If Larry Kudlow Can Change...

Fair to say that I acquired my dove-ness on inflation from Art Laffer and Larry Kudlow. Now, I am ready to follow Larry into greater concern. I still hold my lonely beliefs in the disinflationary effects of trade, technology, and productivity. And I am still moderately comfortable with a 2.5% core CPI.

But I am not comfortable with a $1.50 Euro. While I'm willing to defend all the Fed's actions to date as protection from deflationary shocks, I'll join Mr. Kudlow in suggesting no further cuts.

Kudlow presents a strong dollar as an opportunity for John McCain. I think he is on to something here. The GOP is always called callous because the Democrats are always quicker to enact a program to help those who are hurting. A dollar restoration platform could speak to those who are struggling, without abandoning free market principles. This is the way to close the Huckabee gap, to get Sam's Club and Country Club Republicans on board:

Folks are making fun of the dollar. Our enemies around the world are pointing to the unreliable dollar as evidence of American weakness. It’s as though the administration’s neglect of the dollar is “peso-izing” or “Latin-Americanizing” the greenback.

Something must be done to reverse this trend, and McCain is in a good spot to do it. Remember, McCain was a foot soldier in the Reagan revolution. Borrowing a page from the Gipper — who always said a great nation has a strong currency — he should argue on the campaign trail for a dollar surge.

For patriotic reasons alone it is time to reverse the decline of the dollar. A strong dollar should be emblematic of a strong America and a strong defense. Sen. McCain should insist that a President McCain will order the Treasury Department to back up its stale “strong dollar is in the nation’s interest” rhetoric with real open-market actions to boost the greenback. He should say that his Treasury will take actions to strengthen the greenback by conducting dollar diplomacy with Europe, Britain, Canada, and Japan. He should also state that a President McCain will appoint a Federal Reserve chief who will stop ignoring the dollar, as Fed Head Ben Bernanke did last week before Congress.

Jack Kemp and Phil Gramm could set up some fiscal and monetary benchmarks that would allow McCain to speak to oil and food prices, and underscore his advantages in strength and patriotism.

Economics and Markets Posted by jk at March 3, 2008 1:11 PM