Lawrence H. White responds to critics.  In my Cato email I received:

"A gold standard does not guarantee perfect steadiness in the growth of the money supply, but historical comparison shows that it has provided more moderate and steadier money growth in practice than the present-day alternative, politically empowering a central banking committee to determine growth in the stock of fiat money," White concludes. "From the perspective of limiting money growth appropriately, the gold standard is far from a crazy idea.”

"Far from a crazy idea," OK.  But would you push the button for it?  I say no.  There is little doubt that over the broad sweep of world history, commodity standards have outperformed paper money.  But we don’t live in the broad sweep of world history, we live in 2008 and our ability to monitor and control central banks is unparalleled.  The central banks of the wealthier nations work pretty well.  My main worry with the gold standard is simply the pro-cyclicality of the money supply and for all its talk of money demand the paper doesn’t much address this concern.  For instance would you really want a contracting money supply in today’s environment?  And yes credit crunches of this kind happen in market settings too so you can’t blame it all on Alan Greenspan. 

And I am not reassured by this (admittedly true) sentence: "At the right reentry rate, dollar prices would not need to jump [from the transition]."  One five or ten percent deflation is enough to crush the economy and indeed the whole gold standard idea.  Given the socialist calculation debate, can we really know the right transition price?  Gold at $900 an ounce?  $600 an ounce?  Anybody?

Addendum: Here is White’s response; see also the exchange in the comments with White and others.

The tax credit for ethanol is an example of a cost ineffective subsidy.
The cost of reducing CO2 emissions through this subsidy exceeded $1,700
per ton of CO2 avoided in 2006 and the cost of reducing oil consumption
over $85 per barrel.

I am not shocked, but it is worse than I had thought.  Here is the full paper.  But the funny thing is, that’s not even the worse thing I read about biofuels today.  Courtesy of Daniel Akst, try this article:

…a growing body of scientific evidence suggests these gasoline
alternatives will actually boost carbon-dioxide levels and thereby
aggravate the problem of global warming. A study published in
the latest issue of Science finds that corn-based ethanol, instead of
reducing greenhouse-gas emissions by a hoped-for 20%, will nearly
double the output of CO2 and other gases that trap the sun’s heat. A
separate paper in Science concludes that the clearing of native
habitats around the world to grow more biofuel crops will lead to more
carbon emissions.

Or try this ungated version of a similar result.  Wonderful.

As you know, I’m not enthusiastic about a fiscal stimulus plan.  What we need is a stimulus plan that does not increasing the budget deficit or waste taxpayer funds but that does increase the incentive to produce output.  So what would I do?  Here’s a new idea.

The IRS knows how much income that each taxpayer reported last year.  So let’s cut everyone’s marginal tax rate based on last year’s income.  In other words, suppose that last year Joe earned $66,520 which puts him in a 25% tax bracket.  Joe’s tax schedule this year will be exactly the same as last year except for every dollar earned above $66,520 the tax rate drops to 15%.   We do this for all taxpayers so that each taxpayer has their own schedule and for each taxpayer there is a decreasing marginal tax rate.

Note that this plan increases the incentive to work and it doesn’t increase the deficit.  In fact, the Tabarrok plan increases tax revenues!  The key is a marginal tax cut with a different margin for every taxpayer based upon last year’s return.

That’s the basic idea but there are some obvious modifications that could solve various problems.  For example, the new schedule could be based on an average of say the last three years of income or the average plus some roundup for growth etc.  It’s also possible to cap the base on which the lower marginal tax rate applies, for example, we could create a lower tax rate on every dollar of income above last year’s income up to an increase of 20%.

It is true that a permanent system like this could be (partially) gamed but the system can work very well if used occasionally, say for the most serious recessions.  We would also learn a lot by applying this system and looking at the taxpayer response. 

A new Cato study, by Indur Goklany, suggests that instead of carbon taxes we should spend money on better water policy, drought prevention, anti-malarials, sea level protection, and so on.  In general we should make the world as wealthy as possible.  Here is the link, the piece is intelligent throughout and well worth reading.

Two questions suggest themselves.  First, is the choice either/or?  I don’t see arguments against a revenue-neutral carbon tax.  Second, is there really enthusiasm for the proposed measures or is the real intent to do little or nothing on carbon?  Since this is both a Goklany piece and a Cato piece, an interesting question arises: who exactly is now obliged to push for anti-malarial foreign aid?  Cato?  Goklany?  Either/or?  Both?  Or is it enough to just make the comparison once and leave it at that?

When it comes to big business, appearances it seems, matter a lot.
Companies tend to be more profitable if they have a chief executive
with a face rated by observers as being more competent, dominant and
mature.

Similarly, companies with a chief executive judged to be
a good leader, based purely on his facial appearance, also tend to be
more profitable. These associations still hold even after controlling
for the influence of age and attractiveness.

As Nicholas Rule
and Nalini Ambady, who conducted the research, point out: it isn’t at
all clear whether chief executives with a certain kind of appearance
help their company towards profit, or if instead profitable companies
choose to employ chief executives who look a certain way.

Here is more information.

In a frightening inversion of satire into reality, European candlemakers are petitioning for protection; here is Bastiat’s take on that.  This time it’s against — can you guess?  — the Chinese.

Thanks to Tim Worstall for the pointer.