There are three critical issues–in addition to ObamaCare–that GOP presidential candidates need to get right if we’re to get America moving again: the dollar, taxes and means testing for Social Security and Medicare.
Monetary policy is one of those rare subjects that truly intimidate most people, which is why the Federal Reserve has less formal oversight–even though it can destroy our economy–than do our intelligence agencies. Politicos are loath to go beyond bromides when it comes to treating the dollar with respect. Among the current crop of contenders only Representative Ron Paul (R–Tex.) unhesitatingly brings up the dire necessity of relinking the dollar to gold.
It wasn’t until the early 1970s that the connections between the dollar and gold were completely severed. The ensuing decade was an economic horror. During the 1980s and most of the 1990s the dollar price of the yellow metal moved in a fairly narrow range. But for the last decade the gold gyroscope has been spinning like crazy. We’re in a 1970s-like malaise. The weak dollar is fueling speculation in commodities, currencies and farmland and is chasing off capital to Asia. Cheap money also undermines the value of capital, which is why we have subpar levels of business investment.
Timid presidential candidates should fortify themselves with the knowledge that the disastrous housing bubble could never have occurred had the Fed not printed so much money. They should also dust off John Kennedy’s famous quote that the dollar should be as good as gold.
Another big issue is tax simplification. For some unfathomable reason Republicans are unwilling to embrace a flat tax, even though various versions are operating successfully in some 30 countries. The most they can bring themselves to advocate is either a national sales tax–which is almost impossible to sell to the public–or reducing the number of tax rates to two. House Ways & Means Chairman Dave Camp, who is working on a bill to declutter our tax code, is an example of someone who can’t bring himself to go all the way to a single-rate tax system. We tried a two-rate route in 1986, and we saw how long that simplification lasted. There are easy and convincing answers to flat tax critics who assert that it will favor the rich, hurt housing and damage charities (see the book Flat Tax Revolution, Regnery, 2005).