It may have been one of the strangest moments in the history of modern presidential politics.
Presidential aspirant Paul Ryan gave the world a false “Sister Souljah Moment” in publicly dissing a key portion of the legacy of Jack Kemp at the Kemp Foundation Leadership Award Dinner (which had honored Ryan himself with its leadership award last year). It was even odder that Ryan chose to mock — outside his prepared remarks — the gold standard, a core piece of Kemp's conservative agenda, just as it finally is coming (according to, among many others, the FT ), into “mainstream US politics.”
At the same event presidential aspirant Marco Rubio, the 2012 recipient of the leadership award, warmly embraced the fundamental Kemp, and Reagan, plank of good monetary policy. Rubio, putting his money where his mouth is (so to speak), had just joined with the Senate's #2 Republican John Cornyn in co-sponsoring the Senate version of Rep. Kevin Brady's Sound Dollar Act. While occasionally paying lip service to sound money Ryan's name does not appear among this important legislation's 48 House co-sponsors.
Ryan waxed deeply offensive when, 20 minutes in, he stated “of course every problem doesn't disappear through the workings of the free market alone,” extemporaneously adding, “I would love to say if we just went on the gold standard it would all be settled heh heh — right Judy? Heh heh.” The “Judy” of Ryan's comment could have been none other than Dr. Judith Shelton, board member of the National Endowment for Democracy, a public intellectual, co-editor of the recently released Atlas Foundation Roads to Sound Money, and internationally respected monetary reform advocate.
Dr. Shelton is no Sister Souljah. The moment backfired on Ryan, badly. Ryan's slight of gold seemed like an insult to the memory of the prime sponsor of the 1984 Gold Standard Act: Rep. Jack Kemp. This piece of legislation embodied Kemp's vision of how best permanently to institutionalize a main component of the Mundell-Laffer Hypothesis. The Hypothesis was the very foundation of the Kemp agenda, of Reaganomics, and of almost a generation of vibrant economic growth. Jude Wanniski stated the Mundell-Laffer Hypothesis in a seminal 1975 National Affairs article with “the purpose … to show … why its implications are not politically unattractive— i.e., would not involve a period of suffering by the world's population in order to achieve improvement.”
“In the Mundell-Laffer scheme of things, a common currency is not a utopian fantasy; it has been around before. For decades prior to World War I, the world had a simulated common currency as national currencies were tied to the pound sterling and the pound was fixed to gold. In the years after Bretton Woods (1944) until about 1967, or even 1971, the world had a simulated common currency bound to the dollar. The system was flawed, but still enormously successful. …
“The world economy gets a bonus, something extra, by having the economies of scale of a common currency. …”
Sen. Marco Rubio, the 2012 recipient of the Kemp Foundation Leadership Award, by contrast, prominently embraced monetary reform, taking a substantial step toward Kemp's quintessential prescription. Rubio:
“Sound monetary policy would also encourage middle class job creation. The arbitrary way in which interest rates and our currency are treated is yet another cause of unpredictability injected into our economy. The Federal Reserve Board should publish and follow a clear monetary rule to provide greater stability about prices and what the value of a dollar will be over time.
“Getting control of the debt, reforming taxes and regulations, growing our energy industry, and predictable monetary policy are five concrete things the government can do to help our economy create new middle class jobs. But if the higher wages people make at these jobs is offset by an increase in the cost of living, we are just running in place.”
The National Journal's Insiders Poll shows 40% of “Republican Insiders” consider Rubio the GOP's leading contender for its 2016 presidential nomination, easily beating out second place Jeb Bush (27%) and far outstripping the next contenders, Paul Ryan and Rick Santorum, tied at 9%. Ryan remains fixated on the federal deficit in much the same way as Ahab was obsessed by the Great White Whale. We all remember how that turned out.
Ryan proposes to harpoon the deficit with entitlement cuts. Rubio, while making it clear he intends to muzzle the federal spending whale, focuses most of his energy on growth — including the growth induced by a clear monetary rule. A clear focus on economic growth — including the imperative of monetary reform — is the winning combination, as Kemp, and Reagan, demonstrated. Rubio has a firm command of this.
Apparently, during his reportedly avid reading of Wanniski, Ryan missed the Mundell-Laffer hypothesis. Why does this matter? Because economic growth is the key both to American prosperity and balancing the budget. As Wanniskian Louis Woodhill wrote here recently:
“I can remember that at a Club [for Growth's] gathering in Washington in 2000 … the Club's first president … mentioned that the conventional wisdom was that “We can't grow our way out of the financial problems of Social Security”. (Paul Ryan also expressed this belief on Larry Kudlow's show during the 2011 budget battles.) I can still remember immediately retorting, 'Of course we can. A real growth rate of 3.5% would do it.'
“Years later, after I started writing columns on economics, I went through the Social Security Trustees' Reports for the prior 13 years, and determined that the real economic growth rate required to keep Social Security solvent, without changes to taxes, benefits, or the retirement age, was…3.5%.”
Ryan remains fixated primarily on cutting spending, including entitlements. Rubio's speeches are suffused with ways to promote growth while restraining spending. Cutting unsustainable spending is all to the good but promoting growth must be at the core of any solution.
Last week, the Kemp Foundation placed the Kemp mantle on the shoulders of one Marco Rubio, the GOP's presidential frontrunner. Rubiochose to honor Kemp, and the policies Kemp stood for, by devoting the heart of his speech to the government's duty to create policies that create and support a vibrant middle class and to the social and moral imperative of policies that foster job creation. Rubio extolled the role of a sound monetary policy as one of five imperatives for bringing about a climate of prosperity.
Conservatives' disappointment in Ryan for using the Kemp Foundation award dinner to make a comment denigrating the free market, and the gold standard, however, was more than offset by excitement about Rubio's message. In Rubio the Supply Side may have found an important new champion around whom they can unite to bring Jack Kemp's legacy of an equitable vibrant prosperity, in America and around the world, to new heights.