax reform plan. Forbes and Ames provide an inventory of the most significant of these proposals. They also provide an excellent critique of the national sales tax, the so-called FAIR Tax. The FAIR Tax enjoyed a period of enthusiastic pockets of support some years ago. Forbes and Ames decisively show why it simply cannot work.

Their chapter on how other nations have prospered by virtue of a flat tax is compelling. Their refutations of the criticisms of the flat tax are impressive. Forbes and Ames do not quite close the deal on the superiority of the Forbes Flat Tax over the flat tax proposals of presidential candidates Ted Cruz and Rand Paul — both of which, not so incidentally, were architected by Forbes’s colleagues Arthur Laffer and Stephen Moore. Laffer and Moore are partners with Forbes in The Committee To Unleash Prosperity. (Full disclosure, I long have served as Editor-in-Chief of the Supply Side Blog on the Committee’s preeminent supply side website.)

Forbes and Ames provides an interesting perspective in the Battle of the Flat Tax Proposals. Ted Cruz has one. Presidential contender Rand Paul has another. Donald Trump’s non flat rate tax plan — unlike Cruz’s virtually deficit-neutral plan — has been independently scored as a recipe to increase the federal debt by around $10 trillion dollars. Trump’s debt bomb is likely to become an albatross around his neck as voters start keying in on specifics.

Steve Forbes, in his own presidential campaigns, heroically put the Flat Tax onto the national agenda. His actions since have kept it there. Forbes thereby has earned a Presidential Medal of Freedom. Steve Forbes certainly deserves this well-earned, long-overdue, honor. Steve Forbes has achieved historic stature by having pledged, as did the heroic signers of the Declaration of Independence, his Life, Fortune, and Sacred Honor to fighting for a liberal republican order… a key element of which is the gold standard.

Reviving America brings forward the most salient recipe for equitable prosperity of all: restoring the gold standard. In describing how a gold standard would work, Forbes and Ames write:
Nathan Lewis, one of today’s pre-eminent authorities on money, has called the classical gold standard ‘the most perfect monetary system humans have created.’ … What brought an end to the era of the classical gold standard… was World War I. … The most practical response after the Great War would have been for countries to return to a gold standard with their money pegged to gold at rations based on post-war values.”Forbes and Ames powerfully recite the historical record of the classical gold standard’s repeatedly producing enormous general prosperity. They dispel many of the preposterous myths surrounding the gold standard (such as that it implied the conduct of commerce in gold coins and that it implies 100% gold backing to currency in circulation).

There is a slightly confusing short aside therein to commend an orphaned piece of legislation by Rep. Ted Poe (R-Tx). This “Dollar Bill” languished in the House for four years without attracting even a single co-sponsor and does not appear to have been re-introduced in the current Congress. It’s a goldless “gold standard.” As such, it lacks compelling appeal, as Forbes and Ames implicitly acknowledge by proposing a system that provides in practice for gold reserves and legal convertibility thereto.

We can dispense with the minor distraction of the goldless "gold standard" by appealing to the authority of, well, Steve Forbes and Elizabeth Ames. In the book’s introduction, they explain why the Flat Tax is superior to other proposals: “Unlike other proposals … the Flat Tax has a track record. It really works.” The same logic applies with equal force to monetary policy. A goldless "gold standard" has no track record. Meanwhile there is a well-proven, well-established, way to repel the threat of speculators in the transition, the Dollar Bill’s alleged, unproven, selling point. Even Homer nods.

Too many assume, incorrectly, that all the King’s Horses and all the King’s men cannot put a shattered consensus together again. Not so. The right policy mix, including as essential good monetary policy, quickly can turn stagnation, even devastation, into vibrant prosperity.

Under Ludwig Erhard, the German Economic Miracle, the Wirtschaftswunder, quickly transformed the war-devastated, and post-war-bad-policy-devastated, West German economy. The transformation was almost instantaneous. As I wrote elsewhere:
That miracle was founded in currency reform. On the very day when Ludwig Erhard’s currency reform was put into place the economic paralysis ended. The “rightest” economist of the 20th century, Jacques Rueff, wrote (with André Piettre) about the turnaround beginning on the very day of the reform:

“Shop windows were full of goods; factory chimneys were smoking and the streets swarmed with lorries. Everywhere the noise of new buildings going up replaced the deathly silence of the ruins. If the state of recovery was a surprise, its swiftness was even more so. In all sectors of economic life it began as the clocks struck on the day of currency reform. Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored in their faces while on the next a whole nation looked hopefully into the future.”
Meanwhile, the communist East German economy languished. Same people, same culture. Dramatically different policy.

Later, in France, Charles de Gaulle, implementing a plan devised by the same Jacques Rueff, created what was called the French Economic Miracle. Decades later Reagan, reversing the stagflation and towering misery index of late 20th Century America, created a vibrant American economy.

It’s time for a fresh American Economic Miracle. Forbes and Ames point the way.

James Piereson is brilliantly right. The post-war consensus is shattered. He shows how it arose and how it declined and the consequences we endure thereby. That said, we need not merely endure stagnation or await an upheaval. Steve Forbes and Elizabeth Ames provide good counsel for establishing a vibrant, fair, and long lasting American Economic Miracle. Treat yourself and your loved ones to Shattered Consensus to see how we got to where we are and Reviving America to see how we quickly can restore prosperity.
-----------------
Ralph Benko is senior advisor, economics, to American Principles in Action’s Gold Standard 2012 Initiative, and a contributor to the ARRA News Service. Founder of The Prosperity Caucus, he was a member of the Jack Kemp supply-side team, served in an unrelated area as a deputy general counsel in the Reagan White House. The article which first appeared in Forbes.

Tags: Ralph Benko, Steve Forbes, Reviving America, points To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!
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