Anno Mundell: An Elegy for the Father of the Golden Age
By Ralph Benko, TES Contributor
Nobel Economics Prize holder Robert Mundell has left the building. Why should we care? He wasn’t a celebrity like Elvis or Kim Kardashian or Donald Trump. Rather, Mundell quietly and emphatically improved the lives of billions of people.
Including you and me.
Mundell was the founder of a golden age of world equitable prosperity. It wasn’t utopian. Yet the likes of it have rarely, if ever, occurred in world history.
Mundell was the prime mover of lofting the Dow from 814 to 33,000, of a near doubling the wealth of average Americans, of bringing something like a billion people out of poverty into affluence. We still have much to learn from him. Higher heights beckon.
The eulogies for Mundell exalt him. Rightly so. Yet by focusing on his accolades they obscure his world-transformational outcomes.
Brian Domitrovic, at Forbes, called Mundell the “Zeus” of economics: “Mundell was an impossible amalgam of theoretical genius, algebraic and especially geometrical lucidity, cultural sensibility, and unmeasurable practical influence.” (Memo to Brian: it’s largely unmeasured but measurable.)
The Wall Street Journal: “The pantheon of great 20th-century economists includes John Maynard Keynes, Friedrich Hayek, Joseph Schumpeter and Milton Friedman, among a few others. Less well known but as tall as any of those giants was Robert Mundell….”
Dr. Arthur Laffer said, “Bob Mundell changed the world all for the better. I was blessed to spend lots of quality time with him as his sidekick trying to hold back the forces of evil and push truth to the fore. I loved him dearly and believe him to be the greatest economist of at least the past century.”
In this era of hyperbole à outrance you could be forgiven for mistaking this praise as an exaggeration. You would be wrong. Mundell was the prime mover, in practice, in bulldozing away the inane neo-Keynesian economic dogma making America miserable.
Future vice president, then president, George H. W. Bush indicted Mundell’s thought as “voodoo economics.” The GOP Establishment considered balancing the budget through spending restraint and economic growth heresy. The Democratic Establishment indicted it as “trickle down” (a wisecrack coined by Will Rogers to indict Herbert Hoover, the consummate anti-supply-sider), considering prosperity from free enterprise fostered by low tax rates and stable money as blasphemy.
Economic heresy and blasphemy, as it happens, saved the world.
America and the world were immiserated in an era of stagflation, the “misery index.” Mundell and Laffer hit the scene, working through their polemicist-in-chief, Jude Wanniski and their policy quarterback, Rep. Jack Kemp, prescribing, then crusading on, the inversion of the toxic Neo-Keynesian policy mix of high tax rates and easy money. And then?
About a decade ago, in the Washington Examiner I wrote a Tribute to the $100 trillion man about Mundell.
It was an honor to meet the man who (along with Ronald Reagan, Jack Kemp and a few others) created the policies that created $100- trillion-plus of world wealth. Yes, that is ‘trillion,’ with a t.
“When Reagan campaigned against Carter, the Dow Jones Industrial Average was well below 900. Applying what Jude Wanniski … called ‘the Mundell-Laffer Hypothesis,’ America rode the wave to a Dow now still well over 10,000…
“According to the World Bank, the world’s GDP in 1980 was around $11 trillion. Today it is around $60 trillion. The added $50 trillion-per-year capitalizes to over $100 trillion in new wealth… even when adjusted for inflation.”
It gets better. In November 1979 when Reagan announced his presidential candidacy the Dow was at 814. In the past decade the Dow has soared from 10,000 to 33,000+. World GDP has grown from $60T to $88T. While not adjusted for inflation or population growth, one takes the point.
Real per capita GDP (how much we each, on average, make a year) in chained 2012 dollars has risen, since 1979, to over $56,000 from around $30,000… almost doubling the affluence of working families. Factoring in uncounted technological advances we’ve far more than doubled personal wealth. Mundell was the grand architect of this universe.
China, embracing Mundell’s economic wisdom, went from Maoist poverty to Dengist “to get rich is glorious.” Supply-side policies there created generations of blazing economic growth rates while America mostly coasted.
China’s transformation is easy to overlook. So pay attention to what supply side icon David Goldman, author of You will be Assimilated: China’s Plan to Sino-form the World, observed recently:
“…I calculate that per capita household consumption in China has risen nine times, 900% in the past 30 years. That’s one generation. When you talk to Chinese, they’ll tell you, ‘Well, I grew up with a dirt floor and an outhouse and an outside pump. Now, my kids have indoor plumbing and central heating and a car.’ It’s a completely different kind of world…”
Goldman, the grandmaster of the Asian wing of supply-side, closes his recent Asia Times obituary for Mundell:
“Bob knew before almost anyone else that the economic future lay in China. He… spent years lecturing and teaching in China, and had enormous impact on Chinese thinking.”
So … was Mundell, a Canadian, culpable in turning China into a burgeoning geopolitical Godzilla? I hope so. As I wrote at Forbes a few years ago in How Great Presidents Like Washington, Lincoln, FDR, And Reagan Dominated Political Chaos:
“Reagan’s experience playing onscreen roles of heroic figures, whether cowboy or WWII soldier, gave him a deep and invaluable skill set. He transformed into America’s dramaturge. America, and its allies, were invested in his epic narrative …. There is an interesting, although almost unnoticed, coda to that, however. As a ranking, and wise, Soviet official, Georgi Arbatov, declared toward the end of the Cold War: ‘Our major secret weapon is to deprive you of an enemy.’ By dissolving itself, the USSR also dissolved the narrative by which America had defined itself for two generations. We have been without a narrative since.”
Having a worthy adversary is a blessing. It makes life bracing and calls out our best. America has prevailed over every rival, like the British empire, and enemy, like the National Socialists, a/k/a Nazis, and the International Socialists, a/k/a the Soviets. The latter two were far more virulent than the merely repugnant authoritarian People’s Republic. Never doubt that “truth, justice, and the American way,” Superman’s old slogan, is a winner.
I give credit, not blame, to Mundell as a geopolitical as well as economic benefactor. Will America rise to the occasion? Of course. Just, expect a cliffhanger. As spuriously attributed to Churchill, “You can depend upon the Americans to do the right thing. But only after they have exhausted every other possibility.”
Some of Mundell’s cabal preceded Mundell on the stairway to Heaven. There, he reunites with Jack Kemp, Bob Bartley, Jude Wanniski, Robert Novak, Jeff Bell. Other OG supply-siders live on, off on new quests: Arthur Laffer, Lewis E. Lehrman, George Gilder, Steve Forbes, Larry Kudlow, Dave Hoppe, John Mueller, Alan Reynolds, Steve Entin, Howard Segermark, David Goldman, Paul Craig Roberts and the beloved apostate Bruce Bartlett. And me, the “little drummer boy” of the supply-side reincarnation of the Spirit of ’76.
This moment is not, however, valedictory. Mundell’s passing offers a teachable moment as the GOP drops deeper and deeper into a serious dalliance with reactionary policies. In fact, the GOP lost the thread on economic growth a generation ago.
Our thought leaders have forgotten that The Mundell-Laffer Hypothesis which served as the “constitution” for a supply-side golden age of equitable prosperity was overwhelmingly about good money—preferably currency legally defined by and convertible into gold—rather than tax rate cuts, the footnote.
Our leaders should have held tax rates low across-the-board and pivoted to great money, preferably gold defined and convertible certificates, to promote higher heights of equitable prosperity. Instead, the Donks subsided back into stale NeoKeynesianism and forgetful Pachyderms built a cargo cult based on business tax cuts having forgotten that the essence of supply-side was good monetary policy and across-the-board tax rate cuts.
That grotesque caricature of supply-side economics failed, of course, to bring about sustained equitable prosperity, tarnishing the brand. The GOP has failed to deliver the goods since the turn of the millennium. Now ambitious Republican politicians are reverting to the mean, pre-Ghost-of-Christmas-Yet-To-Come Scroogonomics: tax cuts for the rich.
So, is the Mundellian Golden Age sputtering out? Perhaps not.
The American economy, with rational exuberance bursting out of the pandemic-induced contraction, is now growing 6.4% a year. That’s the best rate since supply-side’s heyday in 1984. Many will claim credit. Let’s give credit where due: to the policy formula first devised by Robert Mundell.
The stable money prescribed by Mundell was put into place by Volcker and lives on. Volcker ratcheted inflation from double digits in 1979, 1980 and 1981, to the 1%-3% range where it has largely remained. Let us never forget the insidious power of inflation. As Keynes, citing Lenin, wrote in The Economic Consequences of the Peace:
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Reagan, building on Mundell’s blueprint, restored capitalism’s legitimacy as well as America’s equitable prosperity. Reagan’s victory, however, was incomplete. In his farewell address Reagan said: “I’ve been asked if I have any regrets. Well, I do. The deficit is one.”
I was part of Reagan Gold Commissioner Lewis E. Lehrman’s tiny deficit-hawk wing of the supply-side. I was and remain an anti-profligacy hawk, appalled by wasteful federal spending under both Republican and Democratic presidents. And, like Ishmael after the sinking of the Pequod, I only am escaped alone to tell thee.
Bill Clinton’s robust Mundellian economic growth and restrained federal spending produced massive and sustained federal surpluses. That’s the ticket.
Now here’s the Big Reveal. Had Mundellian growth rates continued over the past 20 years US GDP now would be around $30T rather than $20T. That 50% larger tax base would yield over 50% more in federal tax revenues without raising rates. That would have more than eradicated the yawning persistent federal deficit.
A federal budget surplus is just a side effect of prosperity. Most of the benefit goes to us as higher wages, savings and investments compounding by the trillions of dollars. Nothing trickle-down about that.
Perhaps this spike to Reagan-era growth will awaken a political leader to the glories of equitable prosperity and the policies that generate it. That’s not apparent on the horizon. That said, all it would take is one worthy successor to Rep. Jack Kemp to pick up Robert Mundell’s neglected blueprint … and up, up and away we will go.
Mundell left us the architectural plans for a renewed golden age in his 1999 Nobel Prize speech, A Reconsideration of the Twentieth Century. Broad hint: the first section is entitled Mismanagement of the Gold Standard.
Thereby we can enter the higher heights of prosperity. A new golden age beckons. Appropriate you went out with a boom, Bob Mundell. Rest in peace.
Our nation turns its lonely eyes to you.