Newt Gingrich Gets It Half Right

A couple of people have sent me information on Speaker Newt Gingrich's Solutions Day. Because of my teaching schedule I was unable to participate, but I went to his site to get an overview. I clipped the following partial excerpt from the Solutions Day site:

No Economic Growth = No Recovery = No End to the Financial Decay The most important thing to remember is that without economic growth there will be no end to the downward spiral.Without economic growth there will be another bailout next year and another bailout the year after. The number one goal should be to restore economic growth.

I agree with Speaker Gingrich's belief in reducing taxes and in reducing government. However, his growth mantra is misleading.

Growth as measured by economists is a vacuous concept. If there is additional unproductive economic activity, then there is growth. For instance, if banks continue to make subprime mortgage loans, their activities count as "economic growth". Speaker Gingrich fails to differentiate between fake growth and real growth, and so invites a repeat of the current banking problems despite his protestations to the contrary. The nation allowed the banking system to pay itself exhorbitantly and to bankrupt itself because it handed them large sums of money at public expense.

The way to distinguish between real and fake growth is by limiting access to credit. By expanding the money supply Speaker Gingrich would facilitate growth. Supply side economics, i.e., Reaganomics, is a repackaged Keynesian economics that has led to the current bank failures. Banks fail because they lend too much. Increasing the monetary base enables them to lend too much. The only way that fake growth can be limited is by restricting monetary growth. That would cause pain to Wall Street and commercial banking.

You cannot have it both ways. Flooding the nation with more liquidity will simply facilitate obese financial and hedge managers' ever greater obesity. Limiting monetary growth will cause interest rates to rise, some unemployment and prices to stabilize. In turn, authentic entrepreneurs in the Silicon Valley and elsewhere will find ways to make their inventions work because their returns will exceed the interest rate. Wall Street will find it more difficult to sell stocks because only the real firms will grow. Fake growth will be ended.

By ending fake growth, and Speaker Gingrich fails to differentiate between fake growth and real growth, waste in the system will be reduced. Thus, the 35-year-long decline in the real hourly wage that has occurred during the era of supply side economics or Reaganomics will be ended.

In order to make real growth a reality, a gold standard is needed. Continuation of the supply side principles that Speaker Gingrich oversaw in the 1990s will lead to further decline.

Newt Gingrich and Solutions Day

I received the following e-mail from Newt Gingrich, which presumably went out to the RNC mailing list. Speaker Gingrich wants to have a national "talk about the fundamentals" and "solutions for getting the economy back on track". On Solutions Day he wants to get Washington and Wall Street to be like America instead of America's becoming more like Wall Street.

My e-mail response to Speaker Gingrich was this:

Dear Newt--thanks for the message and I'll be glad to post it, but I do have one question for you. Why didn't Congress move to abolish the Department of Education when you were Speaker? Thanks and best wishes, Mitchell Langbert.



This is Speaker Gingrich's e-mail:

Dear Mitchell,

The last few weeks have been painful economically.

Washington politicians in both parties are panicked and as a result they are making things worse. Now we have a Treasury Department which is capriciously deciding which firm to help and which firm to let die.

In the process, it is piling up huge liabilities for taxpayers by "saving" Fannie Mae and Freddie Mac and then allowing Lehman Brothers to go bankrupt before "saving" AIG at a potential risk of another $85 billion.

It's time to have a serious talk about the fundamentals--not politicians taking your money to prop up failed businesses.

On Saturday, September 27 American Solutions will hold its second annual Solutions Day to propose bold, dramatic change for the economy, energy, education, and health. You can participate in this important solutions-oriented dialogue for free by clicking here and hosting or attending an event in your community. Solutions Day will be broadcast live on DISH Network #219, DirecTV #577, and www.SolutionsDay2008.com.

Despite the mistakes of the last few weeks and the sense of panic on Wall Street and in Washington the basics of America are still healthy.

We now face a fundamental choice of returning to the fundamentally healthy American economy and American work ethic and making Washington and Wall Street more like America OR passing laws which reshape America to be more like the current sickness in Washington and Wall Street.

Watch this short video about America's economic challenges and then register to join me on Solutions Day to develop solutions to get America back on the right track.

Your friend,

Newt