Consider this quote from a must read op/ed by Herman Cain in today’s WSJ. It really is this simple:
"Think of economic growth as the result of two gears operating together—low tax rates and sound money. When both gears are fully engaged, the economy moves forward."
"Low taxes" is not a conspiracy by the rich to exploit the poor and disadvantaged.
"Low taxes and sound money" is the only way the little guy has a chance to compete with Big Biz, Big labor, Big finance or Big government, to name just a few of the "Bigs" that the little guy faces in his day to day life.
The idea that government is the only possible solution to social inequality is a fantasy myth.
Income and social inequality is a fact of life. That is where we need to start.
Income inequality is not an evil per se. This is not to say that all income inequality is created equal. it is not. There are times when income inequality gets stretched to dangerous levels, when the 1% control 99% of the wealth and the 99% live hard scrable lives.
The cause of such gross inequality isn't the "free market" run amok. No. The cause of distorted income inequality as we see in LATAM and Africa and increasingly in China and the US is not a natural result of so called "free markets." the cause of such inequality is more often than not well intended government policy. Other times the cause of distorted income distribution is pure greed when Big money, Big business, Big finance and/or Big labor conspire with government to tilt the playing field in the direction of themselves (often in the name of doing so for the common good).
When we put government in charge of leveling the playing field or regulating industries or improving social justice, the results are predictably the opposite: special interests inevitably coopt the legislative process in order to create an unbalanced playing field in favor of their interests. When "markets fail" inevitably as a consequence of special interests co-opting public policy, guess who gets blamed? You guessed it: "unfettered capitalism." meanwhile, the greedy politicians and special interests do everything they can to hide their complicit rent seeking behavior that bleeds public resources and channels them to the "Bigs" (i.e. big finance, big labor, big biz, big banking, big energy, big military, big welfare, big environmentalist lobby, etc. etc. etc). Big government and Big special interest groups are the hidden cause behind so called "market failure."
The only level playing field is the level playing field of the law and of treatment under the law that protects private property rights of each individual not matter how rich or how poor. Big government cannot fix markets or level the so called playing field because inevitably such well intended policy aims become hijacked by special interests.
Markets don't "fail" in the common sense way we think about "failure" in our every day lives. I like to think of "markets" as being "human." they screw up and make mistakes, but there is no way to "fix" inherent human "error making". Markets do possess some unattractive features -- just like we humans do: is it possible to eradicate mistakes from the human condition? progressive might think we have the moral duty to at least try. I don't agree. I believe it is much better to start with the assumption that we humans are fundamentally flawed. let's start with humility rather than hubris. we should have the same realistic assumptions and assessment for markets. markets will never be perfect. we need to learn to live and love markets for these "human" traits rather than try to treat the mistakes and try to fix them one by one.
the economy will never be a programable perfect machine anymore than we humans ever will be. and this is not some dubious analogy. the modern economy is just as natural and "human" as we humans.
there are business cycles and there is creative destruction process that causes stress for individuals and firms, and there are going to be industrial accidents and pollution, and there will be bank runs on occassion and asset bubbles and busts. These are all natural features of markets NOT market failures per se.
Just like an earthquake is a feature -- not a failure -- of the earths plate techtonic system, a business cycle is a feature -- not a failure of the market economy. the market economy and the earths plate techtonic system are natural sub-systems of the larger earth system. the economy is NOT designed or invented by humans. the economy organized spontaneously and emerges. it is the resutl of human action. yes. but the economy is not the result of human design. this is a huge point. it is plain old hubris to assume we can design, regulation and engineer "market failures" out of the economy without at the same time doing the same to "market" miracles. Such as sustainable productivity gains over time, what enables standard of living gains for society. Productivity is the life blood of modern society. if we fix features of the eocnomy we identify as market failures, we will simultaneously reduce the dynamism of the economy and its ability to sustain productivity gains over time.
there are NO FREE lunches. we think about managing our lives around earthquakes by understanding them better and learning how to live with them through construction technology. we don't try to eliminate earthquakes!!! if some day a genie came out of a bottle and said he could eliminate earthquakes from now on, would you say ok -- do it. eliminating earthquakes would save thousands of lives destroyed each year, but at the same time if we didn't have earthquakes, the earths crust would not be able to cycle over millenium and life on earth would cease to exist as we know it now. There are trade offs in life. it is a well known scientific fact that the cycling of the earth's crust is one of the critical features our earth has that has allowed it to develop intelligent life!!! get rid of earth quakes, you get rid of the very plate tectonic system that is a pre-condition of intelligent life evolving on earth.
get rid of income inequality or business cycles or industrial accidents and there is no modern economy. if we set our sights a little lower and admit we can't comlpetely fix these features of the modern economy, but we have the moral obligation to try. that is like saying we can sort of fix earth quakes or that even if we know we can't we should try. No way jose. the only rational option is for us to continue learning new ways to live with earthquakes, and forget trying to "fix them." fixing income inequality is like fixing earthquakes -- there is no physical way to do it part way. and if we pretend there is a part-way solution, we are only deluding ourselves and sowing a cascade of negative unintended consequences throughout the system.
the optimal solution is to learn to live with natural features of free markets we erroneously call market failures, just as we know we must learn to live with natural disasters like earthquakes, floods, hurricanes, typhoons you name it. when government pretends that they can under-write the risk of living with natural disasters, like by providing flood insurance in flood plains, we know what happens then, too. New Orleans.
When government tries to solves so called "market failures" they unwittingly make things even worse by turning what are merely natural features of markets into systemic failures!! Simple single (or regional) asset bubbles and busts (like tulips or real estate or tech stocks) turn into economy-wide multi-asset booms and Great Depressions as we saw in the 1920s and 1930s. without the Fed, we don't get the Roaring 20s OR the Great Depression!!! Prior to the Fed being established in 1913 we had cyclical "panics" but never a Great Depression or an era of prosperity as in the 1920's. Prosperity fueled by central bank easy money is followed by Depression like the night follows day.
We are in the process of trying to avoid a Great Depression after a similar period of excessive easy money in the 2000's turned to bust in 2008. all of the experts say the cause of the Great Depression was overly tight money by the Fed. we are told if only the Fed turned to ultra loose monetary policy in the 1930s we would have avoided the great depression. While this is most likely true, we have no idea what the unintended side effects will be of the ultra loose monetary policy used to avoid a Great Depression II after the Great Credit Crunch of 2008 followed the Lehman collapse -- and the Fed treated it and continues to treat with ultra loose money? We have no idea if the cure to the money bubble bust will end up being worse than the disease. There are no free lunches. Yet we have this idea that we can enjoy easy money bubbles, and then when the inevitable bust comes, we can just use the Fed to reverse the bust, so its effects are minimized and doesn't last too long.
This is the experiemenbt playing out currently. Progressives claim that the Fed is holding society backthat China will face in coming decades will be one more example why a system based around central planning may enjoy rapid prosperity for 20 or 30 years, but eventually faces constraints -- and must pay back in spades the wasted public resources used to fuel superficially "wonderful" eocnomic results.
and impoverishing the middle class by not easing money even more. since when is the cause of a boom / bust cycle also the painless cure? where is talk and debates of trade offs? we are told by progessives that to believe in trade offs is to believe in Santa Clause or maybe God. how ridiculous they say, that society must "pay" for a period of prosperity fueled by easy money. They derisively call the austrian business cycle theory, which focuses on the easy money underlying cause of boom/busty cycles, as the "hang over" theory.
IN THE real world in which we live, there are no free lunches and painless policy options that policy makers can use to solve so called market failures. if the government could really solve market failure, then we'd be living in utopia. What we see is that government interventions can solve problems in the short term, but these problems manifest and become larger and ultimately grow like a cancer, eventually, killing the host, that at one time seemed to be doing so well. this is the story of the Eurozone and of Germany and even of the Scandinavian countries that are supposed to be the models of enlightened social welfare capitalism. Sorry, such schemes are not affordable or sustainable. the massive political and economic stresses and strains
in the real world, we must deal with natural features of markets and adjust to them and teach our children to be flexible and creative and able to adjust to unexpected shocks and disasters rather than trying to eliminate the unexpected and the unfair and the unequal from society. forget fixing natural features of markets. government can solve such "features" but they do so at the cost of sowing even worse underlying risks and fault lines into the structure of society at large. at the extreme, if we want to get rid ofincome inequality the solution is easy. put the government in charge. the result will be like USSR and Mao China and North Korea: disaster, famine, failure. Try to navigate a middle way between socialism and unfettered capitalism and the results will be less dramatic but ultimately will be the same.
the government can’t level the playing field any more it can get rid of business cycles or monopoly power or fix poverty or provide universal health care and education. When the government gets in the game of leveling the playing field, what always happens is big money co-opts the political process so the little guy gets in the end anyway screwed!!!
High taxes and easy money is THE conspiracy by elites who control public policy. consider health insurance subsidies or college loans. What these schemes do is increase demand for health care and secondary education, thus fueling price inflation. price inflation makes it harder for middle class families to afford. eventually, not only the "poor" but the middle class can't afford college or health insurance. of course the market gets blamed, when in fact the market is poisoned by well intended public policy aimed at levelling the playing field, which ends up screwing everything up.
Elites on both sides of the political aisle benefit from well intended government policy. Such elites include big labor, big finance (George Soros, Warren Buffet), big business (Bill Gates, CEO of GE), it includes top economic policy makers in BOTH parties – including the bi-partisan Goldman Sachs mafia – Geithner and before him Treasury Secretary Rubin, it includes the military industrial complex, and it includes the CEO’s of the big Wall Street investment banks, as well as commercial banks ANd last but not least it includes politicians in both major parties. Dems and GOP leaders point fingers at each other to distract from the fact that both sides stay in power via big money, special interest group politics.
please don't say campaign finance is the solution to special interest politics. it is not. get rid of government involvement in the micro managing the eocnomy, and the special interest groups will lose their r'aison detre. special interest groups -- and politicians -- thrive by exploiting the nexus of big money and goverenment power over the economy. politicians pursue policies favorable to special interests, the special interests group finance the politicians and everyone is happy, except for the poor slob paying indirect and direct taxes requried to fund the gravy train for politicians and special interests. If we try to solve this problem directly with campaign finance reform, the results will be no better.
incumbents are favored tremendously in a "equal playing field" environment. There is no such thing as a level playing field in politics. try to make it equal with campaign finance, and we will be stuck with a system that favors incumbent politicians, who then can exploit special interest group big money politics in some way that circumvents the rules, but allows the politicians to acrue more and more power over time, because insurgent politicians are disallowed campaign financing by the very system that is ostensibly designed to "level" the political playing field.
the only way to truly level the playing field is to disallow government from picking winners and losers, or from "solving" market features that we call failures. Politicians have two choiced to fix market features or failures. if the problem truly is a market failure, chances are it was caused by a cascade of previous well intended policy initiatives aimed at solving some other problem. trace the cause of the market failure to public policy -- and unwind the public policy BEFORE adding more well intended public policies which are destined to create a new cascade of negative unintended consequences ... and sow seeds for a new generation of so called market failures. The other option for policy makers, if the problem they are trying to fix is a market feature, that appears to be a market failure (e.g. income inequality, business cycles, limited access to college) is to provide limited local tools for individuals to adjust to such "problems" rather than trying to fix the "problem" directly. When government tries to fix income inequality through progressive taxation for example, the inevitable result is a mis allocation of scarce resources over time that reduces the underlying dynamism of the economy. There are no free lunches. If we want to reduce income inequality, we must face a trade off in terms of lower overall productivity gains for the economy, which means lower standards of living for wage earners over time.
"Big money Power elites" also includes the chairman of the Federal Reserve, which was established as a back stop for big banks and big finance – and only sold to the American public as a mechanism for protecting the little guy against unpredictable economic cycles.
Consider what the Fed has accomplished since it was established in 1913. Inflation has gone up by over 2000%!!! The dollar has lost 95% of its value!!! We’ve had the Great Depression. So much for maintaining economic and financial stability. we’ve had the great inflation of the 1970s and the Great Recession of 2009 – and the on going chapter of economic malaise that I expect will continue for a decade or more!!
Both the Dems and GOP point fingers while Rome burns. Rome is the perfect analogy because Roman began to decline as soon as Emperors figured out how to debase the currency, which was required to pay for the modern welfare/warfare state of the time!!! sound familiar???!!
This op/ed by Herman Cain includes several other simple yet profound quotes:
“The more complex a society, the more it depends on fixed and rigorously reliable standards. A dollar should be defined—as it was prior to 1971 under the postwar Bretton Woods system—as a fixed quantity of gold.”
What Herman fails to mention is that FDR confiscated all gold and changed this fixed value. Progressives claim this was what got the US out of depression and progressives such as Krugman are screaming for the same today. how are we to believe that what got us into this mess is also supposed to get us out?? Easy money got us into the mess. Easy money led to all the proximate causes of the recent crisis. Without easy money supplied by the Fed we DO NOT get the perfect storm that the progressive claim was an once in a lifetime confluence of market failures combined with too little regulation.
Systemic risk isn’t random or a confluence of unrelated factors that just happen out of the blue. Isn’t it much more plausible that all of these symptoms of market failure were all cause by the VERY SAME underlying cause: ie. easy money.
Easy money promoted excess risk taking, it make regulators blind to risk because they saw strong fundamentals, it fueled property bubble. deriviatives are blamed but derivative didn’t cause the propety bubble, they just facilitated easy money going into the property bubble!!!
Progressives say easy money may have been one contributing factor but it can’t explain everything. Why not? I can trace every single so called market failure back to easy money or some other well intended government intervention in the economy, including the massive subsidies government made to encourage home ownership!!!
The market did NOT fail us. We failed the market. And then when the market failed, we just blamed the market again and looked to the government to fix what they screwed up in the first place.
Many of the so called experts denigrate the gold standard and say we can’t go back. if you study the history of the gold standard, what you find is that The gold standard did not fail modern society. We failed the gold standard. Keep in mind that “we” went off the gold standard during the Civil War and before WWI. During the periods the Western world went off the gold standard, such as during WWI, central banks printed money like there was no tomorrow!!! It was this process of going off the gold standard, rationalized in order to pay for a war that was supposed to end all wars, that sowed the seeds for the 1920s boom and the Great Depression Bust, which sowed seeds for the rise of Hitler and fascism and led to WWII. It wasn’t the gold standard per se that caused the Great Depression. It was going off the gold standard in the first place. Did we HAVE to go off the gold standard?? Politicians argued we did in order to pay for WWI. The result was millions of soldiers dying in trenches in the most ghastly war in history. What if policy makers didn’t have central bank printing presses to pay for War? Think about that.
The problems we face are a result of going off the gold standard. Policy makers say we can’t have a gold standard because the gold standard hamstrings policy makers from implementing counter cyclical economic policy.
If we’ve learned anything over the past 100 years since the Fed was established is that policy makers need constraints rather than flexibility in pursuing economic policy. flexibility gives policy makers the ability to pursue free lunch policies that come back to haunt society no matter whether we are talking about unaffordable welfare or warfare. The left says if only we didn’t have a military, and the right says if only we didn’t have entitlement schemes, we would be fine. The fact, is the left and right have both done deals with the devil to accommodate unaffordable spending on both welfare and warfare. Now that we understand we can’t afford both, each side points the finger at the other.
Conservatives are wrong that a massive military industrial complex is affordable or moral or necessary or non negotiable just as the Progressives are wrong and hypocritical for saying the same about the welfare industrial complex. Each side uses these priorities as captive special interest groups that fund campaign war chests needed to maintain their hold on political offices.
The little guys, the 99% are pawns in elites hold on power. the answer is NOT higher taxes on the wealthy and more government solutions to what ails society. The answer is a new concept of what level playing fields mean. level playing fields should be viewed as equal treatment under the law, not equal outcomes. Liberals hijacked the word Liberal and turned it into exactly the opposite of what it meaned when the term was coined in the 17th century. Now we refer to classical liberals who argued for the sanctity of individual property rights and equal treatment under the law. Modern liberals argue for equal social outcomes and level playing fields for all – and GUESS WHAT. Such equal outcomes require government to run roughshod over individual property rights and equal treatment. What modern liberals support is unequal treatment for minorities and the idea that property rights don’t matter at all. what matters is equal outcomes. And what is required for public sector to deliver equal outcomes is to ignore private property rights!!! Modern liberals turned the world view of the classical liberals upside down.
Modern liberals and progressives assert that what matters is outcomes not process. what classical liberals argue what matters is the sanctity of rights and the equal treatment of all under “the law.” Classical liberals understand peace and prosperity in modern society resulting from free trade – which by definition benefits both the buying and the seller – otherwise the trade can’t be made. Modern liberals have turned this idea upside down by arguing that government is the only unbiased entity that can ensure peace and prosperity and equality (in terms of outcomes). How should government do this? Government MUST use ends justify the means logic in order to inject good outcomes into society. What this means is that process and property rights and equal treatment under the law go out the window. Such ideas are viewed as silly and overly naïve and unworkable in a modern society. The result is that government is given a license to do anything in the name of good intentions. The inevitable result is that government MUST use force to ensure “good” and “equal” outcomes. Progressives use other words to describe what government does. But these words are all euphemisms for “force” in one way or the other. One person’s rights are viewed as less important than someone else’s rights. Take for example, progressive taxation schemes. Or take subsidy schemes or entitlement schemes or anti-trust schemes or welfare schemes or bail out schemes --- all require the government to “enforce” or use force to ensure certain preferred outcomes. In this way, public sector goals inject an ethic of might makes right into society. It just matters who is in power. whoever is in power decides what is right – and then might is rationalized. Government is only an unbiased protector of the little guy in fairy tales and pie in the sky fantasies promoted by progressives. Government is easily co-opted by BIG Money. When government is given the job of making the world better for the little guy, inevitably what happens is the little guy gets screwed!!!
Is the world fair? No. who says the government can or should make it fair. Use the government to make the world fair or safe or more equal (welfare / entitlement) or use it to eliminate business cycles or use it to make us safe from foreign threats (via homeland security, military industrial complex) and you are asking for trouble with a capital T!!!. Trouble, trouble, trouble. Government cannot engineer outcomes in a complex society. If it tries, what happens is the political process is highjacked by money interests and elites.
Elites used to be religious leaders. Now elites are politicians and experts and academics and so called scientists all of whom are in collusion either directly or indirectly with BIG MONEY. To claim otherwise is fantasy land. Progressives say only conservatives are coopted by bug business and big money. This may be true but for progressives to say they are not also corrupted by special interests is to be naïve to the extreme. Progressives are using science as a bludgeon to reduce argument for political special interest supporters.
This highlights a/the fatal flaw in direct democracy. Tyranny of the majority is no less evil than tyranny of a minority or tyranny of an select elite. Democracy is not inherently moral. What is inherently moral is a society based on certain basic fundamental principles and rules that apply equally to EVERYONE. institutions and law and social outcomes are emergent phenomena, they are not outcomes engineered by experts and policy makers.
The solution to man-made Global warming cannot be more government top-down solutions. Cooperation and public sacrifice and everyone coming together for a common cause IS AN EXCUSE for some authority to use might makes right authority that by defintion cannot be moral. Progressives claim that governmetn must reduce might makes right in the world by reducing the influence of monopoly power and by redistributing income and by making the world safer for the little guy. It is a contradiction in terms for government to inject such outcomes because doing so requires using the exact same might makes right logic that progressives argue government needs to solve.
Some companies will grow big. There may be monopoly power at times. income inequality is a fact of life. so is pollution. When man discovered fire, he also discovered pollution and waste and garbage. Before fire, there was no such thing as “pollution” per se. getting rid of pollution is easy: reduce population and put government in control of all resource allocation. That is also the best way to impoverish human society and deliver the mother of all human suffering.
The answer to income inequality and pollution and business cycles and monopoly power and social problems is NOT going to come from government policies engineered to deliver certain outcomes or results. Such problems will come from a bottom-up, process of trial and error that emerges naturally from a simple set of rules and moral principles that sanctify individual private property rights, freedom of trade and speech and that understand that social outcomes are emergent and beyond the direct control of well meaning public policy makers / elites.
One of the founding principles of any society requires sound money. the only reason we have to go off the gold standard is when policy makers decide that we can’t afford either war or welfare schemes that are unaffordable via direct taxation. The central bank provides a convenient buyer of last resort for public bonds used to raise money for public sector expenditure. Politicians claim that the gold standard limits policy makers ability to fix the market and ensure it doesn’t’ run off the rails. In fact, the only way the economy can truly run off the rails is with a central bank that doesn’t allow weak banks to fail and therefore ensures that systemic risks build up in the system as the weak remain bailed out, and thus remain a sort of cancer on the entire system. Temporary stability ensured by central bank bailouts merely sows seeds for larger, systemic risk and a bigger bust sometime down the road.
There are no free lunches. Reduced volatility in the short to medium term will be off set by larger volativlity in the longer term. So we had 25 years of prospertiy since 1983. So what? Does that prove policy makers figured it out? and that central banks are necessary instituion for “free markets”?
No. recent developments mean that there is no such thing as a “free market” when we talk about a system with a central bank, lender of last resort.
Don’t let politicians fool you on either side of the political divide. Dems love money printing and the central bank as a way to pay for the welfare complex. And GOP loves money printing facilitated by the central bank as a way to pay for the military industrial complex.
Both Dems and GOP love the central bank as the bailout mechanism for Big Finance. Dems love big labor, welfare and entitlements, GOP loves military industrial complex, entitlements (even though they profess otherwise) and BOTH the Dems and GOP love BIG finance bailouts.
It is no coincidence that the Democrat Party’s economic policy elites come largely from Goldman Sachs!!!
Let’s stop pointing fingers.
The Democrats and Republicans have created two narratives that seems as if the other side is the Devil. In actual fact BOTH sides are more the same than different!!! Each side creates a fiction why we should be scared to death if the other side takes control of the White House. In actual fact, both sides are more similar than different. The basic similarity is that both sides have created a system that requires a central bank to create the illusion that we live in a world of FREE LUNCHES.
The GOP would have us believe that a massive military industrial complex is affordable and moral and non-debatable.
Our founding father’s inlcudine ( I think Jefferson and Madison warned of maintaining a large standing army; they argued correctly that we should mobilize the army during times of national emergencies and then reduce size after the threat is over. This was our pattern until WWII!!! – and it worked just fine. Have times changed??? I don’t believe they have.).
Conservatives scare monger about national security in an effort to maintain the industrial military complex, and liberals scaremonger about social welfare issues to maintain the welfare industrial complex. Both complexes are unaffordable over the long term because once these complexes get up and running they grow and grow and grow and grow for a variety of reasons to complex to get into here.
What we need is low taxes and a dollar as good as gold. If we committed to a dollar as good as gold, the political debate would change radically and FOR THE BETTER. we’d be forced to talk about trade offs and affordability of programs.
The first central bank, the Bank of England was established to create an public entity that could purchase public bonds that were issued to pay for a war with France!!! The history of central banks is the history of creating entities to pay for warfare or welfare that is beyond what is affordable through direct taxation!!!
The other reason central banks were created is to provide a bail out mechanism for Big Finance. the myth was invented by political and financial elites that the economy was too unpredictable and subject to boom/bust such that a central bank was needed to keep the middle class and lower classes “safe” from economic turmoil. In fact, the Fed was established because Big Finance and government wanted a way to ensure Big finance was protected from economic cycles. This is a historical fact!!!
A conspiracy of Wall Street bankers and one prominent Senator designed and promoted the establishment of the Federal reserve during a secret meeting on Jeckyl Island, a resort for the uber wealthy!!!
The politicians and policy elites
- May 13, 2012, 5:50 p.m. ET
Herman Cain: We Need a Dollar as Good as Gold
A gold standard is to the moochers and looters in government what sunlight and garlic are to vampires.
My 9-9-9 tax code replacement plan provoked enormous enthusiasm during my presidential campaign because it represents the largest transfer of power in the history of the republic. By instituting a 9% income tax, a 9% business tax, and a 9% national retail sales tax—and eliminating most of the remaining tax code (including the many hidden taxes built into the process of doing business)—we would simplify the system for everyone and rob politicians of their ability to use the code to manipulate economic activity.
But why stop there? Washington thwarts prosperity through more than the tax code. The present monetary system is an abysmal failure by any objective measure. As the former chairman of the Federal Reserve Bank of Kansas City, I can say with firsthand experience that it is not the people of the Fed, but the actual structure, that needs reform. Our liberty and prosperity depend on it.
Think of economic growth as the result of two gears operating together—low tax rates and sound money. When both gears are fully engaged, the economy moves forward. When the gears become disengaged, the middle class suffers. That's why, as convinced as I am of the power of the 9-9-9 concept, we need sound money to go with it.
Article I, Section 8 of the Constitution grants power to Congress "to coin Money, [and] regulate the Value thereof." But for the last 40 years in Washington, regulate has meant manipulate, with the Federal Reserve raising and lowering interest rates and buying and selling assets at its own discretion. All of this manipulates the value of the dollar. We regulate time by making sure an hour is always a fixed quantity of minutes and a foot is always a fixed quantity of inches. The more complex a society, the more it depends on fixed and rigorously reliable standards. A dollar should be defined—as it was prior to 1971 under the postwar Bretton Woods system—as a fixed quantity of gold.
However imperfect a gold standard may be, it remains the best among all alternatives. The empirical data for both the classical gold standard, which I favor—and even the flawed "gold-exchange" standard, as we had under the Bretton Woods system—are impressive. Economic growth was stronger, unemployment rates lower, the price level more stable, and recessions less frequent and less severe than under the present system.
I realize the Washington establishment goes ballistic at this suggestion. Gold is kryptonite to big-spending politicians. It is to the moochers and looters in government what sunlight and garlic are to vampires. The American people are another story. Nearly half (44%) support a return to a gold standard, according to an October 2011 Rasmussen Report. That support soars to 57% when respondents know it will "dramatically reduce the powers of bankers and the political class to steer the economy."
Now the political center is moving. Gov. Mitt Romney, who has my full and enthusiastic support as the GOP's presidential nominee, has said on record he is "happy to look at a whole range of ideas on how to have greater stability in our currency and in our monetary policy." His leading economic adviser, R. Glenn Hubbard, has devoted much of his recent book, "Seeds of Destruction," to rules-based monetary reform.
In Congress, Rep. Kevin Brady (R., Texas) recently introduced the Sound Dollar Act of 2012, and Sen. Mike Lee (R., Utah) introduced its Senate counterpart, the Federal Reserve Modernization Act. While each bill stops short of the real thing, which is a return to the gold standard, they are major first steps.
The political establishment will fight this idea viciously, because gold convertibility strips them of power and places the trump card over monetary policy with the people. If you thought the establishment attacked me over 9-9-9, wait until you see how they react to a classic gold standard. The vampires will be out in full force.
The debate over sound money has moved from whether we need it to how we get there. The pieces are moving in the right direction, and we have an opportunity to make the dollar once again as good as gold. Limiting Washington's power is a winner. Restoring prosperity is unifying. Joining forces behind bold solutions—engaging both gears of sound economic policy—will restore prosperity for generations to come.
Mr. Cain is a former chairman and CEO of Godfather's Pizza and a former chairman of the board of directors of the Federal Reserve Bank of Kansas City
