This may come as something of a surprise, seeing as though Kudlow is a Wall Street/financial establishment guy, and those seem to be wetting their pants over Perry’s statement Tuesday that it would be “almost treasonous” for Fed chairman Ben Bernanke to institute another round of quantitative easing.
But Kudlow, after stripping away some of the color from Perry’s statement, says he’s spot on…
No, Ben Bernanke is not a traitor. This is a policy dispute; it’s not a matter of patriotism. However, and this is an important however, the rest of Perry’s statement suggests that his analysis of Fed policy is right on target. In other words, wrong words, right analysis.
The Texas governor, who by some polls is the new Republican presidential frontrunner, went on to say, “We’ve already tried this. All it’s going to be doing is devaluing the dollar in your pocket. And we cannot afford that.”
Well, to me that is exactly right.
Let’s take a quick look at Bernanke’s QE2 record of pump-priming: The dollar fell 12 percent on foreign-exchange markets. The consumer price index jumped over 5 percent at an annual rate. And the $600 billion cheapening of the greenback led to skyrocketing commodity prices, including oil, gasoline, and food. That oil-price shock is one of the principal factors behind the 0.8 percent first-half economic stutter. As a result of the jump in inflation linked to QE2, real consumer incomes slumped badly and consumer spending fell substantially.
Before QE2 the economy was growing about 2.5 percent, even though it was already blunted by numerous tax and regulatory obstacles. But the cheap-dollar oil shock came perilously close to pushing us into recession.
So it turns out that Governor Perry — even with his overly strong language — is a pretty sharp economic and monetary analyst.
It’s amusing to watch the Democrats and their propagandists in the mainstream media – not to mention Perry’s supposed masters in the Bush camp, as represented by Karl Rove – go into paroxysms over the Texas governor’s statements on the campaign trail this week, as though he’s making gaffes by grabbing headlines.
We’ve already dealt with the moronic, clumsy attempts by MSNBC to turn his characterization of $16 trillion in national debt as a black cloud hanging over America into some sort of racist message about Barack Obama; Al Sharpton turned Perry into a Klansman over the issue but wasn’t even sharp enough, as his fellow propagandist Ed Schultz was, to edit out the part where Perry specifically referenced “the debt” as what the black cloud was. It was a remarkably poor showing, even for MSNBC.
But the statement about Bernanke and the prospect of a QE3 was no gaffe. And while the Washington/New York media establishment might have soiled itself over such a barbarian utterance, the majority of the American people saw things the way Kudlow saw them. No sane person takes seriously the idea that Perry and his band of Texas would string Bernanke up from the nearest tree, as it’s been presented; they recognize that printing more money in an effort to prop up the stock market constitutes redistribution of wealth from Main Street to Wall Street. Prices go higher, so your disposable income shrinks. It’s like a tax. And they want no more of it.
This sentiment has fueled some of the appeal Ron Paul has generated, and no other GOP candidate has managed to speak to the constituency of people who are tired of the government trying (and failing) to manipulate the economy using monetary policy. And that has meant people who care about what is generally a pretty esoteric and complex issue have been stuck with a 76-year old chronic presidential candidate with no serious prospect of winning and some truly noxious policy statements. Perry’s “outburst” was a signal to those voters that he’s willing to add them to his coalition.
Many of those voters are not Republicans, by the way.
One of the ignored truths in American politics is that a very sizable portion of the independent vote in this country comes from people who regard themselves as more conservative than they believe the Republican Party to be. Those people sat out the 2008 election because John McCain was simply not palatable to them, but they showed up in force last year and delivered the House to the GOP.
Perry may be calculating, and if so, rightly, that capturing the GOP base and appealing to those independents who are conservatives is a formula which will beat Obama. He might need a couple of positions which can be considered centrist to pull the “moderate” independents, and he can do that based on some of the stances he’s taken.
Perry might be the first presidential candidate in memory to apply the 10th Amendment to social issues. That’s a strategy so brilliant in its simplicity that it’s amazing it’s never been done effectively before. Using such a construct, Perry can be as socially conservative and unabashedly Christian as he wants without really threatening social moderates – because when he says that social issues like gay marriage, abortion, capital punishment, sex education, Creationism, school prayer or whatever else are issues which state or local governments must address, those moderates or libertarians simply don’t have anything to fear from a Perry presidency. He had to walk back a 10th Amendment stance on gay marriage a little after the Family Research Council pressured him on the issue, but as the GOP nominee he might have more space to push the keep-the-social-issues-local message. It ties in with much the rest of his message about draining power from Washington; something voters populating most of the political spectrum like.
But the shot across Bernanke’s bow indicates Perry will take risks in attempting to build a wide coalition of voters. His opponents might throw media flak in his direction for taking those risks, but if he continues to shake things up on the campaign trail he’s going to do well.
UPDATE: The Wall Street Journal echoed Kudlow’s sentiments in a good editorial piece…
The real news isn’t the rhetorical gaffe but the substance and politics of Mr. Perry’s demarche. Here we have a Presidential candidate, a Texas populist no less, laying out a position in favor of sound money. This is a bear walking on its hind legs. The ghosts of Wright Patman and Henry B. Gonzalez are howling in the Hill Country.
The media trope of the week is that Mr. Perry is George W. Bush only more so, but he clearly isn’t the same on monetary policy. Mr. Bush, who first appointed Mr. Bernanke, was an easy-money, weak-dollar President. He and his former economic advisers still don’t understand how Alan Greenspan’s policies at the Fed contributed to the credit and housing manias that led to the financial meltdown that caused the GOP’s political undoing in 2008.
Mr. Perry seems to appreciate that the Federal Reserve can’t conjure prosperity from the monetary printing presses. His articulation needs some work, but we hope the Texan doesn’t let media and other criticism deter him from pursuing the argument. The issue is crucial to understanding—and explaining to the American public—how the meltdown happened and why Americans are so unhappy with the current recovery.
The Texas Governor has a better insight into middle-class economic anxiety than do most Washington-Wall Street elites. Americans intuitively understand that their after-inflation incomes haven’t risen for a decade. Even when incomes rose during the growth years from 2003-2007, the gains were undermined by the rising cost of housing, as well as by rising food and energy prices.
Then huge chunks of middle-class net worth were wiped out in the panic. And now, even as the recovery is supposedly underway, their meager salary increases are being washed away with another burst of commodity inflation caused by near-zero interest rates and quantitative easing. This is what happens when politicians and central bankers try to use monetary policy to compensate for the slow growth caused by bad fiscal and regulatory policies.
The Texas Governor, or one of his advisers, may also have noticed that various economic sages are offering inflation as the solution to America’s debt problem. Harvard economist Kenneth Rogoff has suggested that an annual 4% to 6% rise in the price level over several years would do the trick. Assorted columnists are picking up the theme, and our guess is that the Obama Administration is privately on board. By all means, we need a debate in 2012 over Fed policy.