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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)

Thursday, July 13, 2017

Happy Birthday To Jack Kemp, The Man Who Transformed The World

Jack Kemp
by Ralph Benko, Contributing Author:   Seventeen years ago we entered into what I have termed an economic Little Dark Age. We are repeating, in a slightly less virulent form, the stagnation of the 1970s.

Don’t know about you but I’m tired of it. So, let’s take today, the occasion of the anniversary of the birth of the late, great, Jack French Kemp, our JFK, to do a little remembrance of things past to stop repeating this stagnation for much longer. . . .

So follow along. One obscure Member of Congress, Jack Kemp, more than any other single individual, transformed the world from poverty to prosperity. He went on to fame and fortune: cabinet secretary, vice presidential nominee, and beloved Party Elder Statesman.

I spent today with prosperity-monger Bill Walton taping a video for the emerging Internet TV network, CGTV.us. Walton is dedicated to the pursuit of Happiness, the kind of human flourishing to which Jack Kemp committed his life. The featured guest was Jack’s son Jimmy Kemp, president of the Jack Kemp Foundation (which I have professionally served from time to time). . . .

Kemp has never received full credit for the prosperous world he, above all others, created. He probably never will. This is our loss, not his. My purpose here is not to shine Jack’s halo. There are likely Thrones of angels tasked with that right now.

This is about us. And our future.

Nor is it my purpose to recommend a doctrinal resurrection of the plan Jack successfully quarterbacked to end the stagflation of his era. Worked beautifully.

That said, our circumstances are different now. The top federal marginal income tax rate that was choking general prosperity then was 70% and inflation was bouncing around double digit rates.

Now, the top federal tax rate is 39.6%. Inflation is not a presenting problem. . . .

The lesson from Kemp’s economic breakout is not a doctrine. It is a lesson in brains, heart, and courage.  First, though, a word on that almost forgotten breakout.

As I wrote here some time ago:On November 13, 1979, the day Ronald Reagan declared his candidacy for the presidency, the Dow Jones Industrial Average was at 814. (No, there’s no comma missing.)  It’s now at 17,000.  Supply-side having been picked up from America by many world leaders propelled world annual GDP, then around $11 trillion dollars in 1980, to over $60 trillion today. Trillion with a “t”.The Dow is now over 21,000 and world GDP is around $75 trillion.  Admittedly, not adjusted for inflation or population growth. But it provides the scale, and legitimately.  As Nicholas Kristoff recently observed in his Sunday New York Times column Good News, Despite What You’ve Heard:For most of history, probably more than 90 percent of the world population lived in extreme poverty, plunging to fewer than 10 percent today.

Every day, another 250,000 people graduate from extreme poverty, according to World Bank figures. About 300,000 get electricity for the first time. Some 285,000 get their first access to clean drinking water. When I was a boy, a majority of adults had always been illiterate, but now more than 85 percent can read.
The sheer magnitude of the growth in world prosperity blinds us to it. It’s a fundamental transformation. It is one from which we would do well to learn rather than forget.

Much of this growth was been international.

America has been wandering around in a forgetful haze since 2000. But the example Kemp set lives on, neglected by our politicos.

Why do I claim that Jack Kemp deserves primary credit for unleashing the tsunami of worldwide prosperity?  The record shows that he, courageously, made himself into the hinge on which history swung by advocating One Big Idea. It was big enough to be controversial … to the point of being considered nutty by the Neo-Keynesian Democrats and heretical by the green-eyeshade Republicans of his day.

His economic agenda was derided as nutty and heretical, that is, until he, by heroic persistence, persuaded a critical mass of Republicans on Capitol Hill and then recruited presidential candidate Ronald Reagan to endorse it. Reagan -- whose own One Big Idea was to beat the Soviet Union, which he did -- went on to beat the incumbent president, Jimmy Carter.

Reagan won mostly on the platform of Kemp’s Big Idea: stabilizing the dollar and cutting marginal tax rates to restore economic growth. And in imperfect practice it worked. Brilliantly.

. . . Jack Kemp, under the mesmerizing tutelage of Jude Wanniski, encountered what Jude called “The Mundell-Laffer Hypothesis.” This was the heretical idea that stagflation was caused by a stupid policy mix of easy money and high tax rates and the proposition that the policy mix needed reversal.

Tax policy was secondary, what would come to be known as the Laffer Curve a footnote. To reverse stagflation what was needed was high integrity money and lower marginal tax rates.

Taxes are intuitive and monetary policy is occult. So, tax policy came to the political fore. Monetary policy got delegated to the Fed (where it arguably belongs, but only if the Fed will follow the rules of the game rather than making them up as it goes along). Carter was clueless.

Reagan was gearing up to run against Carter for president in 1980. Kemp was a force within the GOP. Team Reagan wished to pocket Kemp’s support in the primary and avert the possibility of a Kemp challenge that could have split the conservative base.

According to a Kemp insider’s personal reminiscence to me, at their meeting Kemp demanded the endorsement of his Big Idea, stabilizing the dollar plus the Kemp-Roth 30% across-the-board marginal tax rate cut, in return for his endorsement. Reagan, who knew a good thing when he heard it, readily signed on.

. . . Upon election Reagan had his tax-rate-cutting mandate. And as for inflation?
Carter was obviously, painfully, feckless in his inability to resolve the economic malaise confronting America.

. . . Inflation, and unemployment, raged on. Reagan unseated Carter.

President Reagan delegated the money job to Fed Chairman Paul Volcker. Volcker, with Reagan having his back, used a proxy for something along the lines of the Kemp proposal. This promptly crushed inflation. . . .

The Kemp-Roth tax rate cut, in a slightly diluted and somewhat deferred version, passed the United States Congress and was enacted into law. As soon as inflation was whipped and Kemp-Roth was fully phased in the economy took off like a rocket. This even inspired some astute Democrats, such as Sen. Bill Bradley and Rep. Dick Gephardt, to compete over an ensuing tax plan that would drop the top marginal rate to 28%.

America’s economy soared.

This did not go unnoticed by the rest of the world. A new young political leader in Russia by the name of Vladimir Putin replaced a steeply progressive (consistent with the Communist Manifesto) personal income tax -- if memory serves it imposed a 90% rate on income over $4,000 a year -- with a 13% rate flat tax. The Russian economy took off like a rocket.

And so on around the world. Prosperity ensued. Poverty dwindled.

America forgot.

And I only am escaped alone to tell thee.

A new generation faces new problems causing a new form of persistent economic stagnation called by the prosperity deniers "the new normal." Our bad growth rate still appears, to me, fundamentally rooted in bad monetary policy. Yet now it does not manifest as inflation. Perhaps the opposite.

I have called for what strikes me as practical options. To the fore of these is reviving attention to good monetary policy through the constitution of the Centennial Monetary Commission recently passed, as part of the Financial CHOICE Act, by the House, now pending in the Senate. Or even going forward to the great monetary policy that Kemp championed, his “unfinished symphony,” the classical gold standard, my premier choice for restoring equitable prosperity.

How about a revival of interest in the Lauzen Plan to fairly resolve the rising unfunded public pension liabilities crisis? Or a more thorough exploration of Nobel Laureates Becker and Schultz’s work on Human Capitalism, maybe beginning with Sen. Mike Lee’s Social Capital Project. How about building on all of that with something truly radical, perhaps fundamental, what I have termed, after its innovator (Forbes.com editor and columnist John) Tamny’s Law: “Talent Trumps Taxes.”

All that’s secondary.

What’s primary?

What is most needed, now, is a political champion to roll up his or her sleeves and find a suite of smart, practical, effective policies for general economic prosperity. 4% growth, equitably distributed, is the game changer.

. . . The beating heart of the American political system -- the House of Representatives -- is fertile and supple enough for the occasional outlier like Jack Kemp to fight his or her way -- using brains and heart and courage -- to the fore and shake the political system in a way that captures the imagination, and wins the hearts, of the American people.

How? By offering a general prosperity agenda rooted in what has been proven to work.
A leader with such qualities is rare. Yet at our darkest hours, someone, repeatedly, has come to the fore.

Such is the stuff of American history. Such is the stuff of America's greatness.
For today, join me in a birthday toast to Jack French Kemp, the man who, more than any other, transformed the world.
-----------------------
Ralph Benko is an advisor to nonprofit and advocacy organizations, is a member of the Conservative Action Project, a contributor to the 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, Happy Birthday, Jack Kemp, The Man Who Transformed The World 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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