So I have a thought, at least for the short run: The Fed should follow Australia, the first G-20 country to raise its target interest rate. The Aussies lifted their rate a quarter point to 3.25 percent. Right now, the U.S. Fed should lift its target rate by 25 basis points. The fed funds target is currently 15 basis points, so this move would make it 40 basis points. It would be a dollar-protection signal; a price-stability signal. At the least, it would be a beginning. Next, the Treasury should buy some dollars in the open market to back up the Fed.
And as the White House considers a second stimulus package, here's another thought: Go for growth. Reduce tax rates to provide growth incentives (something Team Obama has avoided like the plague). Cut the top corporate tax rate from 35 percent to 25 percent, and accompany that with a small-business tax cut from 35 percent to 25 percent. And leave the Bush tax cuts alone. Don't let them expire in 2011. That's cap-gains, dividends and the top personal rate.
Yes, this is a supply-side solution: Reducing tax rates will ignite growth incentives.
And by applying it, Team Obama would be borrowing from George W. Bush, Bill Clinton, Ronald Reagan and John F. Kennedy (and Calvin Coolidge and Andrew Mellon, too). Forget about Keynesian spending multipliers, which Harvard's Robert Barrow writes are less than one. Forget about class warfare. Forget about income redistribution. Go for growth.
Again, I know I'm a supply-side fossil and a relic of the past. But the Mundell-Laffer policy plan -- which has worked historically for Republicans and Democrats -- could truly save the nation and its economy at this critical juncture. Monetary restraint and the incentives of lower tax rates will solve the dollar and unemployment problems.
In our supposedly post-partisan era, why not give it a try, President Obama?