Monetary policies reminiscent of the 1930s are not golden
I’m not sure how many have noticed that it feels like we are reliving the 1930s — an economic bumbler in the White House, a huge change in party control in Congress and The Los Angeles Times preaching class warfare and economic redistribution.
It’s enough to make a guy want to grab his fedora, hop in the Hudson and drive down to the automat for a piece of pie. It does get a little uncomfortable when you see the same policies trotted out again with, if anything, less sophistication than the first time.
The most “back to the future” moment came last week when the World Bank suggested we study going back on the gold standard for currency valuation. This is a technique where the worth of a currency is tied to the value of a commodity or material. This controls inflation since you don’t get to print more money unless you dig up more gold.
This and other suggestions like it were generally in response to the Federal Reserve’s decision to pursue its vaguely worded policy of “quantitative easing” — which we simple Simons in the electorate would call printing money and loaning it to ourselves.
People who hold our debt get unhappy with projects that create more currency without anything to back it up. This is especially true if you hold a lot of IOUs because, at the time you loaned the money, they were worth a certain amount of goods and services. If the debtor just prints up a bunch more money, it becomes devalued and the worth of your loan is decreased.
Printing money may make it easier for a country to pay debt, but it’s a lot harder for the consumer with a backpack of cash to buy a bagel. Good for debtors, bad for savers and fixed-income types.
Liberals generally like inflation since it allows spendthrift constituencies to pay back expensive debts with cheap money and they generally are against things that put controls on inflation. In the words of the Democratic presidential candidate William Jennings Bryan, “You shall not press down upon the brow of labor this crown of thorns ...You shall not crucify mankind upon a cross of gold.”
I’m not even sure we have any gold anymore. Last time I viewed the inside Fort Knox, Sean Connery was fighting Odd Job to keep him from setting off a nuclear bomb. “Goldfinger” was produced in 1964, so for all we know, all that’s left there is a bunch of IOUs from Lyndon Johnson and some GM stock certificates.
The problem is not the gold standard or monetary policy, but the fact that we don’t make much in the United States anymore. We have regulated, taxed and environmental-impact-statemented the sort of industries that make goods and extract raw materials either out of existence or out of the country.
It’s hard to maintain the stability and value of a currency that is mainly used to buy Chinese electronics and Japanese cars instead of investing in steel mills and truck factories. Reinvesting profits left after paying the world’s second highest corporate taxes doesn’t make much sense in a country with a government increasingly obsessed with biting the hand that feeds it — chomping it off at the elbow.
So, rather than have the Federal Reserve print more money to loan to ourselves, maybe the new Congress should:
✓ Declare a two-year abolition of the capital gains tax to encourage people to invest in businesses but with a little different spin: Invest in the next two years and pay no tax on the increase in the investment’s value, no matter when you take it out after two years of investment.
✓ Declare a tax holiday for profits made by American business overseas if they have paid taxes in the country where the money was made. Don’t re-tax them if they bring it home and invest in this country, even if the originating countries’ rates were lower. There are trillions of dollars made overseas not repatriated to the U.S. due to our punishing tax policy. If 20 percent of it came home and was invested, it would be a nice stimulus, with no printing.
If you like the ‘30s, bring back the Cord Roadster, not the policies.
Rick Wagner offers more thoughts on politics at his blog, The War on Wrong.