Bill Clinton, who rode a recession into office and left the scene just before another one began, knows something about the blame game. Addressing the Democratic convention on Wednesday night, he made a full-throated effort to defend the Obama presidency by putting it in the context of past Republican failure.
“They want to go back to the same old policies that got us into trouble in the first place,” he warned, listing tax cuts, financial deregulation, defense spending, and domestic budget cuts as examples. Clinton’s argument was an inch deep, but it recalled the fact that the economic catastrophe that primed Obama’s 2008 victory and has dogged his incumbency remains a liability to Republicans four years later.
If Clinton and his party believe that tax cuts can cause a financial crisis, that’s a new line of attack. If they believe that financial deregulation did it, they have never made a comprehensive case for exactly how. If it was too much spending on defense rather than entitlements, then they should review the boom of the 1980s. The Democrats have never really made a coherent argument of how the GOP caused such misery—they only pointed the finger. Meanwhile, Republicans act as if life began in January 2009.
There remains one explanation that has escaped both sides’ scrutiny because they share culpability for it. Beginning in 2001, easy money from the Federal Reserve flooded the markets with cheap credit, creating asset bubbles and finally tipping the American financial system on its side. This was a period of legitimate economic success (52 consecutive months of job growth under President George W. Bush) mixed with fake wealth attached to real estate and financial assets. No Republican is eager to wade into that story, while no Democrat wants to admit that their current strategy is reminiscent of it: Lean on the Fed to juice the economy.
Reliance on a loose-money Fed did not end well for the presidents who attempted it (Nixon, Carter, both Bushes), while Reagan and Clinton, by contrast, saw the fruits of a strong dollar. But even those relatively successful monetary policy records showed signs of dysfunction beneath the surface. Reagan was fortunate the rest of the world was eager to finance the deficit spending he failed to curb. For Clinton, the tech bubble collapse snowballed into a recession, but only on his way out the door.
Ron Paul isn’t in attendance at the 2012 Conservative Political Action Conference in Washington, but some of his ideas are center stage.
One of the first panels of the largest gathering of conservative activists was pure Paul: “The Need for a Twenty-first Century Gold Standard.”
The panel’s moderator, Jeffrey Bell, policy director of the American Principles Project, invoked the name of the great Paul when he introduced Jim Grant, the editor of Grant’s Interest Rate Observer.
“I can call him Mr. Chairmen because last fall Congressmen Ron Paul recommended Mr. Grant as his choice, should he be elected as chairmen of the Federal Reserve” Bell said.
The tales emerging from the Occupy Wall Street movement have a certain quaintness, as a mixture of aging anarchists and baffled Main Streeters offer dazzlingly offbeat solutions to genuine concerns.
Take the OWS protester spotted in downtown Washington, D.C., the other day who refused to answer an interviewer’s questions until the reporter plucked a stone from the pouch he was wearing. As the Wall Street Journal’s James Taranto describes it, the stone-bearer, a young man named Kyle Szlosek, proceeded to intone, “That stone is the only thing that matters in life.” If he could change anything through his protest, he said, it would be to “get rid of money.”
Other OWS protesters are more pragmatic or, at least, more formulaic. “One citizen, one dollar, one vote,” is their battle cry. This one emanates from the belief that money has corrupted U.S. elections, sabotaging the democratic process and elevating corporate greed at the expense of working Americans. The OWS protesters who raise this slogan are focused on campaign finance reform and the 2010 Citizens United Supreme Court ruling that struck down federal limits on corporate political activity.
As fuzzily focused as these complaints are (the U.S. economic meltdown in late 2008 occurred 18 months before Citizens United and a full year after the first Obama stimulus had funneled hundreds of billions of dollars to favored interests and industries), they are on to something fundamental. Our nation’s money can no longer be trusted as a storehouse of value, and big government and big business have derived perverse benefit from their ability to access and manipulate that storehouse.
The good news is that Americans are increasingly recognizing this fact and its significance. And the contenders for the highest office in the land are responding to this recognition. In politics, as in markets, the supply will respond to the demand.
Three Republican presidential candidates—Herman Cain, Ron Paul, and Newt Gingrich—have at least hinted about the desirability of a return to the gold standard. The four top Republican congressional leaders recently called on the Federal Reserve to curb its interventions in the U.S. economy. In early October the Heritage Foundation held a two-day sound money conference in which both keynote speakers—New York investment banker Lewis Lehrman and former presidential candidate Steve Forbes—called for adoption of a gold-backed dollar. Advocating the replacement of Fed chairman Ben Bernanke has become a staple of virtually all the presidential candidates. (Even establishmentarian Mitt Romney has joined in, apparently rendering inoperative his April defense of Bernanke.)
So Republican elites are rapidly climbing the learning curve on monetary policy, certainly in comparison to the days when presidential candidate John McCain joked that if anything happened to then-Fed chairman Alan Greenspan, his corpse should be propped up and nominated to a new term. But to understand fully the unspoken alliance between President Obama and Chairman Bernanke, and the threat it poses to Republican hopes in the 2012 election, the GOP still has some distance to go.
There is, of course, nothing new about political symbiosis between presidents and Fed chairmen—most definitely including Fed chairmen originally appointed by a president of the other party. Conservatives of a certain age have not forgotten the 1993 sight of Reagan appointee Greenspan sitting in the gallery next to Hillary Clinton at a joint session of Congress, tacitly blessing Bill Clinton’s stiff tax rate increases.
In just four months people in Iowa, New Hampshire and South Carolina will cast the first decisive votes in the race for the White House.
By then the field of contenders for the Republican nomination will have winnowed, perhaps significantly. It is likely that the positions each candidate takes — particularly on the economy — will determine where they are in this process. Those candidates seeking an edge in the early voting states could put themselves out in front of the pack if they were to advocate gold-backed money as a central part of their pitch to voters.
It is no accident that the sometimes abstruse-sounding debate over a return to the gold standard — abandoned 40 years ago by President Nixon – is garnering new attention from economic and social conservatives alike. The reason involves many things that are not abstruse at all — job creation, wages, personal and public debt, not to mention the growing worldwide weakness of the dollar. By now it is clear to people across the political spectrum that the monetary and fiscal experiments of recent times have failed spectacularly. More of the same will not do.
Yet more of the same appears to be all that Washington can offer, evidenced by President Obama's new jobs plan. After an epic Keynesian infusion of government funds into the U.S. economy, unemployment remains above nine percent. Economists were once again taken by surprise this past week when first-time claims for unemployment clocked in at 428,000, well above advance estimates. What amounts to the "rosy scenario" from the Congressional Budget Office sees unemployment remaining above 8 percent all the way through 2012. Talk of a new recession is no longer dismissible as fear-mongering.
It is also no longer possible to avoid the obvious implications of Europe's spreading financial crisis. The challenges posed by extravagant public spending, overextended government benefit and pension systems, and upside-down demographics with ever-fewer workers supporting evermore retirees at earlier ages have undermined confidence in basic institutions.
The global economy is suffering a blood-borne disease in which money — the circulatory system of the marketplace — is no longer a reliable storehouse of value.
Voters sense the symptoms of this disease in many ways, but we are now in the throes of well-founded anger. When our currency has no fixed reference of value that is recognized within and among nations, then the temptation of governments everywhere to paper-over potholes in the business cycle and launch irrational public investments becomes overwhelming. Padding the money supply to stimulate demand — without respect to utility or long-term value — begins as a remedial measure but ends up feeding a permanent fever.
In the United States, the Federal Reserve [cnbc explains] has applied every tool in the money supply box to stave off disaster, but those tools have reached their limits. Since the crash of 2008 we have had three years of a zero fed funds rate, with the promise of two more from Fed Chairman Ben Bernanke. This is not the promise the financial system — and the business community — are looking for. Investors seek stability and order in the markets for borrowing and lending, not heavy-handedness by the central bank to suppress interest rates.
The Fed's manipulations of the money supply and interest rates have made big money-center banks reluctant to lend to small and medium-sized banks because rates are too low to make the risk of lending worth it for them. Small business, the vanguard of job creation, suffers when local banks are frozen out of the financial system like this because they get starved for the capital needed to hire and expand.
Rather than debate a temporary tax break here or a bridge to somewhere there, candidates for the White House (and for seats in Congress) need to talk about systemic changes that can restore the people in control of the nation's money supply.
When a citizen can convert paper money to gold, or vice versa, a consistent check and balance operates in the financial system that minimizes its artificiality and maximizes its reliability.
At the candidate debate before the Iowa straw poll, Susan Ferrechio of the Washington Examiner referred to the gold standard as the "top tea party goal" in Iowa. Our experience at American Principles in Action conducting a three-week bus tour with 18 stops all across Iowa echoed that message.
But it would be wrong to see the gold standard as an abstract question of interest only to new activists. At its root it is literally a values question. Are Americans' wages and earnings a reliable reward for savings and hard work, or are they mere numerals on a printed page that government can alter at its choosing for economic and political ends alike?
The 2012 nominees for the White House must be prepared to answer that question in a cogent and reasoned way, because voters know that Barack Obama and Ben Bernanke are out of antidotes.
BY JEFFREY BELL: