Arthur Laffer: “From now on it isn’t going to be as much fun being an American.”
By Ralph Benko, adapted from Newsmax and republished by permission of the author
In 1971, President Nixon held an infamous Camp David meeting where his economic policy advisors engineered the “Nixon Shock.” On August 15th, Nixon then announced that he, among other measures, was “temporarily” closing the “gold window.”
The other measures are gone. The gold window remains closed.
Nixon promised that this wouldn’t affect prices. Then the dollar lost 85% of its purchasing power.
Arthur Laffer, then the OMB economist, on the steps of the Old Executive Office Building, thereafter said to journalist Jude Wanniski, as recounted by Wanniski to Robert Merry, who later told me: “From now on it isn’t going to be as much fun being an American.”
Meaning? America’s prestige, prosperity, and attendant privileges would, along with the value of the dollar, soon erode. Prophetic words.
Inflation soon became virulent. Gas at the pump went from around 36 cents to over a dollar.
Now it’s over $4. Despite appearances (“the energy crisis.” “OPEC.” “Sticker shock.” ) the culprit really wasn’t “rising prices.”
Rising prices are the symptom. The cause was, and is, the decline in the value of the dollar.
Lyndon Johnson set that in motion by closing the London gold pool. And left office in disgrace.
Nixon formalized it by “closing the gold window.” And left office in disgrace.
Now?
Recall the coda of The Who’s Won’t Get Fooled Again.
Right now, the Kremlin’s cruelty toward Ukraine, an acute geopolitical and humanitarian crisis, commands our attention away from the chronic destructiveness of bad money.
That said, make no mistake. Bad money is as destructive as war. Only, more insidious.
Nicholas Copernicus, one of the smartest people who ever lived, wrote in his 1526 Essay on Money (of which I had the privilege of serving as lead co-editor of its definitive modern translation) that “debasement of coinage,” is one of the chief causes of national destruction:
“ALTHOUGH THERE ARE COUNTLESS MALADIES that are forever causing the decline of kingdoms, princedoms, and republics, the following four (in my judgment) are the most serious: civil discord, a high death rate, sterility of the soil, and the debasement of coinage. The first three are so obvious that everybody recognizes the damage they cause; but the fourth one, which has to do with money, is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.”
American-led sanctions on Russia now have put renewed attention on the US dollar. Good. Much—like it being fun to be an American—depends on getting our money right.
Steve Forbes likes to say that the quickest way to repel a couple of bores flanking you on a transatlantic flight is to offer to explain monetary policy. However, money’s interesting.
And, as Copernicus pointed out, consequential. How consequential?
I’ve been hearing apocalyptic predictions by gold bugs about the demise of the dollar, and ensuing hyperinflation, for over forty years, ever since I came to their attention as one of the only two pro-gold of the 23 official witnesses before the Reagan Gold Commission. Hasn’t happened.
No sign of it happening now. Sebastian Mallaby, writing for the Washington Post, recently showed why, despite much prattle to the contrary, the there’s no sign that the dollar is about to lose its status as the world economy’s basic money.
Mallaby writes:
“This dollar defeatism is vastly overblown. … Since 2008, the dollar’s share in the foreign-exchange reserves held by central banks has declined only marginally, from around 65 percent to 60 percent. … Central banks like to use dollars for the same reasons that companies and individuals do. They hold dollars knowing that others will gladly accept them, just as many learn English because others speak it. … Of course, the dollar’s reserve-currency status is not a divine right, and the Fed should step up its determination to fight inflation.”
But Houston? We have a problem.
France’s then-finance minister Valery Giscard d’Estaing, once called the reserve currency status of the dollar an “exorbitant privilege.” It’s also a curse.
History shows that only the classical gold standard, in which the world’s currencies are defined by and legally convertible into gold (not dollars), reliably fosters sustained equitable prosperity.
Forty some years ago, we supply-siders, defying conventional wisdom, prescribed stabilizing the dollar (and, secondarily, cutting marginal tax rates) to cure stagflation. We then proposed using gold.
In practice the stabilization occurred through the hawkish monetary policy of Fed Chairman Paul Volcker with the support of President Reagan. They quelled inflation and fomented sizzling equitable prosperity by tightening the money supply.
Inflation’s now back. Washington presents as clueless to inflation’s cause, and cure, as in the days of Jimmy Carter.
How to fix it? One Congressperson, à la Jack Kemp, to go for the gold.
